U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23876 / July 7, 2017
Securities and Exchange Commission v. Carol J. Wayland, John C. Mueller, Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership, HP Operations, LLC, C.A.R. Leasing, LLC, Mitchell B. Dow, Barry Liss, and Steve G. Blasko, No. 8:17-cv-01156 (C.D. Cal. filed July 6, 2017)
SEC Announces Charges in Oil Well Offering Fraud
The Securities and Exchange Commission announced charges against a purported oil well company, its founders, and three salespeople in connection with a $2.4 million offering fraud.
The SEC's complaint, filed in U.S. District Court for the Central District of California, alleges that from approximately May 2014 to February 2016, Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership (K-T 50 Wells) fraudulently offered and sold unregistered securities to investors using a boiler room operation, raising approximately $2.4 million from 41 investors nationwide. The complaint further alleges that Carol J. Wayland and her son, John C. Mueller, founded and operated K-T 50 Wells and conducted the offering through two other entities that they owned and controlled, HP Operations, LLC and C.A.R. Leasing, LLC. To solicit investors, Wayland and Mueller allegedly set up a boiler room under the fictitious name of "Sahara Wealth Advisors" where they employed numerous salespeople, including Mitchell B. Dow, Barry Liss, and Steve G. Blasko, all of whom allegedly had prior experience working in boiler rooms.
According to the SEC's complaint, K-T 50 Wells was supposed to develop and operate oil wells, but had little legitimate business activity. Wayland and Mueller allegedly misappropriated K-T 50 Wells investor money for purposes not disclosed in the K-T 50 Wells private placement memorandum, taking at least $871,463, or 36%, to pay for their personal expenses, and using investor money to make Ponzi payments to certain other K-T 50 Wells investors. The complaint also alleges that K-T 50 Wells made misrepresentations regarding Wayland and Mueller's experience managing oil and gas investment projects, as well as the amount of returns that investors would receive.
The SEC's complaint charges K-T 50 Wells, HP Operations, C.A.R. Leasing, Wayland, and Mueller with violating Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and (c) thereunder and charges K-T 50 Wells, HP Operations, Wayland, and Mueller with violating Section 17(a)(2) of the Securities Act. The complaint also charges Wayland and Mueller as control persons of certain of the entity defendants. In addition, the complaint charges K-T 50 Wells, HP Operations, C.A.R. Leasing, Wayland, Mueller, Dow, Liss, and Blasko with violating Sections 5(a) and 5(c) of the Securities Act and charges Wayland, Mueller, Dow, Liss, and Blasko with violating Section 15(a) of the Exchange Act. The complaint seeks permanent injunctions, disgorgement plus prejudgment interest, and civil penalties against all of the defendants.
The SEC's investigation was conducted by Marisa G. Westervelt and Lorraine L. Pearson and supervised by Victoria A. Levin and Rhoda Chang of the Los Angeles Regional Office. The SEC's litigation will be led by Lynn Dean.