Two Tennessee men with criminal records and an associate in Florida have been charged with fraudulently raising $15 million by misrepresenting to investors that their funds would be used for oil drilling.
The U.S. Securities and Exchange Commission on Friday said David R. Greenlee and David A. Stewart, both of Gallatin, Tenn., ran the scheme from January 2013 to February 2016, telling investors they would use enhanced oil recovery techniques such as fracking to exploit existing wells in Kansas, Oklahoma and Texas and promising profits of 15% to 55% for decades.
In reality, the SEC said, they diverted nearly two-thirds of the funds raised from at least 150 investors for their own benefit, to pay salesmen or to advertise for new investors.
Richard P. Underwood, who allegedly supervised one of the boiler room sales teams that solicited and sold the investments, was named as a co-defendant in the SEC’s civil complaint. All three men have also been charged in a parallel criminal case.
“As alleged in our complaint, misleading brochures and radio advertisements lured investors into believing they could strike it rich by investing in these oil drilling opportunities,” Walter Jospin, director of the SEC’s Atlanta Regional Office, said in a news release. “Unbeknownst to the investors, most of their money was being used for other purposes.”
Greenlee and Stewart allegedly used fake names to conceal their criminal records from investors. Greenlee served time during 1999 to 2000 for forgery and burglary, and again in 2004 for vehicular manslaughter, while his partner was convicted of federal tax evasion in 2007.
According to the SEC, the two men initiated the alleged fraud by incorporating a company called Southern Energy Group (SEG) in January 2013 and installing Robert Dorrance, a relative of Greenlee’s wife, as its “figurehead” president.
SEG’s promotional materials described Dorrance as having “years of experience in finance, sales, oil & gas,” when in reality, the SEC said, his “prior work involved selling stereos and helping manage his spouse’s dental practice.”
Of the funds raised from investors, “most was spent at only a few of the wells in order to create an appearance of activity to dupe investors who wanted to see the wells in production,” the SEC alleged.
Content retrieved from http://ww2.cfo.com/fraud/2017/08/three-accused-15m-oil-investment-scam/