Securities and Exchange Commission v. Chad Anthony Lewis, No. 18-cv-61869 (S.D. Fla. filed August 13, 2018)

On August 13, 2018, the Securities and Exchange Commission filed a civil injunctive action against Chad Anthony Lewis, a Kentucky resident for unlawfully acting as an unregistered broker and selling unregistered investments in two oil and gas companies based in Texas.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Lewis illegally solicited and raised money from investors for Aegis Oil, LLC and 7S Oil & Gas, LLC. Both of these companies offered and sold unregistered securities in the form of “joint venture units” in oil and gas development projects located in Texas.

According to the SEC’s complaint, Lewis, who worked at different times both for Aegis and 7S, helped train a network of sales agents that unlawfully solicited investments for Aegis and 7S and assisted agents in closing sales calls with investors. The SEC alleges that Lewis directly solicited at least one investor, who purchased investments in both Aegis and 7S. Lewis was paid transaction-based compensation in the form of a sales commission of 2% on all investor proceeds raised through the offerings. He also received commissions ranging from 20% to 31% from the proceeds of the investments he sold to one investor. In total, Lewis received about $374,000 in commission payments from the Aegis offerings and $250,700 from the 7S offerings.

The SEC’s complaint charges Lewis with violating Sections 5(a) and 5(c) of the Securities Act of 1933, and Section 15(a)(1) of the Securities Exchange Act of 1934.

Without admitting or denying the SEC’s allegations, Lewis has consented to the entry of a judgment permanently enjoining him from future violations of the above provisions the federal securities laws, and ordering him to pay disgorgement plus prejudgment interest and a civil penalty, in amounts to be determined by the Court at a later date upon motion by the SEC.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Recently, the Securities and Exchange Commission filed a civil injunctive action against Chad Anthony Lewis, a Kentucky resident for unlawfully acting as an unregistered broker and selling unregistered investments in two oil and gas companies based in Texas.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Lewis illegally solicited and raised money from investors for Aegis Oil, LLC and 7S Oil & Gas, LLC. Both of these companies offered and sold unregistered securities in the form of “joint venture units” in oil and gas development projects located in Texas.

According to the SEC’s complaint, Lewis, who worked at different times both for Aegis and 7S, helped train a network of sales agents that unlawfully solicited investments for Aegis and 7S and assisted agents in closing sales calls with investors. The SEC alleges that Lewis directly solicited at least one investor, who purchased investments in both Aegis and 7S. Lewis was paid transaction-based compensation in the form of a sales commission of 2% on all investor proceeds raised through the offerings. He also received commissions ranging from 20% to 31% from the proceeds of the investments he sold to one investor. In total, Lewis received about $374,000 in commission payments from the Aegis offerings and $250,700 from the 7S offerings.

The SEC’s complaint charges Lewis with violating Sections 5(a) and 5(c) of the Securities Act of 1933, and Section 15(a)(1) of the Securities Exchange Act of 1934.

Without admitting or denying the SEC’s allegations, Lewis has consented to the entry of a judgment permanently enjoining him from future violations of the above provisions the federal securities laws, and ordering him to pay disgorgement plus prejudgment interest and a civil penalty, in amounts to be determined by the Court at a later date upon motion by the SEC.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Recently, the Securities and Exchange Commission filed a civil injunctive action against two sales agents for unlawfully acting as unregistered brokers and selling unregistered investments in two oil and gas companies based in Texas.

The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, alleges that Alexander Charles White and Paul Douglas Vandivier illegally solicited and raised money from investors for Aegis Oil, LLC and 7S Oil & Gas, LLC. Both of these companies offered and sold unregistered securities in the form of “joint venture units” in oil and gas development projects located in Texas.

According to the SEC’s complaint, White managed a marketing team that solicited investors for Aegis and 7S. White and his sales team made cold calls to potential investors using investor contact lists. In return, White was paid transaction-based compensation in the form of a 35% sales commission for each investor his team brought on in the Aegis offering and a 28% to 35% commission for each investor in the 7S offering. In total, White received commission payments of about $6.84 million from the Aegis offerings and $229,000 from the 7S offerings. White paid out a portion of those proceeds to his sales team.

The SEC’s complaint also alleges that Vandivier managed a sales team that solicited investors for the offerings through his now defunct company, Aegis Marketing, Inc. Vandivier and his marketing team located investors through investor contact lists. Vandivier received commission totaling about $870,000 from the Aegis offerings, a portion of which he paid out to his sales team, and $23,000 from the 7S offerings.

The SEC’s complaint charges White and Vandivier with violating Sections 5(a) and 5(c) of the Securities Act of 1933, and Section 15(a)(1) of the Securities Exchange Act of 1934. The SEC is seeking permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against White and Vandivier.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Arcturus Corporation, et al., Civil Action No. 3:13-cv-04861-K (N.D. Tex.)

Promoters of Fraudulent Oil and Gas Investments Found Liable On All Claims

The Securities and Exchange Commission recently announced that a federal court in Texas found promoters of fraudulent oil and gas investments liable all counts. The Honorable Ed Kinkeade of the United States District Judge for the Northern District of Texas granted summary judgment on March 22 for the SEC on all claims against promoters Leon Ali Parvizian and his two Dallas-based companies, Arcturus Corporation and Aschere Energy, LLC. The court also found for the SEC on its claims against Alfredo Gonzalez and AMG Energy, LLC, also of Dallas, and Florida-based Robert Balunas and R. Thomas & Co. LLC, who sold the investments.

The SEC’s charges filed in December 2013, alleged that the defendants raised nearly $22 million from at least 380 investors nationwide through illegal securities sales. In its 50-page summary judgment order, the court found that Parvizian and his companies committed securities fraud by offering and selling interests in a drilling project in which they had no rights to participate or share profits. The court also found that all defendants had illegally offered and sold unregistered securities and that Parvizian, Gonzalez, AMG Energy, Balunas, and R. Thomas & Co. acted as unregistered broker-dealers.

