U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23252 / May 6, 2015
Securities and Exchange Commission v. North Dakota Developments, LLC, Robert L. Gavin, and Daniel J. Hogan, et. al., Civil Action No. 4:15-cv-00053-DLH-CSM (D.N.D.)
SEC Halts Bakken Oil and Gas-Related Investment Scheme
The Securities and Exchange Commission today announced charges and an emergency asset freeze against North Dakota Developments, LLC ("NDD") and its two principals for allegedly defrauding investors in a scheme to purportedly build and operate short-term housing facilities or "man camps" for workers in the Bakken oil and gas formation of North Dakota and Montana.
The SEC alleges that NDD and its owners Robert L. Gavin and Daniel J. Hogan have raised over $62 million from hundreds of investors in various states in the U.S. and foreign countries for interests in one of four "man camp" projects. According to the SEC's complaint filed yesterday in U.S. District Court for the District of North Dakota, investors bought "units" in NDD's projects motivated by the Defendants' promises of exceptionally high annual returns, up to 42%, and that NDD would jointly manage all of the units as a fully-developed short-term housing facility with amenities typically found in a hotel. The SEC also alleges that the Defendants offered investors the option of receiving a "guaranteed" annual return of up to 25% of the purchase price of their unit without regard to actual rental income. As further inducement to invest, Defendants also promised investors that the various projects would be operational in a very short time frame, often within months. In reality, the SEC alleges, despite the substantial amount of funds raised by the Defendants since May 2012, at the present time, none of the projects are fully operational and one of the projects offered does not even have governmental approval for construction to begin.
According to the SEC's complaint, Defendants directly or indirectly made material misrepresentations and omissions regarding the use of investor funds, the payment of commissions, and the return on the investment. Among other things, the SEC alleges that NDD's first project was delayed and unprofitable. The SEC alleges that, despite the lack of profits, the Defendants made Ponzi-style payments to certain early investors by paying their "guaranteed" returns using funds provided by later investors. The SEC also alleges that instead of developing the projects as promised, the Defendants have misappropriated over $25 million of investor funds to pay undisclosed commissions to sales agents, make payments to Gavin and Hogan, make investments in unrelated Bakken area projects for Gavin's and Hogan's personal benefit, and to make the Ponzi-like payments.
On May 5, 2015, the Honorable Daniel L. Hovland for the U.S. District Court for the District of North Dakota granted the SEC's request for a temporary restraining order and asset freeze against NDD, Gavin, and Hogan. A court hearing has been scheduled for May 18, 2015, on the SEC's motion for a preliminary injunction.
The Commission's complaint alleges that NDD, Gavin, and Hogan violated Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; and seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against each of them.
The SEC's investigation has been conducted by Michael Cates, Anne Romero, and J. Lee Robinson of the Denver Regional Office, with supervision by Ian S. Karpel. The SEC appreciates the assistance of the North Dakota Securities Department.