SEC WARNS INVESTORS TO CHECK BACKGROUNDS OF INVESTMENT SOLICITORS

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

6/03/2015 11:50 AM EDT

The Securities and Exchange Commission warned investors to thoroughly check the claimed credentials of people soliciting their investments to ensure they are not falsifying, exaggerating, or hiding facts about their backgrounds.  The agency has brought several recent enforcement cases along these lines, including two actions announced today.

An investor alert issued by the SEC’s Office of Investor Education and Advocacy cautions, “Do not trust someone with your investment money just because he or she claims to have impressive credentials or experience, or manages to create a ‘buzz of success.’”  The alert notes that investors sometimes unintentionally contribute to a fraudster’s false reputation of success and accomplishment by merely repeating to others the misrepresentations being made to them.  Investors can conduct background checks of financial professionals to ensure they are properly licensed or registered with the SEC, Financial Industry Regulatory Authority, or a state regulatory authority by visiting the “Ask and Check” section of the SEC’s Investor.gov website.

The SEC Enforcement Division today announced two separate fraud cases against investment advisers who made false claims about their experience and industry accolades in an effort to gain the trust and confidence of investors.

“Advisers looking to raise funds cannot lie about their backgrounds to lull investors into a false sense of security about their purported expertise or the profitability of a potential investment,” said Julie M. Riewe, Co-Chief of the SEC Enforcement Division’s Asset Management Unit.  “Each adviser in these cases used false claims about his background to create trustworthiness and lend credibility to their offering schemes.”

An SEC investigation found that Michael G. Thomas of Oil City, Pa., touted that he was named a “Top 25 Rising Business Star” by Fortune Magazine as he solicited investors through blast e-mails and the Internet for a private fund named Michael G. Investments LLC.  No such distinction actually exists at Fortune Magazine, and Thomas also greatly exaggerated his own past investment performance, misrepresented that certain industry professionals would co-manage and advise the fund, and inflated the fund’s projected performance.  To settle the SEC’s charges, Thomas agreed to pay a $25,000 penalty and consented to an order requiring him not to participate in the issuance, offer, or sale of certain securities for five years.  He also is barred from associating with any broker, dealer, or investment adviser for at least five years.

A separate SEC investigation found that Todd M. Schoenberger of Lewes, Del., misrepresented that he had a college degree from the University of Maryland and touted his appearances on cable news programs while soliciting investors to purchase promissory notes issued by his unregistered investment advisory firm LandColt Capital LP.  Schoenberger falsely told prospective investors that LandColt would repay the notes through fees earned from managing a private fund.  Schoenberger never actually launched the fund, never had the commitments of capital to the fund that he claimed, and never paid investors the returns he promised.  To settle the SEC’s charges, Schoenberger agreed to pay $65,000 in disgorgement of ill-gotten gains plus interest.  He consented to an order barring him from associating with any broker, dealer, or investment adviser and from serving as an officer or director of a public company.

The SEC’s investigation of Thomas was conducted by Mark D. Salzberg and Corey A. Schuster of the Asset Management Unit, and the case was supervised by Panayiota K. Bougiamas and Jeffrey B. Finnell.  The SEC’s investigation of Schoenberger was conducted by John G. Westrick of the Asset Management Unit and supervised by Stephen E. Donahue.  The investor alert was prepared by M. Owen Donley III and Holly Pal in the Office of Investor Education and Advocacy.

SEC HALTS ALLEGED OIL AND GAS PONZI SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 
SEC Halts Texas-Based Oil and Gas Investment Scheme

The Securities and Exchange Commission today announced charges and an emergency asset freeze against the perpetrators of a Texas-based Ponzi scheme involving purported investments in oil and gas projects.

The SEC alleges that Robert A. Helms and Janniece S. Kaelin, who work out of an office in Austin, misled investors about their experience in the oil and gas industry while raising nearly $18 million for supposed purchases of oil and gas royalty interests. Despite representations that nearly all of the money they raised would be used to make oil and gas investments, Helms and Kaelin actually used only a fraction of the offering proceeds for that purpose. Instead, the vast majority of investor funds were used to make Ponzi payments and cover various personal and business expenses.

The SEC's complaint unsealed late yesterday in U.S. District Court for the Western District of Texas also charges Deven Sellers of Arvada, Colo., and Roland Barrera of Costa Mesa, Calif., with illegally selling investments for Helms and Kaelin without being registered with the SEC. They also allegedly misled investors about the sales commissions and referral fees they were receiving.

According to the SEC's complaint, Helms and Kaelin began offering investments in 2011 through Vendetta Royalty Partners, a limited partnership that they control. They have since attracted at least 80 investors in more than a dozen states while promising in offering documents that they would use more than 99 percent of the investment proceeds to acquire a lucrative portfolio of oil and gas royalty interests. The offering documents were fraudulent as Helms and Kaelin invested only 10 percent of the proceeds, and the oil and gas projects in which they actually did invest generated only minuscule returns.

The SEC alleges that Helms and Kaelin directed Vendetta Royalty Partners to make approximately $5.9 million in so-called partnership income distributions to investors. They used money from newer investors to make the distributions to earlier investors. Helms and Kaelin created the illusion that Vendetta Royalty Partners was a profitable enterprise when, in fact, it was a fraudulent Ponzi scheme. Some offering documents touted Helms to have extensive oil-and-gas experience, misrepresenting that he had "worked with various mineral companies over the last 10 years advising management on issues involving the acquisition and management of royalty interests, mineral properties and related legal and financial issues." In fact, Helms's oil-and-gas experience came almost entirely from operating Vendetta Royalty Partners and its affiliated or predecessor companies.

The SEC alleges that Helms and Kaelin misled investors about other important matters besides their business background and industry reputation. They failed to disclose the existence of litigation against them and companies they control. They misrepresented the performance of the limited oil-and-gas royalty investments actually under their management. And they failed to inform investors that Vendetta Royalty Partners was behind on its line of credit. The company ultimately defaulted.

According to the SEC's complaint, Helms and Kaelin along with Sellers and Barrera told potential investors that any commissions or finder's fees would be small. However, Sellers and Barrera each received more than $200,000 in such fees on one investment alone. Sellers and Barrera regularly solicited investments without being registered as brokers.

At the SEC's request, the court entered an order temporarily restraining the defendants from further violations of the federal securities laws, freezing their assets, prohibiting the destruction of documents, requiring them to provide an accounting, and authorizing expedited discovery.

The SEC's complaint alleges that the defendants violated the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. The complaint further alleges that Sellers and Barrera acted as unregistered brokers in violation of Section 15(a) of the Exchange Act. The complaint requests permanent injunctions and the disgorgement of ill-gotten gains plus prejudgment interest and penalties.

The SEC's investigation was conducted by Chris Davis, Carol Hahn, and Joann Harris of the Fort Worth Regional Office. The SEC's litigation will be led by Timothy McCole. The SEC appreciates the assistance of the Federal Bureau of Investigation, U.S. Secret Service, and Texas State Securities Board.