The court rejected defense arguments that the investments were exempt from the federal securities laws because they were structured as “joint ventures.” The court instead found that the investors had little real power and were inexperienced in the oil and gas industry, leaving them dependent on Parvizian and his companies to control the ventures. This dependency made the joint venture interests “investment contracts,” which are subject to securities laws.

The court found Parvizian and his companies liable for securities fraud under Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934, and Rule 10b-5 thereunder, concluding that they “acted with severe recklessness” in failing to disclose material information about the investments to investors. The court also found that all defendants violated the registration requirement of Sections 5(a) and 5(c) of the Securities Act, and that Parvizian, Gonzalez, AMG Energy, Balunas, and R. Thomas & Co. violated Section 15(a) of the Exchange Act by acting as unregistered broker-dealers.

The court directed the SEC to submit briefs by April 22, 2016, on the proper remedies to impose on the defendants. The SEC’s complaint seeks permanent injunctions, financial penalties, and disgorgement with prejudgment interest of the nearly $22 million in ill-gotten gains from the illegal offerings.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Aquaphex Total Water Resources and Gregory Jones, Civil Action No. 4:15-cv-00438-A, (NDTX, filed June 10, 2015)

Texas Lawyer Admits to Conducting Fraudulent Offering

On June 10, 2015, the Securities and Exchange Commission (“Commission”) filed a settled civil action against attorney Gregory G. Jones and Aquaphex Total Water Solutions in the United States District Court for the Northern District of Texas, Fort Worth Division. The Commission alleges that Jones and Aquaphex defrauded investors in two separate oil-and-gas investment schemes. In a separately filed Consent, Jones and Aquaphex admitted the underlying facts and consented to the entry of a final judgment, permanently enjoining them from violating the anti-fraud and registration provisions of the federal securities laws.

Jones and Aquaphex admitted that Aquaphex, through its CEO, Jones, raised approximately $645,000 by selling revenue-sharing agreements and other securities issued by Aquaphex. The company purported to recycle fracking water through a filtration process. Among other things, Jones and Aquaphex guaranteed that investors would double their investment even if the planned water-filtration plants underperformed. They also made baseless claims that investors would make returns of more than 115% per year, and that Aquaphex was expected to sell for $21 billion within five years. Separately, in 2009, Jones represented a small group of investors that invested approximately $6 million in an entity called Edwards Exploration. Jones failed to disclose to the investors that Edwards Exploration paid Jones approximately $480,000 from the principal amount invested.

Jones and Aquaphex have agreed to settlements that are subject to court approval. Both defendants admitted the facts underlying the Commission’s claims and consented to the entry of a final judgment permanently enjoining them from violating the anti-fraud provisions, specifically Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933 (“Securities Act”), and from violating the registration provisions, specifically Sections 5(a) and (c) of the Securities Act. The Commission’s claims for disgorgement, prejudgment interest, and civil penalties are the subject of ongoing litigation.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. North Dakota Developments, LLC, Robert L. Gavin, and Daniel J. Hogan, et. al., Civil Action No. 4:15-cv-00053-DLH-CSM (D.N.D.)

SEC Halts Bakken Oil and Gas-Related Investment Scheme

The Securities and Exchange Commission recently announced charges and an emergency asset freeze against North Dakota Developments, LLC (“NDD”) and its two principals for allegedly defrauding investors in a scheme to purportedly build and operate short-term housing facilities or “man camps” for workers in the Bakken oil and gas formation of North Dakota and Montana.

The SEC alleges that NDD and its owners Robert L. Gavin and Daniel J. Hogan have raised over $62 million from hundreds of investors in various states in the U.S. and foreign countries for interests in one of four “man camp” projects. According to the SEC’s complaint filed recently in U.S. District Court for the District of North Dakota, investors bought “units” in NDD’s projects motivated by the Defendants’ promises of exceptionally high annual returns, up to 42%, and that NDD would jointly manage all of the units as a fully-developed short-term housing facility with amenities typically found in a hotel. The SEC also alleges that the Defendants offered investors the option of receiving a “guaranteed” annual return of up to 25% of the purchase price of their unit without regard to actual rental income. As further inducement to invest, Defendants also promised investors that the various projects would be operational in a very short time frame, often within months. In reality, the SEC alleges, despite the substantial amount of funds raised by the Defendants since May 2012, at the present time, none of the projects are fully operational and one of the projects offered does not even have governmental approval for construction to begin.

According to the SEC’s complaint, Defendants directly or indirectly made material misrepresentations and omissions regarding the use of investor funds, the payment of commissions, and the return on the investment. Among other things, the SEC alleges that NDD’s first project was delayed and unprofitable. The SEC alleges that, despite the lack of profits, the Defendants made Ponzi-style payments to certain early investors by paying their “guaranteed” returns using funds provided by later investors. The SEC also alleges that instead of developing the projects as promised, the Defendants have misappropriated over $25 million of investor funds to pay undisclosed commissions to sales agents, make payments to Gavin and Hogan, make investments in unrelated Bakken area projects for Gavin’s and Hogan’s personal benefit, and to make the Ponzi-like payments.

On May 5, 2015, the Honorable Daniel L. Hovland for the U.S. District Court for the District of North Dakota granted the SEC’s request for a temporary restraining order and asset freeze against NDD, Gavin, and Hogan. A court hearing has been scheduled for May 18, 2015, on the SEC’s motion for a preliminary injunction.

The Commission’s complaint alleges that NDD, Gavin, and Hogan violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against each of them.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Sethi Petroleum, LLC and Sameer Sethi, Civil Action No. 4:15-CV-338 (E.D. Tex.)

