SEC CHARGES "MAN CAMP" OPERATOR FOR ALLEGEDLY DEFRAUDING INVESTORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23252 / May 6, 2015

Securities and Exchange Commission v. North Dakota Developments, LLC, Robert L. Gavin, and Daniel J. Hogan, et. al., Civil Action No. 4:15-cv-00053-DLH-CSM (D.N.D.)

SEC Halts Bakken Oil and Gas-Related Investment Scheme

The Securities and Exchange Commission today announced charges and an emergency asset freeze against North Dakota Developments, LLC ("NDD") and its two principals for allegedly defrauding investors in a scheme to purportedly build and operate short-term housing facilities or "man camps" for workers in the Bakken oil and gas formation of North Dakota and Montana.

The SEC alleges that NDD and its owners Robert L. Gavin and Daniel J. Hogan have raised over $62 million from hundreds of investors in various states in the U.S. and foreign countries for interests in one of four "man camp" projects. According to the SEC's complaint filed yesterday in U.S. District Court for the District of North Dakota, investors bought "units" in NDD's projects motivated by the Defendants' promises of exceptionally high annual returns, up to 42%, and that NDD would jointly manage all of the units as a fully-developed short-term housing facility with amenities typically found in a hotel. The SEC also alleges that the Defendants offered investors the option of receiving a "guaranteed" annual return of up to 25% of the purchase price of their unit without regard to actual rental income. As further inducement to invest, Defendants also promised investors that the various projects would be operational in a very short time frame, often within months. In reality, the SEC alleges, despite the substantial amount of funds raised by the Defendants since May 2012, at the present time, none of the projects are fully operational and one of the projects offered does not even have governmental approval for construction to begin.

According to the SEC's complaint, Defendants directly or indirectly made material misrepresentations and omissions regarding the use of investor funds, the payment of commissions, and the return on the investment. Among other things, the SEC alleges that NDD's first project was delayed and unprofitable. The SEC alleges that, despite the lack of profits, the Defendants made Ponzi-style payments to certain early investors by paying their "guaranteed" returns using funds provided by later investors. The SEC also alleges that instead of developing the projects as promised, the Defendants have misappropriated over $25 million of investor funds to pay undisclosed commissions to sales agents, make payments to Gavin and Hogan, make investments in unrelated Bakken area projects for Gavin's and Hogan's personal benefit, and to make the Ponzi-like payments.

On May 5, 2015, the Honorable Daniel L. Hovland for the U.S. District Court for the District of North Dakota granted the SEC's request for a temporary restraining order and asset freeze against NDD, Gavin, and Hogan. A court hearing has been scheduled for May 18, 2015, on the SEC's motion for a preliminary injunction.

The Commission's complaint alleges that NDD, Gavin, and Hogan violated 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; and seeks preliminary and permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties against each of them.

The SEC's investigation has been conducted by Michael Cates, Anne Romero, and J. Lee Robinson of the Denver Regional Office, with supervision by Ian S. Karpel. The SEC appreciates the assistance of the North Dakota Securities Department.

SEC ALLEGES A $14,380,000 PROMISSORY NOTE FRAUD

The following excerpt is from the SEC website:

January 30, 2012
"The Securities and Exchange Commission announced today that on January 25, 2012 U.S. District Judge Ruben Castillo entered judgments against Arthur Lin (“Lin”) and his wife, Relief Defendant Gloria Lin. The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that from at least September 2006 through at least January 2009, Defendants Marcin Malarz (“Malarz”), Jacek Sienkiewicz (“Sienkiewicz”), and Lin raised at least $14,380,000 from at least 43 investors through the fraudulent unregistered offer and sale of promissory notes issued by entities owned and controlled by Malarz and/or Sienkiewicz. Malarz Equity Investments, LLC (“Malarz Equity”) was the primary entity through which the scheme was perpetrated. Gloria Lin was a member of Malarz Equity, and Lin was an officer of Malarz Equity. The complaint alleges, among other things, that investors were told that their funds would be used to purchase apartment complexes and rehabilitate and convert the individual apartment units for sale as condominiums. The complaint alleges that contrary to these representations, Malarz used substantial sums of the Malarz Equity investors’ funds for his personal benefit and to make ponzi-type “interest” and principal payments to previous investors. Further, Lin received at least $436,000 in undisclosed commission payments, which were transmitted to Relief Defendant Gloria Lin.

To resolve the Commission’s charges, without admitting or denying the allegations of the complaint, Lin consented to the entry of a judgment permanently enjoining him from violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Sections 10(b) and 15(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and ordering disgorgement of $436,000 and prejudgment interest of $49,583, but waiving payment of all but $158,240 in disgorgement and prejudgment interest and not imposing a civil penalty, based upon Lin’s representations in his sworn statement of financial condition dated August 16, 2011. Without admitting or denying the allegations of the complaint, Gloria Lin consented to the entry of a judgment ordering her jointly and severally liable for the disgorgement amount owed by Lin. The Lins are required to pay $43,500 within 14 days of the entry of the final judgments and the remaining $114,740 within 1 year of the date of entry of the final judgments plus post-judgment interest thereon.”
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SEC ALLEGES PAYDAY LOAN OWNER USED INVESTOR MONEY FOR CARS, GAMBLING AND HOME IMPROVEMENTS

The following excerpt is from the SEC website: September 22, 2011 “The Securities and Exchange Commission today charged the owner of a Spokane-Wash.-based payday loan business with conducting a massive Ponzi scheme and stealing investor money to fund her home improvement projects, gambling jaunts to Las Vegas, and purchases of a Corvette and a Mercedes. The SEC alleges that Doris E. Nelson of Colbert, Wash., defrauded investors in her company - the Little Loan Shoppe - by misrepresenting the profitability and safety of their investments and giving them the false impression that their money was being used to grow her business. In truth, Nelson used the vast majority of new investor money to repay principal and purported returns to earlier investors. She misappropriated millions of dollars in investor funds for her personal use. According to the SEC's complaint filed in federal district court in Spokane, Nelson raised approximately $135 million between 1999 and 2008 from at least 650 investors in the United States, Canada, and Mexico. Nelson falsely told investors that Little Loan Shoppe was financially sound. In written promissory notes, Nelson promised investors annual returns of 40 to 60 percent that she claimed would be paid through Little Loan Shoppe's profits. She also told investors that their money was safe because she had insurance or a separate account to pay investors back. However, Little Loan Shoppe was not profitable, investor money was not safe, and Nelson misappropriated the money to run her Ponzi scheme. The SEC further alleges that in mid-2008 as the scheme was nearing collapse, Nelson made a last-ditch effort to attract more investment money by announcing a "window to invest" and falsely telling investors that Little Loan Shoppe had "defied financial gravity" in the declining economy. Investors responded by investing millions of dollars in 2008 before the scheme finally collapsed in 2009. Payments to investors ceased and Little Loan Shoppe was forced into bankruptcy. In its federal court action, the SEC alleges Nelson violated 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. The SEC seeks injunctive relief, disgorgement of ill-gotten gains, and monetary penalties.”