Tuesday, July 7, 2009
On July 2, 2009, the SEC obtained a temporary restraining order and emergency asset freeze in yet another alleged Ponzi scheme, this one a $485 million offering fraud run by three individuals (Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison) through a company they owned and controlled, Provident Royalties LLC. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors.
The Commission alleges that from at least June 2006 through January 2009, Provident made a series of fraudulent offerings of preferred stock and limited partnership interests for the purpose of generating promised returns through investments in oil and gas assets. The complaint alleges the sales were made through 21 affiliated entities to more than 7,700 investors throughout the United States. It is also alleged that Provident Asset Management, LLC, an affiliated broker-dealer, made some direct retail sales of securities, but primarily solicited unaffiliated retail broker-dealers to enter into placement agreements for each offering, and those retail broker-dealers sold the stock to retail investors nationwide.
According to the Commission's complaint filed in U.S. District Court for the Northern District of Texas, Provident falsely promised yearly returns of up to 18 percent and misrepresented to investors that 85 percent of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights, and interests, exploration and development. The Commission alleges that, in fact, less than 50 percent of investor funds were used for their stated purpose, and the proceeds from later offerings were used to pay expenses related to earlier offerings and returns to investors in those offerings.
The complaint seeks a temporary restraining order and preliminary and permanent injunctions, disgorgement of ill-gotten gains plus prejudgment interest and financial penalties. Officer and director bars are sought against Melbye, Harrison and Coughlin. Five affiliated entities that did not sell securities are named as relief defendants for purposes of disgorgement.