SEC Halts Fraudulent Oil and Gas Scheme and Obtains Asset Freeze and Appointment of a Receiver Over Sameer Sethi and Sethi Petroleum, LLC

On May 14, 2015, the Securities and Exchange Commission filed an emergency civil action against Sethi Petroleum, LLC and its president, Sameer Praveen Sethi, for offering fraudulent oil and gas investments. At the Commission’s request, the U.S. District Court for the Eastern District of Texas has entered a temporary restraining order halting the offering, as well as orders appointing a receiver over, and freezing, the defendants’ assets.

The Commission’s complaint alleges that, since at least January 2014, defendants have raised approximately $4 million through the fraudulent offer and sale of securities in the Sethi-North Dakota Drilling Fund-LVIII Joint Venture (“NDDF”). According to the complaint, defendants’ offering materials represented that 70% of investor funds would be used to acquire working interests in and drill and complete 20 oil and gas wells in the Bakken Shale formation in North Dakota. But the Commission alleges that defendants spent less than 25% for these purposes. Instead, defendants spent more than 75% of investor funds on undisclosed and unapproved expenditures such as diverting $1.6 million to Sameer Sethi, his family, and Sethi Petroleum’s parent company and over $1 million to sales employees. Less than $1 million of the funds raised went to NDDF’s actual oil and gas operations.

The Commission also contends that defendants made numerous other misrepresentations and omissions to NDDF investors. For instance, defendants falsely claimed to have “partnered directly with” large public oil and gas companies like ConocoPhillips and Continental Resources, Inc. to develop oil and gas properties, and Sethi Petroleum’s website featured corporate logos for other well-known companies like Exxon Mobil and Hess Corporation, falsely suggesting that defendants had relationships with these companies as well. The Commission further alleges that defendants misled investors about the number of wells in which NDDF actually held interests; the operating status of those wells; and the returns investors could expect from those properties. Defendants also failed adequately to disclose prior enforcement actions taken against them and their affiliates by state securities regulators, and Sameer Sethi’s prior criminal conviction and incarceration.

The complaint alleges that both defendants violated Section 17(a) of the Securities Act of 1933 (“Securities Act”), and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and that Sameer Sethi also violated Exchange Act Section 20(b) and is liable under Exchange Act Section 20(a) as a control person for Sethi Petroleum’s violations. The Commission seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains, prejudgment interest, and civil penalties against both defendants.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. GC Resources, LLC and Brian J. Polito, Civil Action No. 3:15-CV-0104-B, (NDTX, filed April 6, 2015)

SEC Charges Oil and Gas Company and Founder with Fraud

The Securities and Exchange Commission (“Commission”) filed suit against GC Resources, LLC and Brian J. Polito in the United States District Court for the Northern District of Texas, Dallas Division, for defrauding investors through the sale of interests in oil and gas wells the company never owned.

The Commission alleges that GC Resources, through its owner and sole operator, Brian J. Polito, raised approximately $11.8 million by creating a fake agreement with a well-known oil company that purported to give GC Resources the right to sell interests in certain oil wells. Polito forged signatures on the false contract and used it to lure investors to purchase interests in the wells GC Resources claimed to own. Polito then used investor money for Ponzi-type payments back to investors and to purchase luxury cars, designer watches, and exotic vacations for himself.

The Commission’s complaint charges both defendants with securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint also alleges that Polito violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer. The Commission’s complaint seeks permanent injunctions, civil penalties, disgorgement plus prejudgment interest, and other relief against both of the defendants.

In a parallel action, the U.S. Attorney’s Office for the Northern District of Texas, Dallas Division also filed criminal charges against Polito.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

What could possibly go wrong with an oil and as private offering?

The oil and gas industry is often in the news. Because of this, some people have used the appeal of “striking it rich” with a gushing well as a basis for fraudulent schemes. The SEC and the states have brought a number of cases involving “great opportunities” that turned out to be scams. Investors lost some or all of their investments. Many scams shared the same themes.

Investing to support drilling and completion operations. The SEC has investigated many oil and gas offerings that claimed they were about to strike oil or gas and they just needed some investment to pay for drilling and completion. The promoter often doesn’t tell you, however, that he owns the drilling company or plans to hire a driller at far less than what he’s told you the drilling costs will be while pocketing the difference. The promoter makes money from you even if the well comes up dry.

Undisclosed use of proceeds. In several cases, the SEC alleged misrepresentations about what the invested funds were going to be used for. Misrepresentations and omissions about uses of investors’ monies included (i) paying big sales fees to brokers, (ii) the nature and size of compensation to the promoter and employees of the venture, (iii) operating and other expenses for unrelated businesses and (iv) using the money to pay for personal items.

Overinflated or misrepresented prospects and claims. One common thread among all fraudulent schemes, including those related to oil and gas, are claims that they are about to strike it rich, or that it is likely or even guaranteed that the returns will be too good to pass up. When you hear this sales pitch, you should be very skeptical about high returns with little risk that are just around the corner. Higher returns typically mean higher risks of loss.

Common red flags:

• Sales pitches referring to recent news events like high oil or gas prices.

• “Can’t miss” wells and “guaranteed” returns, including claims that major oil and gas companies are drilling nearby.

• Abnormally high rates of return.

• Unsolicited materials.

• Sales tactics that pressure you to decide, like “limited” or “once-in-a-lifetime” opportunity.

• Sales pitches touting new technology, especially if it relates to getting higher production out of low-producing wells (sometimes called “stripper” wells).

• Salesperson claims to be an investor.

• Being asked to sign documents acknowledging that the securities laws do not apply to the investment.

What should You ask?

Analyzing an oil and gas investment may involve highly technical matters, such as geological findings and new drilling technologies, making it difficult for many individual investors to fully understand. Also, the only information that you have may be coming from the promoter. You may receive a private placement memorandum detailing the venture’s management, its drilling prospects and plans, the terms of the venture and investment, and basic financial statements for the usually new venture. As a start, if you aren’t given anything in writing, then you should be very skeptical.

