U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20011 / February 21, 2007
Securities and Exchange Commission v. Braintree Energy, Inc. and Howard Graham, Civil Action No. 1:07-cv-10307, United States District Court for the District of Massachusetts
SEC Charges Massachusetts Company and Its Principal With Fraud In Connection With Unregistered Offering of Securities
On February 20, 2007, the Securities and Exchange Commission filed a civil fraud complaint in Massachusetts federal court against Braintree Energy, Inc., a Massachusetts corporation located in Cheshire, Massachusetts, and its principal, Howard Graham, a Canadian citizen in Ontario.
The Commission's complaint, filed in the United States District Court for the District of Massachusetts, alleges that Braintree and Graham fraudulently offered and sold unregistered securities in the form of investment contracts and/or fractional interests in oil and gas leases. According to the Commission's complaint, from at least 2000 through 2006, Graham and Braintree made numerous oral and written misrepresentations to more than 200 investors nationwide and in foreign countries regarding the expected rate of return, level of profits and risks associated with the investment. Moreover, the Commission alleges, Graham and others failed to disclose that Graham intended to and did take approximately 30% of investors' funds for himself. The Commission alleges that Graham and Braintree, through their fraud, obtained at least $9 million of investor funds and diverted approximately $3 million for Graham's personal use.
The Commission alleges that Braintree and Graham solicited potential investors through, among other means, Braintree's website and cold calls. According to the complaint, Braintree, both through its offering documents and oral representations by Graham and others, told potential investors that they could expect the return of their principal within months to a year. The Commission alleges that Braintree's offering documents also exaggerated projected profits, touting expected total returns on investment ranging from 500% to 900%. The Commission alleges that Graham and others at his direction also told investors that the wells would provide them with profits for years to come. The Commission alleges that these projections lacked any basis in fact. The Commission also alleges that Graham and others at his direction led investors to believe that investing in their offerings was not risky, falsely assuring some investors that Braintree had never offered interests in wells that did not produce, and that investors' monies were safer than if they had invested in certificates of deposit. The complaint alleges that, in fact, most investors have received no profits and most have not even recovered their initial investments. Finally, the Commission alleges that contracts between Braintree and the investors outlined the purported costs of drilling and completing the wells. However, the Commission alleges, defendants failed to disclose that Graham intended to take approximately 30% of their money for personal expenses such as for the purchase or lease of cars and other personal expenditures, and for other non-business payments to friends and family members.
The Commission's complaint charges Braintree and Graham with violations of the antifraud provisions of the federal securities laws (Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5], and Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]); with the unregistered offer and sale of securities (Sections 5(a) and 5(c) of the Securities Act [15 U.S.C. § 77e]); and with failure to register as a broker-dealer (Section 15(a) of the Exchange Act [15 U.S.C. § 78o(a)]). The Commission seeks a permanent injunction, an order of disgorgement and prejudgment interest thereon, and an order of civil penalties.
The Commission acknowledges the assistance of the Massachusetts Securities Division and the Pennsylvania Securities Commission, which previously filed separate actions against Braintree.