SEC CHARGES COMPANY WITH CONDUCTING FRAUDULENT OIL AND GAS SCHEME

FROM:  U.S. SECURITIES AND EXCHANGE COMMISSION 

Litigation Release No. 23230 / April 6, 2015

Securities and Exchange Commission v. Team Resources, Inc., et al., Civil Action No. 3:15-CV-1045 (NDTX, April 6, 2015)

SEC Charges California Companies with Running a $33 Million Oil and Gas Scheme

The Securities and Exchange Commission today filed suit in the U.S. District Court for the Northern District of Texas against two California oil-and-gas companies, their principal, and four sales associates, for conducting a long-term fraudulent oil and gas scheme.

The SEC alleges that, from 2007 through 2012, Team Resources, Inc. and Fossil Energy Corp. raised over $33 million from approximately 475 investors nationwide through eight unregistered offerings of oil-and-gas partnership interests. Kevin Albert Boyles controlled both companies, and used his sales staff of Philip Adam Dressner, Michael James Eppy, Andrew Stitt, and John M. Olivia to cold-call potential investors and mislead them into buying the partnership interests. The complaint alleges that the defendants misled investors about such material information as potential returns, the success of past offerings, and how offering proceeds would be used. In addition, Boyles paid large and undisclosed commissions to the salesmen — ranging from 25% to 35% — even though none of them was registered as a broker or associated with a registered broker-dealer. After raising sufficient funds from investors, Team Resources and Fossil Energy contracted with third parties to drill the wells, all of which failed to produce oil and gas in the amounts projected by the defendants.

The SEC charges Team, Fossil, Boyles, Dressner, Eppy and Stitt with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b) and 15(a) of the Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder. Olivia is charged with violating Sections 5(a) and 5(c) of the Securities Act and Section 15(a) of the Exchange Act. The SEC seeks civil penalties and disgorgement plus prejudgment interest from each defendant, as well as other relief.

To settle the SEC's charges, Team, Fossil, and Boyles have consented to judgments permanently enjoining them from violating Sections 5(a), 5(c), and 17(a) of the Securities Act and Sections 10(b) and 15(a) of the Exchange Act and Rule 10b-5 thereunder. Olivia has consented to a permanent injunction against violations of Sections 5(a) and 5(c) of the Securities Act, and Section 15(a) of the Exchange Act. Team, Fossil, Boyles, and Olivia have consented to disgorge their ill-gotten gains and to pay civil penalties in amounts to be determined by the court. Boyles and Olivia have also agreed to consent to an administrative order barring each from associating with any broker, dealer, investment adviser, municipal advisor, transfer agent, or nationally recognized statistical rating organization, or from participating in an offering of penny stock.

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.