You should ask questions until you are satisfied with the answers. Don’t just accept promises of low risk for high returns. Remember, it is your money and you shouldn’t let anyone pressure you into purchasing an investment that you don’t understand. Here are some things to ask about and consider if you’re thinking about investing in an oil and gas venture:

1. Use of proceeds. What is my money going to be used for? Can you estimate how much of the money you raise will be used for each of your needs, such as drilling operations, administrative overhead and broker sales fees? If sales fees will be paid, how are those fees calculated? It is reasonable to expect the company raising the money to have plans for it, particularly if the persons involved have prior industry experience. Otherwise, why are they raising that specific offering amount? If broker sales fees are being paid, you should know that registered brokers are subject to rules and regulations including the amount of sales fees they can charge.
2. Related parties. Are you hiring another company to drill or do any other work? Is there any relationship between these companies and the promoters and principals in the venture? How much is the promoter going to make even if we drill a dry hole? Remember that the persons involved in the offering can do quite well for themselves when the investment funds are used, for example, to pay themselves or to hire a company they own to do the drilling. They get paid even if the well is dry. Remember too that a promoter who makes his money on the front-end of a deal-that is, from selling the investment to you and benefiting from the proceeds-rather than on the fortunes of the venture-namely the actual production from the well-does not have the same interest as investors like you whose only hope to gain is from a successful well. You should be wary of any oil and gas investment where the promoter’s interests are not aligned with yours.
3. Prior experience. What is your track record in the oil and gas industry? Have you had experience with this particular well location? In some cases brought by the SEC involving oil and gas offerings, the promoters have claimed extensive prior experience and success in the industry. These claims were made to stop investors like you from asking questions. Instead, you should try to independently verify any claims. Ask for references.
4. Well history. Is there a prior history of drilling where you are drilling? If someone drilled there before, how much did they get out and what makes you think you can get any more out? If the area proved dry before or has not been drilled, why do you think there’s something there? A lot of new oil and gas is found in the United States today because of improved ways of drilling, such as hydraulic fracturing (i.e., fracking) and horizontal drilling. These improvements often require specialized expertise and may cost a lot.
5. Third-party report. Did you get a third-party engineering report for the site? Can I see the report? Some operators may employ the expertise of independent third-party engineers and geologists to decide whether it makes sense to drill in an area. If the promoter says there is a report, but doesn’t allow you to see it, you may want to consider it a red flag. You should also consider whether the engineer or geologist is truly independent. Promoters sometimes use reports prepared by the same engineers that sold them the project or by engineers they employ or use repeatedly.
6. Reserves. If the offering materials discuss reserves, what types of reserves are being estimated? Who determined these reserve estimates? Were they audited or reviewed by an independent third party? Can you review the audit? The use of terms such as “reserves” makes it sound like a sure thing. However, reserves in the oil and gas industry are not so certain and can vary a lot. Reserves can be “proved,” “probable” or “possible.” Proved reserves are relatively certain. Probable and possible reserves can mean, in short, a 50% to 10% chance of extracting the estimated amount. Though not required, some oil and gas ventures do have their reserve estimates audited.

Keep in mind that if the investment opportunity is an outright fraud, the written materials may look legitimate and every question you have about the opportunity may be answered to your satisfaction, but that doesn’t make any of it true. It is important to conduct your own independent research. One good way to do that may be to engage an investment professional specializing in oil and gas.

Please keep in mind that the above is being provided for educational purposes only. It is not designed to be complete in all material respects. If after reading this post you have any questions, you should contact a qualified professional.

Oil and Gas Investment Programs:

Most oil and gas investment opportunities, while involving varying degrees of risks to the investor, are legitimate in their marketing and responsible in their operations. However, as in many other investment opportunities, it is not unusual for unscrupulous promoters to attempt to take advantage of investors by engaging in fraudulent practices.

Types of Oil and Gas Investment Programs:

Oil and gas investments take many forms, including limited partnership interests, ownership of fractional undivided interests in leases, and general partnerships. Tax consequences and investor liability vary according to the type of program. True general partnerships in which investors actively participate in the operations of the venture are not securities. A general partner, however, is personally liable for partnership debts.

In a drilling limited partnership, an oil or gas company sells partnership units to investors and uses the money it raises to lease property and drill wells. In return for managing the project, the sponsor company usually takes an upfront fee that averages about 15-16% of one’s investment (commonly referred to as tangible and intangible drilling costs) and also shares in a percentage of any revenue generated. In return, the promoter offers the investor the prospect of a substantial first year tax write-off and quarterly cash distributions from the sale of any oil and gas the partnership finds until the wells run dry.

Drilling partnerships have always been a gamble, but recently, they have proven somewhat riskier than usual. This type of investment is very speculative, is a highly illiquid investment and can have a long holding period.

Other types of oil and gas investments vehicles include:

• Working & Producing Interests

• Combination of Working Interests and Drilling

• Rework Programs, which may be combined with other programs

• Royalty Programs

• Notes or Other structures whose underlying assets are oil & gas

Working Interest programs with producing wells are chosen by investors who desire cash flow immediately. Obviously, the tax benefits from the drilling are not present, but the immediate cash flows can be and the depletion allowance is.

Rework Offerings are sometimes found as a program by themselves or in combination with working interests or drilling. Reworking the wells usually means cleaning, flushing or repairing an existing well to bring better functionality and production, and hence more income.

Royalty programs used to be more common, but the prices to acquire them and to make them work for investor cash flow expectations has become more difficult. There are few pure royalty programs these days.

With each of the above referenced type of offerings, there are numerous risks associated with each. Consequently, it is important that the potential investor have someone with the appropriate degree on knowledge and experience review the investment so that it can be properly explained to the investor and the investor will be in a position to make an intelligent decision.

