Michael J. McNaul, II et al.
On May 28, 2008, the SEC filed a civil enforcement action against 21 individuals and entities for their roles in an alleged oil and gas offering fraud. According to the complaint, from between March 2004 and December 2007, the defendants raised approximately $156 million from more than 1,300 investors nationwide and in Canada, through the use of 22 purported oil-and-gas related equipment “joint ventures” structured to evade the securities laws. The SEC alleges that the defendants lured potential investors with the promise of annual returns of 20-40%, representing that the ventures would be rolled up into a single entity to facilitate an initial public offering resulting in returns as high as three to eight times their investment.
According to the complaint, the promised IPO never happened and, contrary to the promised high returns, the defendants returned only approximately $7 million to investors. The SEC alleges that approximately $1 million of these returns were so-called Ponzi payments, and half of the funds fraudulently raised were used to pay sales commissions and other organizational costs. The SEC also alleges the remaining funds were never used as promised -- to acquire and refurbish approximately 59 oil and gas rigs, and to acquire, refurbish and outfit an oil-and-gas pipeline system – instead, only eight rigs were operating and virtually no work was been done on the pipeline.
For more information about the SEC’s action, you can read Litigation Release No. 20608 (June 3, 2008).
The Court appointed Edward J. Nazar as Receiver. You can keep up-to-date with the Receivership by visiting the Receiver’s website.