The SEC charged Jeffrey B. Mallett and his company, Green Tree Investment Group, Inc. ("Green Tree"), with acting as unregistered brokers and charging excessive fees.
Mallett and Green Tree purchased ownership interests in Texas wells and oilfield facilities for the benefit of other investors. According to the SEC Complaint, Mallett and Green Tree acted as brokers by receiving compensation through markups off the purchase prices and additional commissions by retaining a percentage of the interests purchased by investors. Mallett and Green Tree agreed to pay over $777,000 to settle the charges.
The settlement is pending final approval by the U.S. District Court for the Western District of Texas.
Commentary / Steven Lofchie
The most significant issue in this case was whether the interests purchased by the investors were in fact "securities" such that the case was within the SEC's jurisdiction at all. To make the case that the interests were in fact securities, the complaint stated repeatedly, "Neither Defendants nor the other investors were involved in managing or operating any of the wells or other oilfield facilities." (For law students, this is the rationale behind the famed Howey case, where it was determined that interests in an orange grove were "securities.").
The reasoning in the case does not break new ground. The SEC has consistently expressed concern with unsophisticated investors thinking that they would get rich in oil. Thus, the interesting question is whether this enforcement action is a one-off or is a signal that the SEC intends to pursue cases in the oil industry more aggressively. (Here is a little musical aside.)
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