It always makes sense for the investor to verify as much of the information as the investor or his or hers investment advisor can. By way of example, we recently handled a case where the promotor of the venture actually took the investors to look at “their well” that was going to be reworked. Unfortunately, the well that the investors were shown was not even owned by the promotor. A fact that could have been easily verified. Of course, the promotor took the investor’s money and the investor had to sue to get it back.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

SEC Charges Principals of a Texas Oil and Gas Company with Conducting a Fraudulent Offering of Preferred Stock and Limited Partnership Interests, and Charges Seller with Acting as an Unregistered Broker

Securities and Exchange Commission v. Paul R. Downey, et al., Civil Action No. 1:14-CV-00185-C (N.D. Tex. Abilene Division)

Recently, the Securities and Exchange Commission charged two principals of Quest Energy Management Group, Inc. (Quest), Paul Downey of Naples, Florida and Jeffry Downey of Abilene, Texas, with conducting a fraudulent offering of preferred stock and limited partnership interests. The SEC also charged John Leonard, a salesman residing in Naples and Chicago, with acting as an unregistered broker in offering and selling the investment.

The SEC alleges that between January 2010 and May 2011, the father-son duo of Paul and Jeffry Downey used Quest, an Albany, Texas-based oil and gas company, to fraudulently offer Quest preferred stock and limited partnership units in an entity called Permian Advanced Oil Recovery Investment Fund I, LP (PAOR). Investors were told that PAOR would acquire working interests in oil and gas leases from Quest and receive revenue from those leases. With assistance from unregistered salesman John Leonard, the Downeys raised $4.8 million from approximately 17 investors. The PAOR offering was fraudulent on account of blatantly deceptive misstatements about Quest and PAOR. More particularly, the Downeys made false statements in the private placement memorandum about the financial viability of Quest; the purchase debt and liens associated with certain leases in which PAOR was acquiring an interest; the current and projected petroleum production from the leases; the use of investor funds raised in the offering; independent audits of PAOR; and foreseeable litigation against Quest and the Downeys.

On May 24, 2013, the U. S. District Court for the Middle District of Florida, Tampa Division, appointed Burton Wiand, a Tampa attorney, as receiver over Quest, based on Quest’s receipt of funds from a Ponzi scheme conducted by Arthur Nadel and others. In re Arthur Nadel, et al., Lit. Rel. No. 20858 (January 21, 2009). The receivership is ongoing.

The SEC’s complaint against the Downeys and Leonard alleges that the Downeys violated Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder, and that Leonard violated Section 15(a) of the Exchange Act. The SEC’s complaint seeks from the Downeys and Leonard disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and permanent injunctive relief, and additionally against the Downeys, officer and director bars.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Boca Raton Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Guardian Oil & Gas, Inc., Guardian Oil and Natural Gas, Inc., and Rick D. Mullins, Civil Action No. 3:14-cv-01533-L (N.D. Tx.)

SEC Charges Texas Resident and His Companies for Selling Fraudulent Oil and Gas Investments

On April 25, 2014, the Securities and Exchange Commission (“Commission”) filed civil securities fraud charges against Guardian Oil & Gas, Inc. (“Guardian”), Guardian Oil & Natural Gas, Inc. (“GONG”) and their principal, Rick D. Mullins. The charges stem from an alleged oil and gas offering fraud.

The Commission’s complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that between August 2010 and June 2013, Mullins, Guardian, and GONG raised approximately $6.5 million through the fraudulent offer and sale of securities to investors in the form of limited partnership interests in oil and gas programs.

According to the complaint, Mullins and Guardian failed to disclose to investors Guardian’s deteriorating financial condition, including significant amounts owed on pre-existing bank loans. The Commission further alleges that defendants falsely represented to investors that their contributions would be used solely for the specific drilling project in which they had invested but instead, under Mullins’s direction, Guardian and GONG redirected investor funds for other unrelated purposes. The complaint also alleges that defendants falsely represented to investors that they would directly receive revenue from the sale of any oil and gas production from the project in which they were invested when, in truth, operators were deducting from production revenue expenses due on other unrelated projects, a process known as “net checking.” Moreover, according to the Complaint, Mullins made direct misrepresentations to investors. When, after collecting money from investors for one project and spending that money on unrelated expenses, Guardian was unable to obtain an interest in the oil and gas drilling project that it had purported to sell to investors, Mullins further lied to investors, telling them, among other things, that the well was unproductive and that Defendants had been approached by a possible purchaser of the partnership’s interest. The Commission alleges that Defendants never disclosed that the investors’ funds had been spent elsewhere and that Defendants had been unable to actually obtain an interest in the drilling project they sold.

The complaint alleges that Mullins, Guardian, and GONG violated Section 17(a) of the Securities Act of 1933 (Securities Act), and Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Rule 10b-5 thereunder. The complaint seeks permanent injunctions and disgorgement of ill-gotten gains plus prejudgment interest against all Defendants, and civil penalties against Mullins.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Jason A Halek, Joshua D. Spivey, Patrick J. Booths and Steven J. Little, Civil Action No. 3:14-cv-01106-D (NDTX) (March 28, 2014)

SEC Charges Four Texas Residents for Selling Fradulent Oil and Gas Investments

Recently, the Securities and Exchange Commission filed suit in United States District Court in Dallas, Texas, alleging that from September 2009 to June 2010, Jason A. Halek of Southlake, Texas and Patrick J. Booths of Fort Worth fraudulently conducted unregistered securities offerings of working interests in oil and gas projects that were owned and operated by Halek’s company, Halek Energy, LLC. These projects were offered to investors by Joshua D. Spivey of Morristown, Tennessee and Steven J. Little of Southlake, Texas, through their separately incorporated companies. Through this alleged scheme, Halek and the other defendants sold more than $5.5 million in Halek Energy oil and gas working interests to more than 100 investors nationwide.

The Commission’s complaint alleges that the investments were offered and sold to investors through separately incorporated companies owned and operated by Spivey, Little and a third individual. The Commission contends that these individuals and companies were merely “straw men” who sold and promoted investments in new Halek Energy oil and gas projects. Booths was Halek Energy’s Vice President of Sales and Marketing and served as Halek’s point man on the alleged scheme. Booths helped Halek recruit the straw men and assisted in facilitating their sale and promotion of Halek Energy projects through their companies.

