SEC Charges Texas Investment Adviser and Two Executives in Connection with $17 Million Energy Fund Fraud

Litigation Release No. 25051 / March 12, 2021

Securities and Exchange Commission v. Paul W. Haarman, Patrick E. Duke, and APEG Energy GP, LLC, No. 1:21-cv-235-LY (W.D. Tex. filed March 11, 2021)

On March 11, 2021, the Securities and Exchange Commission charged Texas-based investment adviser APEG Energy, GP (APEG) and its owners, Patrick E. Duke and Paul W. Haarman, with fraudulently raising more than $17 million for an oil-and-gas investment fund they managed, and Duke and Haarman with misappropriating over $2.6 million from the fund.

According to the SEC's complaint, from approximately December 2015 to October 2016, Duke and Haarman engaged in a fraudulent scheme involving the sale of limited partnership interests in the fund. The complaint alleges that the defendants made numerous false and misleading statements to investors about the risks of investing in the fund, Duke and Haarman's compensation for managing the fund, and their expertise in the oil and gas industry. As alleged in the complaint, for example, Haarman emailed investors that "[t]here is ZERO possibility of anyone losing their principle [sic] on account of all of the safety measures we have in place." In fact, as the complaint alleges there were no measures in place to prevent principal losses or otherwise guarantee production revenue. The Commission further alleges that, though Duke and Haarman told investors that their compensation was limited to a 2% fee for managing the fund, they improperly took an additional nearly $2.7 million in the form of purported "acquisition fees" linked to asset purchases for the fund. According to the complaint, the so-called "acquisition fees" were not disclosed to investors and violated the terms of the fund's governing documents and the fiduciary duties that Duke and Haarman owed to the fund.

The SEC's complaint, filed in federal district court in the Western District of Texas, charges Duke, Haarman, and APEG Energy GP with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and Sections 206(1) and 206(2) of the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and civil penalties against each defendant.

The SEC's investigation was conducted by Jaime Turner and Melanie Good of the Fort Worth Regional Office, and supervised by Timothy McCole and Eric Werner. Jason P. Reinsch will lead the litigation.