Offering Frauds – an SEC Staple
Offering fraud actions are a staple of the SEC’s enforcement program. Many of the actions focus on selling shares of microcap issuers. Frequently investors are solicited to part with their hard earned cash with a series of lies regarding the future of their investment which most assuredly will produce good returns according to those offering the shares for sale. In some instances those selling the shares are recidivist. Unfortunately, in many instances there is little evidence that the investors conducted any due diligence regarding the proposals or even checked Broker-Check. Below is an example of these cases filed as the second quarter came to a close.
SEC v. Baker, Civil Action No. 3:22-cv-01415 (N.D. Tex. Filed June 30, 2022) is an action which names as defendants: William G. Baker, the owner and managing member of Cannon Operating Company LLC (“Cannon”) and North Texas Minerals (“NTX”) who has been convicted in Dallas on weapons and drug charges and had the Ohio Division of Securities issue a cease-and-desist order against him for acting as an unregistered broker; Michael Bowen, COO of Cannon which has been sanctioned by the Commission on securities violations; Cannon, an oil and gas company that has been sanctioned by multiple state regulators; NTX, a Texas entity formed by defendant Baker that has never registered with the Commission; and Chol Kim a/k/a Brandon Kim, a former salesman of Cannon and NTX.
Over a two-year period Defendants raised over $2.1 million from at least 140 investors in four offerings involving the sale of oil and gas interest. In the primary offering there were undisclosed commissions, the payment of improper expenses and the co-mingling of investor funds. In each of the other offerings the funds were comingled; and in one offering NTX sold interests it did not own. The complaint alleges violations of Securities Act Sections 5(a), 5(c), and 17(a) and Exchange Act Section 10(b) and 15(a). The case is pending. See, Lit. Rel. No. 25433 (July 1, 2022).