U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23896 / August 3, 2017
Securities and Exchange Commission v. 7S Oil & Gas, LLC, et al., No. 17-cv-22914-UU (S.D. Fla. filed Aug. 1, 2017)
CEO of Oil and Gas Company Caught Using Investor Funds for School Tuition and Entertainment
The Securities and Exchange Commission today announced that a Texas-based oil and gas company and its CEO have agreed to pay $750,000 for misleading investors about amounts spent on commission payments to sales agents and administrative expenses, and for misappropriating investor funds for personal expenses.
According to the SEC's complaint, from approximately November 2014 through July 2016, 7S Oil & Gas, LLC and William Alexander "Gilligan" Sewell raised almost $7 million from at least 70 investors nationwide through a series of unregistered offerings in oil and gas projects. The SEC alleges that 7S and Sewell lured investors primarily through a network of sales agents and also a series of YouTube videos including one in which Sewell claimed that "for sure you will get some type of return because there's no such thing as a dry hole," as well as another video depicting oil gushing out of a well with Sewell commenting that "you got back gold coming out of that well." The SEC also alleges that 7S' offering documents told investors that no more than 10% would be spent on marketing costs, commissions to sales agents, and salaries and that 85% of investor funds would be spent on oil and gas operations. In reality, as alleged in the complaint 7S paid commissions as high as 35% to its sales agents out of investor proceeds and applied only at most 57% of investor funds toward operating the wells. 7S and Sewell also allegedly used more than $90,000 in investor funds to pay tuition for his children, entertainment expenses, and other personal expenses. The SEC also alleges that 7S paid out sham "royalty payments" to some investors, which led investors to believe 7S was making a return on their investment based on oil sold to an independent third party.
The SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, charges 7S and Sewell with violating 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. Without admitting or denying the SEC's allegations, 7S and Sewell each consented to the entry of a final judgment permanently enjoining each of them from violating the charged provisions of the federal securities laws. The judgments also require 7S to pay disgorgement of $492,062.79, and Sewell to pay disgorgement of $93,497.55, prejudgment interest of $4,439.66, and a civil penalty of $160,000. The settlements are subject to approval by the court.
The SEC's investigation was conducted by Raynette R. Nicoleau and Shan Chang in the Miami Regional Office, and supervised by Chedly C. Dumornay. Russell Koonin and Christine Nestor were the litigation attorneys on the matter.