U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23097 / September 30, 2014
Securities and Exchange Commission v. Thomas Abdallah, et al., Civil Action No. 1:14-cv-01155-SO
SEC Files Complaint in Sham Oil Trading Company Case
On May 29, 2014, the Securities and Exchange Commission filed an emergency action charging Thomas Abdallah, Kenneth Grant, KGTA Petroleum Ltd. ("KGTA"), Mark George, Jeffrey Gainer and Jerry Cicolani with participating in a fraud involving a sham oil trading business, KGTA, that raised over $20 million from investors. Also listed in the complaint as relief defendants were Nancy Gainer, NATG, LLC, Kelly Hood, and Turnbury Consulting Group, LLC.
The SEC's complaint alleges that Grant and Abdallah marketed KGTA to investors as a petroleum company that earns profits by buying and reselling crude oil and refined fuel products. The complaint further alleges that they told investors that they had relationships with third-party purchasers and that they would use investor funds to buy fuel at a discount that would then be sold at a substantial profit. The complaint goes on to allege that Grant and Abdallah helped convince prospective investors to invest by promising an important safeguard: the investment funds and the returns would flow through an escrow account monitored by attorney Mark George, who acted as the escrow agent.
The SEC's complaint alleges that the KGTA oil business was a sham and the escrow safeguard was a mirage. In reality, the complaint alleges, Grant and Abdallah operated KGTA as a Ponzi scheme, George never followed the promised escrow procedures, and KGTA did not generate revenue through the purchase and resale of oil products.
The SEC's Complaint also alleges that Grant and Abdallah sold the fraudulent investments through Jeffrey Gainer and Jerry Cicolani - two registered representatives with a Cleveland-based broker-dealer. The complaint alleges that Defendants Gainer and Cicolani committed their own violations of federal securities law including selling away and selling unregistered securities. The complaint also alleges that Gainer and Cicolani committed fraud by recklessly selling KGTA investments despite glaring "red flags" that signaled that KGTA was a scam, and by hiding from investors the fact that they were being paid enormous fees by KGTA to sign up investors. The complaint alleges that Gainer and Cicolani received over $6 million for their sales efforts. The complaint goes on to allege that these illicit fees were funneled through NATG and Turnbury Consulting, entities owned by Gainer's wife (Relief Defendant Nancy Gainer) and Cicolani's girlfriend (Relief Defendant Kelly Hood).
The Honorable Solomon Oliver, Chief Judge, United States District Court, Northern District of Ohio, issued a series of Orders granting injunctive relief, freezing assets and other emergency relief as to all of the defendants and relief defendants.
The SEC's investigation in this matter is continuing.