According to the complaint, offering documents given to investors falsely claimed that the straw men companies owned the oil and gas projects. In fact, none of the companies owned any part of the projects. Rather, the projects were established and owned by Halek Energy and controlled by Halek and Booths. Spivey and Little each received large commissions or other compensation from promoting and selling the working interests for Halek and Halek Energy. Booths was also well compensated for his role in the alleged scheme.

The complaint alleges that Halek conceived of the straw men scheme after the Commission began investigating his involvement in an earlier scheme to make fraudulent oil-and-gas securities offerings. As a result of that earlier scheme, the Commission sued Halek and Halek Energy in August 2010. Lit. Rel. No. 21637. The Commission contends that Halek intended the straw men scheme as a means for avoiding the Commission’s scrutiny.

The Commission charges Halek and Booths with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 (“Securities Act”) and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder. In addition, the Commission charges Joshua Spivey and Steven Little with violating Sections 5(a), 5(c), 17(a)(2) and 17a(3) of the Securities Act and Section 15(a) of the Exchange Act. Without admitting or denying the allegations in the complaint, defendants Booths, Spivey, and Little have agreed to injunctions against violations of these provisions, and to follow-on administrative bars that would bar them from association with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in any offering of a penny stock. The Commission is seeking civil penalties and disgorgement with prejudgment interest against each defendant.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Financial Industry Regulatory Authority, Inc. (FINRA) is a self-regulatory authority assigned the responsibility, by the Securities and Exchange Commission, to license, regulate and discipline securities broker/dealers and their employees, including account executives. In the event that FINRA elects to institute an enforcement action, firms and licensed individuals have the responsibility to reflect such action on their U-4 and/or U-5 filings, which can be viewed on the FINRA website under the broker-check section of the site or by viewing the monthly disciplinary information also provided on the FINRA site.

The monthly disciplinary information is referenced on the FINRA site generally in alphabetical order. This post relates to the following company or individuals. If the reader would like to review the entire FINRA release or the broker-check information concerning this matter, you can follow these highlighted links:

January 2014 Disciplinary and Other FINRA Actions

Broker Check: http://www.finra.org/Investors/ToolsCalculators/BrokerCheck/

Benjamin Irby Cox (CRD #5761085, Registered Representative, Dallas, Texas) submitted a Letter of Acceptance, Wavier and Consent in which he was fined $5,000 and suspended from association with any FINRA member in any capacity for one year. The fine must be paid either immediately upo0n Cox’s reassociation with a FINRA member firm following his suspension, or prior to the filing of any application or request for relief from any statutory disqualification, whichever is earlier. Without admitting or denying the findings, Cox consented to the described sanctions and to the entry of findings that he cold-called potential investors as part of a process to identify investors for oil and gas offerings his firm offered and sold. The findings stated that during the cold calls, Cox was responsible for gathering and documenting suitability information about the potential investors. Cox was supposed to verify the potential investor’s name, address and occupation, and obtain financial investment experience information, and was also supposed to determine the potential investor’s interest in oil and gas investments. Upon obtaining this information, Cox was required to document the information he gathered on contact forms and submit them to the firm. The findings also stated that Cox falsified the suitability information on some contact forms he submitted to the firm. In particular, the contact forms contained false information about the potential investor’s address, occupation, financial status and/or investment experience. FINRA Case No. 2012030728501.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of elder abuse, exploitation and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

An oil and gas limited partnership is legally set up using the same format as any type of limited partnership. It is created by filing articles of limited partnership or its equivalent in the state of its domicile. For example, Florida Statute, Chapter 620 governs the legal requirements that must be followed in the formation, operation and dissolution of the limited partnership, whether it is engaged in the oil and gas business or not. This post is limited to a general discussion of an oil and gas limited partnership.

An oil and gas limited partnership is made up of one or more general partners and one or more limited partners. Generally, it is structured to find, extract, and market commercial quantities of oil and natural gas. These types of investments are usually offered by prospectus, in the case of a public offering, and by a private offering memorandum, in the case of a private offering of securities. In either offering document, it is important to consider, among other things, who is making the offering, which brings to the forefront such items as experience, prior success and financial stability. The next important section of the document relates to the “risk” factor section of the document. Usually, in bold type there is a phrase such as “this offering involves a high degree of risk and should be considered only by those investors who can stand to lose their entire investment.”

In reading and attempting to understand a prospectus or private offering memorandum relative to an oil and gas limited partnership, it is important to bear in mind that there are a number of key words and phrases that are used throughout the document, which are words of art and many times do not mean exactly how the reader would interrupt them. For example, what is an exploratory or wildcat well vs. a development well vs. a development drilling program? Does it make a difference on the risk vs. reward scale how deep the well is going to be drilled and the type of geological formations that the well will have to be drilled through? What is the importance of such phrases of “working interest” or “revenue interest?”

If you are reading this post, you should be getting the idea that these are very complicated investments and that you should seek qualified professional advice before making an investment. Some but not all of risks can be reduced if you know what can be verified and how to go about doing it.

Normally, we don’t include asides with educational posts; however, in the most recent case that we dealt with concerning an oil and gas venture, there were a number of fraudulent statements that were made and documents provided by the promoters to the investors. One of the most glaring was the fact that the investors wanted to see some of the other producing wells that had been drilled by the promoter. The promoter was quick to comply with the request and showed the investors a number of other wells that it had drilled, which were producing oil and gas. Unfortunately, the investors did not know how to verify this representation and later found out that the promoter had no interest in any of the wells.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of oil, gas and securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

Securities and Exchange Commission v. Arcturus Corporation, et al., Civil Action No. Civ. Action No. 3:13-cv-04861-K (N.D. Tex., Dallas Division, filed December 12, 2013)

SEC Charges Texas Oil and Gas Promoters for Securities Fraud

Recently, the Securities and Exchange Commission charged Leon Ali Parvizian and his two companies, Arcturus Corporation and Aschere Energy LLC, with the fraudulent offer and sale of securities in the form of interests in oil and gas joint ventures. The Commission also charged promoters Alfredo Gonzalez, AMG Energy, LLC , Robert Balunas, and R. Thomas & Co., LLC with violations of the securities offering and broker-dealer registration provisions of the federal securities laws.

