Two entities and their principals settled SEC charges for the sales of unregistered oil and gas securities and material misstatements in connection with those offerings.
The SEC found that the companies "and salespeople acting on their behalf sold more than $250 million of debt and equity securities in unregistered offerings, based on working interests in oil and gas wells, to retail investors." According to the Order, the entities and principals misled investors by, among other things:
- asserting that the securities were sold by SEC-registered and FINRA-member broker-dealers;
- providing misleading oil well production projections;
- inadequately disclosing how investor funds were allocated (g., marketing expenses, commissions to salespeople and the salaries of employees); and
- touting potential tax benefits without clarifying that the benefits were unavailable to retirement account investors.
The SEC denied any claim of exemption under Regulation D, as the securities were offered for sale by general solicitation and no reasonable steps had been taken to verify the accredited status of investors, resulting in sales to approximately 200 non-accredited investors.
The SEC determined that the two companies and their principals violated Sections 5(a) ("Sale or Delivery after Sale of Unregistered Securities"), 5(c) ("Necessity of Filing Registration Statement"), 17(a)(2) and 17(a)(3) of the Securities Act. Further, the SEC found that the two principals violated Section 15(a) of the Exchange Act ("Registration of All Persons Utilizing Exchange Facilities to Effect Transactions; Exemptions").
To settle the charges, the two companies and two principals agreed to (i) cease and desist from future violations, and (ii) several undertakings outlined in the order, including a two-year bar from participation in selling oil and gas securities. In addition, the two principals each agreed to (i) various industry bars and (ii) pay a $75,000 civil money penalty. The two companies also each agreed to pay a $225,000 civil money penalty.
Primary Sources
- SEC Press Release: SEC Charges Two Companies and Their Principals with Misleading Investors in More than a Dozen Oil and Gas Securities Offerings
- SEC Order: Resolute Capital Partners LTD, LLC, Homebound Resources, LLC, Thomas J. Powell and Stefan T. Toth
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