SEC Charges Boiler Room Operators With Fraud
Since the price of oil declined from its once lofty numbers the oil industry has suffered. Yet those engaged in offerings securities supposedly to fund oil firms do not seem to have been impacted. To the contrary, offering fraud cases brought by the Commission centered on the solicitation of investors to finance oil ventures continue. The latest action by the agency in this area is SEC v. Wayland, Civil Action No. 8:17-CV-01156 (C.D. Cal. Filed July 6, 2017).
The case centers on an offering fraud promoted by a boiler room over a two year period beginning in 2014 by a mother, her son, their entities and three salesmen. Carol Wayland is the mother; John Mueller is her son; Kentucky-Tennessee 50 Wells/400 BBLPD Block, Limited Partnership, HP Operations, LLC and C.A.R. Leasing, LLC are their firms; and Mitchell Dow, