U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23497 / March 24, 2016
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 announced today 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.
The SEC's investigation was conducted by Ronda Blair, Ty Martinez, and Barbara Gunn of SEC's Fort Worth Regional Office. Jennifer Brandt and Timothy McCole led the SEC's litigation. David Peavler supervised the case.
For additional information, see Litigation Release No. 22891 (December 16, 2013).