In the spirit of Charles Ponzi, today we offer advice for attracting special attention from powerful federal authorities who want to punish you. Helms and Kaelin marketed a limited partnership to hold royalty interests in 2,000 oil and gas wells Here’s how they did it, and you can too!
In a private placement memorandum in which you raise $31,000,000 from 129 investors, 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.”;
- 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);
- Represent that you have managed other investments fund to the tune of $300MM (which is not remotely true);
- Describe at length your “extremely successful history” in the off-shore oil and gas industry and your business relationship with a successful and well-known oil man and his $500MM energy fund (when your actual experience was cold-calling land owners to buy minerals).
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;
- Brag on social media about your “Journey of Man”, in which you (Helms, with girlfriend Kaelin) use 50 hours of flight time on a private jet, meet elephants in Thailand, ride camels in Jordan, and other fun adventures;
- Spend $12.8MM on business expenses, including $1.1MM in bank loans, without telling your investors.
Create 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;
- Of the $31MM raised, make distributions using new investor funds totaling $4.7MM. Have the SEC’s witness deem every distribution a Ponzi payment.
- 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 Rules, assert 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, permanent injunction, and a civil fine of another $31MM.
- The two lovebirds will end their sordid journey here.