Filed in the United States District Court for the Northern District of Texas, the Commission’s complaint alleges that the Parvizian, through Arcturus and Aschere, raised nearly $22 million from at least 380 investors between 2007 and December 2011.The complaint alleges that Parvizian prepared and disseminated to prospective investors offering materials that included material misrepresentations and omissions regarding, among other things, material litigation involving Arcturus and Aschere. According to the complaint, Parvizian, Arcturus and Aschere systematically, and without disclosure to investors, used the offering proceeds to pay the costs of defending and settling the litigation. The complaint further alleges that, among other things, Parvizian prematurely called for completion funds on at least two projects before he had finished drilling and testing the wells because he had already spent the offering proceeds for non-JV related expenses, including legal fees. According to the complaint, Parvizian, Arcturus, and Aschere spent only $7.9 million, or 36 percent, of the money raised to drill oil and gas wells.

The complaint also alleges that the defendants offered and sold the joint venture interests in unregistered securities offerings that were not exempt from the registration requirements of the federal securities laws. In addition, the complaint alleges that Parvizian, Gonzalez, AMG, Balunas, and R. Thomas & Co. acted as unregistered broker-dealers. According to the complaint, Parvizian, Gonzalez, Balunas, AMG Energy, and R. Thomas received transaction-based compensation in the form of sales commissions based upon a percentage of the amount of investor funds raised.

The complaint alleges that Parvizian, Arcturus, and Aschere violated Sections 5(a) and 5(c) and 17(a) of the Securities Act of 1933 (“Securities Act”)and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”), and Rule 10b-5 thereunder and that Parvizian also violated Section 15(a) of the Exchange Act. Gonzalez, AMG, Balunas, and R. Thomas are charged with violating Section 5(a) and 5(c) of the Securities Act and with Section 15(a) of the Exchange Act. The Commission is seeking permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest, and civil penalties against each of the defendants.

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently announced charges and an emergency asset freeze against the perpetrators of a Texas-based Ponzi scheme involving purported investments in oil and gas projects.

The SEC alleges that Robert A. Helms and Janniece S. Kaelin, who work out of an office in Austin, misled investors about their experience in the oil and gas industry while raising nearly $18 million for supposed purchases of oil and gas royalty interests. Despite representations that nearly all of the money they raised would be used to make oil and gas investments, Helms and Kaelin actually used only a fraction of the offering proceeds for that purpose. Instead, the vast majority of investor funds were used to make Ponzi payments and cover various personal and business expenses.

“Helms and Kaelin pretended to be in the oil and gas business when they were really in the business of fattening their own wallets,” said David R. Woodcock, director of the SEC’s Fort Worth Regional Office. “They lied to investors about the use of offering proceeds, spent investor funds on personal expenses, and made Ponzi payments to give investors the false impression that they were earning returns in a profitable venture.”

The SEC’s complaint unsealed late yesterday in U.S. District Court for the Western District of Texas also charges Deven Sellers of Arvada, Colo., and Roland Barrera of Costa Mesa, Calif., with illegally selling investments for Helms and Kaelin without being registered with the SEC. They also allegedly misled investors about the sales commissions and referral fees they were receiving.

According to the SEC’s complaint, Helms and Kaelin began offering investments in 2011 through Vendetta Royalty Partners, a limited partnership that they control. They have since attracted at least 80 investors in more than a dozen states while promising in offering documents that they would use more than 99 percent of the investment proceeds to acquire a lucrative portfolio of oil and gas royalty interests. The offering documents were fraudulent as Helms and Kaelin invested only 10 percent of the proceeds, and the oil and gas projects in which they actually did invest generated only minuscule returns.

The SEC alleges that Helms and Kaelin directed Vendetta Royalty Partners to make approximately $5.9 million in so-called partnership income distributions to investors. They used money from newer investors to make the distributions to earlier investors. Helms and Kaelin created the illusion that Vendetta Royalty Partners was a profitable enterprise when, in fact, it was a fraudulent Ponzi scheme. Some offering documents touted Helms to have extensive oil-and-gas experience, misrepresenting that he had “worked with various mineral companies over the last 10 years advising management on issues involving the acquisition and management of royalty interests, mineral properties and related legal and financial issues.” In fact, Helms’s oil-and-gas experience came almost entirely from operating Vendetta Royalty Partners and its affiliated or predecessor companies.

The SEC alleges that Helms and Kaelin misled investors about other important matters besides their business background and industry reputation. They failed to disclose the existence of litigation against them and companies they control. They misrepresented the performance of the limited oil-and-gas royalty investments actually under their management. And they failed to inform investors that Vendetta Royalty Partners was behind on its line of credit. The company ultimately defaulted.

According to the SEC’s complaint, Helms and Kaelin along with Sellers and Barrera told potential investors that any commissions or finder’s fees would be small. However, Sellers and Barrera each received more than $200,000 in such fees on one investment alone. Sellers and Barrera regularly solicited investments without being registered as brokers.

At the SEC’s request, the court entered an order temporarily restraining the defendants from further violations of the federal securities laws, freezing their assets, prohibiting the destruction of documents, requiring them to provide an accounting, and authorizing expedited discovery.

The SEC’s complaint alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint further alleges that Sellers and Barrera acted as unregistered brokers in violation of Section 15(a) of the Exchange Act. The complaint requests permanent injunctions and the disgorgement of ill-gotten gains plus prejudgment interest and penalties.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission recently charged the owner of two Florida-based companies with defrauding investors in five oil and gas offerings by misrepresenting such key facts as the amount of available reserves, the use of investor funds, and his past success in the oil and gas industry.

