U.S. Securities and Exchange Commission
Litigation Release No. 21808 / January 12, 2011
Securities and Exchange Commission v. Petroleum Unlimited, LLC, Petroleum Unlimited II, LLC, Roger A. Kimmel, Jr., Harry Nyce, Michel-Jean Geraud, Robert Rossi, Joseph Valko, and Morgan Kimmel, n/k/a Morgan Petitti, , Civil Action No. 9:11-CV-80038 (S.D. Fla., filed Jan. 12, 2011)
SEC CHARGES OIL & GAS EXPLORATION COMPANY WITH OFFERING FRAUD
The United States Securities and Exchange Commission (Commission) today announced an enforcement action against Petroleum Unlimited, LLC, Petroleum Unlimited II, LLC, their two operators, escrow agent manager, and three boiler room managers for defrauding investors through the sale of securities in violation of the antifraud provisions of the federal securities laws. From March 2008 until July 2008, the companies raised approximately $2.9 million through offerings of their securities to investors for the purported purpose of funding oil and gas exploration and drilling projects. According to the SEC's complaint, the private placement memoranda for the offerings misrepresented the use of the offering proceeds and failed to disclose that 49% to 74% of investors' funds were paid as commissions to offering sales agents. The private placement memoranda further stated without any reasonable basis that investors could earn annual returns ranging from 14% to 141%. Ultimately, the companies used only about $534,000 of the $2.9 million raised from investors for oil drilling and never found any oil
The SEC alleges that Roger A. Kimmel, Jr., and Harry Nyce, and the boiler room managers Michel-Jean Geraud, Robert Rossi, and Joseph Valko drafted, reviewed or distributed the private placement memorandum given to investors. The SEC further alleges that Geraud, Rossi, and Valko conducted the offerings through multiple sales offices and knew that their sales agents and the offering materials were not advising investors about the sales commissions of 49% to 74%. Morgan Petitti performed escrow functions for the offering and, among other things, distributed commissions to the sales agents that were inconsistent with the private placement memoranda, which she typed.
The SEC's complaint, which was filed in the United States District Court for the Southern District of Florida, charges Petroleum Unlimited, Petroleum Unlimited II, Kimmel, Nyce, Geraud, Rossi, and Valko with violating 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 SEC's complaint further charges Geraud, Rossi, and Valko with violating Section 15(a) of the Exchange Act. The complaint also charges Petitti with violating Sections 17(a)(2) and 17(a)(3) of the Securities Act. Petroleum Unlimited, Petroleum Unlimited II, Kimmel, Nyce, and Petitti have agreed to settle the SEC's charges without admitting or denying the allegations. Petroleum Unlimited, Petroleum Unlimited II, and Kimmel, have consented to permanent injunctions and will pay disgorgement plus prejudgment interest, and civil money penalties in amounts to be determined by the court at a later date. Nyce consented to a permanent injunction, and will pay $242,339 in disgorgement and prejudgment interest, and a $65,000 civil money penalty. Petitti consented to a permanent injunction and will pay a $25,000 civil money penalty.
The SEC also today announced the issuance of an Order Instituting Administrative Proceedings Pursuant to Section 15(b) of the Securities Exchange Act of 1934, and Notice of Hearing against Geraud based on his criminal convictions by the United States District Court for the Southern District of Florida for one count of conspiracy to commit mail fraud (United States v. Michael Geraud, Case No.10-cr-80070 (S.D. Fla.)) and one count of conspiracy to defraud the United States in an income tax evasion scheme (United States v. Michael Geraud, Case No. 10-cr-60091 (S.D. Fla.)). The count of criminal information in Case No.10-cr-80070 alleged, among other things, that Geraud, in connection with the offer and sale of Petroleum Unlimited's securities, defrauded investors and obtained money and property by, among other things, misrepresenting the company's use of offering proceeds, and failing to disclose exorbitant sales commissions.
A hearing will be held by an administrative law judge to determine whether the allegations contained in the Order are true, to provide the Respondent an opportunity to dispute these allegations, and to determine what, if any, remedial sanctions are appropriate and in the public interest. The Order requires the Administrative Law Judge to issue an initial decision no later than 210 days from the date of service of this Order, pursuant to Rule 360(a)(2) of the Commission's Rules of Practice.
The SEC's case was investigated by Jorge L. Riera and Chad Alan Earnst, and will be litigated by Christine Nestor, all of the SEC's Miami Regional Office. The SEC acknowledges assistance from the U.S. Attorney's Office for the Southern District of Florida, Federal Bureau of Investigation, Alberta Securities Commission, Ontario Securities Commission, and Saskatchewan Financial Services Commission.