The Securities and Exchange Commission on Friday charged two men from Tennessee and an accomplice in Fort Lauderdale, Florida, with allegedly defrauding investors out of $15 million in an oil drilling investment scheme that promised returns as high as 55%.
According to the SEC's complaint filed in federal court in Savannah, between at least January 2013 and February 2016, David R. Greenlee and David A. Stewart Jr. orchestrated the $15 million scheme by recruiting and controlling a network of salesmen who offered and sold more than 150 investors a stake in various companies purportedly using enhanced oil recovery techniques like fracking to extract and sell oil from wells in Kansas, Oklahoma and Texas.
Investors were allegedly promised profits of 15% to 55% per year for decades.
Greenlee and Stewart operated their scheme through two Tennessee corporations, Southern Energy Group Inc., which is now administratively dissolved, and Black Gold Resources Inc., which later changed its name to Tennstar Energy Inc.
Greenlee, 41, and a resident of Gallatin, Tennessee, was convicted in state court and served time in a Kentucky prison from 1999 to 2000 for forgery and burglary, and again in 2004 for vehicular manslaughter, the SEC complaint states.
Following his most recent incarceration from 2007 to 2009 for probation violations, the agency says, Greenlee became involved in various unregistered securities offerings.
“Through one such offering, he became friends with Stewart, who was a fellow salesman. When communicating with investors regarding the offer and sale of the investments at issue here, Greenlee frequently used the aliases ‘David Johnson’ or ‘David Morrill’ to conceal his criminal record,” the complaint states.
The SEC alleges they diverted nearly two-thirds of the money raised from investors to pay themselves and their salesmen and to advertise for new investors.
According to the SEC's complaint, minimal funds were used for oil production at just a few of the wells in order to create the appearance of oil production and dupe investors who wanted to see activity in person.
The SEC's complaint further alleges that Richard ''Ric'' P. Underwood helped Greenlee and Stewart draft false offering brochures, and he oversaw a boiler room sales team of telemarketers in Florida as they solicited investors nationwide.
“As alleged in our complaint, misleading brochures and radio advertisements lured investors into believing they could strike it rich by investing in these oil drilling opportunities," said Walter Jospin, director of the SEC’s Atlanta Regional Office. "Unbeknownst to the investors, most of their money was being used for other purposes.”
In a parallel action, the U.S. Attorney's Office for the Southern District of Georgia announced criminal charges against Greenlee, Stewart and Underwood on Friday.
The SEC’s complaint charges Greenlee, Stewart and Underwood with violations of the antifraud provisions of the federal securities laws, and seeks the disgorgement of ill-gotten gains plus interest and penalties as well as injunctions.