The SEC alleges that Ronald Walblay of Delray Beach, Fla., perpetrated the fraud through RyHolland Fielder Inc., which has managed a number of oil and gas limited partnerships, and his former brokerage firm Energy Securities Inc., which sold the partnerships’ interests – none of which were registered with the SEC as required under the federal securities laws. Walblay raised at least $12 million from more than 195 U.S. and foreign investors by falsely touting in sales brochures that RyHolland Fielder offered millions of barrels of oil and natural gas reserves. Walblay also falsely touted in offering materials that investors could receive potential returns of up to 2,270 percent. Meanwhile, not a single investor had ever profited from any of the partnerships, and Walblay used a greater percentage of investor funds than was disclosed to pay salaries and marketing expenses for investor conferences.

According to the SEC’s complaint filed in U.S. District Court for the Southern District of Florida, the unregistered securities offerings by Walblay and his firms were in Basin Oil L.P., Basin Oil HV L.P., Great Plains Oil L.P., Permian Basin Oil L.P., and Texas Permian Oil LLLP. They solicited investors from approximately January 2009 to November 2012.

The SEC alleges that in some offerings Walblay falsely portrayed to investors that RyHolland Fielder offered billions of cubic feet of natural gas reserves in place. Walblay, Energy Securities, and RyHolland lacked any basis to make this statement to investors because no such reserves existed.

The SEC further alleges that the offering materials for the limited partnerships misled investors about the use of proceeds. For example, contrary to the statements made in documents distributed to investors, money raised from investors in the Permian Basin Oil L.P. offering were partly used to pay expenses incurred in the prior oil and gas offerings.

According to the SEC’s complaint, Walblay exaggerated his past success in the industry. For instance, he told investors that a prior offering he conducted in 1991 featured a well that produced more than 100,000 barrels of oil in less than 45 days. There was no basis to make this statement.

The SEC’s complaint charges Energy Securities, RyHolland, and Walblay with violating Sections 5(a) and (c) and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint also charges Walblay with aiding and abetting violations of Section 10(b) of the Exchange Act and Rule 10b-5. The SEC seeks financial penalties, disgorgement of ill-gotten gains with prejudgment interest, and permanent injunctions.

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

The Securities and Exchange Commission (Commission) recently announced that it barred Johnny Clifton, who was president, chief executive officer, and principal of MPG Financial, LLC, a former Commission-registered broker-dealer, from associating with any broker, dealer, investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized statistical rating organization, entered a cease-and-desist order, and imposed a $150,000 third-tier civil money penalty. The Commission found that Clifton violated Sections 17(a)(1), 17(a)(2), and 17(a)(3) of the Securities Act of 1933 because he made material misrepresentations and omissions in the offer and sale of oil-and-gas limited partnership interests, and through those misrepresentations, omissions, and other misconduct he engaged in a fraudulent scheme and course of business that operated as a fraud on prospective investors. The Commission also found that Clifton violated Section 15(b) of the Securities Exchange Act of 1934 because he failed reasonably to supervise at least one MPG Financial sales representative with a view towards detecting and preventing the sales representative’s securities law violations. Concluding that it was in the public interest to impose a full collateral bar on Clifton, the Commission stated that “[h]is repeated and egregious misconduct evidences an unfitness to participate in the securities industry that goes beyond the professional capacity in which he was acting” and “demonstrates his unfitness to participate in the securities industry in any capacity.”

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With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.

On June 28, 2013, the Commission charged Matthew Madison and Dwight McGhee, and their Irving, Texas based company Infinity Exploration, LLC, with conducting a fraudulent offering of oil and gas related investments. The Commission’s complaint alleges that, between March and October 2008, Madison and McGhee raised over $2 million from at least 40 investors from the fraudulent offer and sale of interests in Infinity’s two oil and gas joint ventures. Infinity’s offering materials misled investors into believing that Infinity’s ventures would own the leases and control drilling operations. Indeed, Infinity’s communications with investors were peppered with references to as “our wells” and “our crew.” In reality, Infinity’s ventures did not have direct interests in any oil and gas leases and no direct involvement in operation of any leases. The complaint alleges that Madison and McGhee concealed this fact from investors. The complaint further alleges that the defendants’ offering materials falsely described Madison as experienced and successful in the oil and gas industry and failed to disclose McGhee’s 2007 federal felony conviction.

The complaint alleges that Infinity, Madison, McGhee violated Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and civil penalties against each of the defendants. [SEC v. Infinity Exploration, et al., Civ. Action No. 3:13-cv-2499-L, USDC, NDTX (Dallas Division, June 28, 2013)].

Contact Us:

With extensive courtroom, arbitration and mediation experience and an in-depth understanding of securities law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.

At the Fort Lauderdale Law Office of Russell L. Forkey, we represent clients throughout South and Central Florida, including Fort Lauderdale, West Palm Beach, Boca Raton, Sunrise, Plantation, Coral Springs, Deerfield Beach, Pompano Beach, Delray, Boynton Beach, Hollywood, Lake Worth, Royal Palm Beach, Manalapan, Jupiter, Gulf Stream, Wellington, Fort Pierce, Stuart, Palm City, Jupiter, Miami, Orlando, Maitland, Winter Park, Altamonte Springs, Lake Mary, Heathrow, Melbourne, Palm Bay, Cocoa Beach, Vero Beach, Daytona Beach, Deland, New Smyrna Beach, Ormand Beach, Broward County, Palm Beach County, Dade County, Orange County, Seminole County, Martin County, Brevard County, Indian River County, Volusia County and Monroe County, Florida. The law office of Russell L. Forkey also represents South American, Canadian and other foreign residents that do business with U.S. financial institutions, investment advisors, brokerage and precious metal firms.