SEC Charges Oil and Gas Well Operators for Defrauding Investors
FOR IMMEDIATE RELEASE
Washington, D.C., Aug. 28, 2008 — The Securities and Exchange Commission today charged a Colorado Springs resident with fraud for touting potentially astronomical returns to investors in his oil and gas companies while spending $2.3 million of investor funds to pay for a lavish lifestyle, including the purchase of a custom speedboat, ski vacations, fitness equipment, and jewelry.
According to the SEC's complaint, Donald H. Allen and his two companies, H&M Petroleum Corporation (H&M) and American Energy Resources Corporation (AER), raised approximately $9.9 million from more than 350 investors nationwide by marketing oil and gas investments through cold call telephone solicitations and "seminars" advertised in local newspapers. Among other things, Allen and his companies never disclosed that they failed to earn profits for any investors in prior offerings.
"Allen convinced investors to finance his projects without telling them about his actual uses of their funds or his dismal track record in failing to generate investor returns," said George B. Curtis, Deputy Director of the SEC's Division of Enforcement. "This enforcement action reflects the Commission's unwavering commitment to pursue and punish unscrupulous promoters who choose not to make full disclosure to their investors."
Donald M. Hoerl, Acting Director of the SEC's Denver Regional Office, added, "This enforcement action should deter Allen and others from offering investments without disclosing fundamental information to unsuspecting investors. Investors are encouraged to carefully review and ask questions about offering materials they receive to assure that they understand and appreciate such disclosures when made."
According to the SEC's complaint, Allen, AER and H&M defrauded investors between March 2002 and December 2006 by making at least four types of material misrepresentations or omissions in their solicitations:
Their offering materials stated that investor money would be used only for drilling, testing, and completing specific, identified well sites. However, Allen and his companies used investor funds for other purposes. Most notably, Allen used more than $2.3 million to pay for personal expenses, including the purchase of a custom speedboat, ski vacations, fitness equipment, and jewelry.
In their offering materials, Allen and his companies claimed that they had an "impressive record" of "several … highly successful programs." However, Allen and his companies had never before generated profits for any investors, a fact which was not disclosed.
Allen and his companies included projections in their offering materials that touted annual returns of up to 354 percent. However, they failed to disclose the highly speculative nature of these projections, as well as their failure to generate any profits for prior investors.
The offering materials told investors that, because the issuers — AER and H&M — invested in their own projects, investors could be assured that they had meticulously analyzed the project's prospects. However, AER and H&M had not purchased interests in any of their projects.
The SEC's complaint also alleged that Allen and his companies improperly sold securities to investors in unregistered transactions, and that Allen acted as an unregistered broker.
Allen and his companies agreed to settle the charges against them without admitting or denying the SEC's allegations. Each of them consented to the entry of injunctions prohibiting them from future violations of all of the securities laws that the SEC claims they violated. Allen and his companies also agreed to pay $510,000 in disgorgement — an amount that represents an estimate of the assets they held as a result of the fraudulent offerings — and to pay the costs of distributing these funds to injured investors.
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For more information, contact:
Donald M. Hoerl
Acting Regional Director, SEC's Denver Regional Office