The spirit of Charles Ponzi lives in the oil and gas business. Today we offer advice for attracting special attention from powerful federal authorities, inspired by SEC v. Helms et al. Here’s how you do it:
Helms and Kaelin, marketed a limited partnership to hold royalty interests in 2000 wells and raised $31,000,000 from 129 investors.
In a private placement memorandum, promise:
- 99.14% of the proceeds raised will be for purchasing royalty interests;
- Investment proceeds will be used for only two kinds of business expenses: loan payments and promotional expenses;
- Every dollar that comes in goes out in acquisitions, “so if you put $1MM into the company, that $1MM is spent on acquisitions.”;
- Of the $31MM raised, make distributions using new investor funds totaling $4.7MM. Have the SEC’s witness deem every distribution to be a Ponzi payment.
- Make sure the profits are inadequate to cover the distributions to be paid.
- You have managed other investments funds to the tune of $300MM, none of which is remotely true;
- There are no material pending legal proceedings, when there are several.
Spiff up the resume
- Represent in the PPM that you have “worked with various mineral companies over the last ten years advising managerial issues involving the acquisition and management royalty interests, mineral properties and related legal and financial issues”, none of which is remotely true.
- If you are Kaelin, describe at length your “extremely successful history” in the off-shore oil and gas industry and her business relationship with [a successful oil man you have heard of] and his $500MM energy fund, which your actual experience was cold-calling land owners attempting to buy their mineral.
Break the promises, what were they thinking?
- Spend at least $8.4MM on yourselves, families, friends and associates, including $247,000 for your daughter’s wedding in Hawaii, $110,000 for airfare, $102,000 for tuition, $287,000 for mortgage payments and the cost of a 23-day trip around the world;
- Finance the trip with the proceeds from a single $200,000 investment;
- Brag on social media about your “Journey of Man”, in which you (with girlfriend Kaelin) use 50 hours flight time on a private jet, meet elephants in Thailand, ride camels in Jordan, and more;
- Spend $12.8MM on business expenses, including $1.1MM in bank loans, without telling your investors.
Creae and cover up evidence
- Forge an audit letter from [a well-respected engineering firm] asserting that you own over 18,000 properties worth over $26MM. In fact, there is nothing to audit because you own no properties;
- Engage in “round-trip transactions” (moving money around in transactions for which there is no legitimate business purpose) to make it look like royalty revenue;
- If you are Kaelin “repeatedly fail to comply with subpoenas, court orders and the Federal Rule, ) assert in mental incompetence without supporting evidence, engage in “evasive and manipulative” conduct to avoid discovery obligations.
What about the salesmen?
If you are Sellers and Barrera:
- Receive a commission of 14% of a $3.1MM investment, more than eight times the PPM’s $50,000 limit for total promotional expenses.
- Have lunch with the investor and lie to him when directly asked about the commission, call it “small:
- Allow a federal judge to define “small”;
- Do all this while not a registered broker.
- Don’t bother to participate in the legal proceedings.
What will happen to you?
- The SEC will sue you and your corporate entities throwing in a kitchen sink of securities fraud allegations.
- There will be a judgment for $31MM, disgorgement, a permanent injunction, and a civil fine of another $31MM.
- The two lovers will meet at this place.