U.S. Securities and Exchange Commission
Litigation Release No. 23924 / August 30, 2017
Securities and Exchange Commission v. Tennstar Energy, Inc., et al., Civil Action No. 4:17-cv-00151-LGW-GRS (S.D.Ga., filed August 11, 2017)
SEC Files Charges in Oil Drilling Investment Scheme
The Securities and Exchange Commission (Commission) filed a civil injunctive action on August 11, 2017, in the United States District Court for the Southern District of Georgia against two Tennessee men and an accomplice in Fort Lauderdale, Florida, for defrauding investors, whom they lured by false promises of high returns from an oil drilling investment opportunity.
According to the Commission's complaint, David R. Greenlee and David A. Stewart Jr. orchestrated the $15 million scheme by recruiting and controlling a network of salesmen who offered and sold investors a stake in various companies purportedly using enhanced oil recovery techniques like fracking to extract and sell oil from wells in Kansas, Oklahoma, and Texas. Investors were allegedly promised profits of 15 to 50 percent per year for decades.
The Commission's complaint alleges that Greenlee and Stewart used fake names like "Dave Johnson" when speaking to investors in order to hide their past criminal records, and they diverted nearly two-thirds of the money raised from investors to pay themselves and their salesmen as well as advertise for new investors. According to the Commission's complaint, minimal funds were used for oil production at just a few of the wells in order to create the appearance of oil production and dupe investors who wanted to see activity in-person.
The Commission's complaint further alleges that Richard "Ric" P. Underwood helped Greenlee and Stewart draft false offering brochures, and he oversaw a boiler room sales team of telemarketers in Florida as they solicited investors nationwide. According to the Commission's complaint, Greenlee and Stewart operated their scheme through two Tennessee corporations, Southern Energy Group, Inc., which is now administratively dissolved, and Black Gold Resources, Inc., which later changed its name to Tennstar Energy, Inc.
The Commission's complaint alleges that the defendants violated the antifraud provisions of the federal securities laws in Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The SEC seeks the disgorgement of ill-gotten gains plus pre-judgment interest, civil penalties, and permanent injunctions.
The Commission's investigation was conducted by Brian M. Basinger with assistance from Lauren B. Poper, and the case is being supervised by Aaron W. Lipson and Stephen E. Donahue. The Commission appreciates the assistance of the U.S. Attorney's Office for the Southern District of Georgia and the U.S. Secret Service. The Commission's investigation is continuing.
