U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23329 / August 27, 2015
Securities and Exchange Commission v. Harrison Schumacher, et al., Civil Action No. 15-6388, USDC, (C.D. Cal. Filed Aug. 21, 2015)
SEC Halts California-Based Oil and Gas Investment Fraud
Washington D.C., August 27, 2015 — The Securities and Exchange Commission today announced fraud charges and an emergency asset freeze to halt a California-based scheme involving purported investments in oil and gas projects.
According to the SEC’s complaint filed under seal last week in federal court in Los Angeles and unsealed yesterday, Harrison Schumacher and his two companies Quantum Energy LLC and Quaneco LLC allegedly raised approximately $12.3 million from more than 300 investors nationwide in connection with five offerings that were not registered with the SEC. For each of the offerings, Schumacher and Quantum diverted investor funds from the stated purpose of exploration and development of oil and gas resources to instead cover undisclosed corporate business overhead expenses and Schumacher’s compensation. Contrary to representations that investor funds would be segregated in separate trust or escrow accounts, Schumacher and his companies commingled funds in Quantum’s operating accounts, which was then used to pay Schumacher’s lavish personal expenses including a Porsche. The defendants also concealed diversion of investor funds through phony “turnkey drilling” contracts in which Quantum claimed to pay Quaneco to drill wells. Schumacher and his companies have recently been soliciting funds for a new Utah-based oil-and-gas investment program and planning to raise another $2 million.
The SEC has warned investors about certain risks and possible fraudulent activity involving private offerings of securities for oil-and-gas ventures, and has issued an investor alert specifically about private oil-and-gas offerings like those offered by Schumacher and his companies.
The SEC separately announced a settlement with Quantum’s former co-principal and co-founder Paul Mysyk, who participated in some of the offerings before he left the company in November 2012. Mysyk entered into a cooperation agreement with the SEC to assist in the investigation of, and ongoing litigation against, Schumacher, Quaneco, and Quantum.
The complaint filed on Aug. 21, 2015, charges Schumacher, Quantum and Quaneco with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10(b) thereunder. The complaint further alleges that Schumacher acted as an unregistered broker in violation of Section 15(a) of the Exchange Act. The complaint requests permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, the establishment of a fair fund for the benefit of harmed investors, the appointment of a receiver, a penny stock bar, a permanent injunction against raising funds from investors, an order prohibiting defendants from encumbering corporate assets, and penalties.
With regard to Mysyk, the complaint alleges that he violated Sections 5(a), 5(c), and 17(a) (2) and (3) of the Securities Act of 1933. Mysyk agreed to settle to the charges by agreeing, without admitting or denying the allegations in the complaint, to be enjoined from future violations of law and a penny stock bar. The Commission will defer consideration of a penalty against Mysyk until after his cooperation has concluded.This SEC’s investigation was conducted by Nicholas A. Brady and supervised by Anita B. Bandy. The SEC’s litigation will be led by Charles Stodghill, Matthew F. Scarlato, and Nick Brady.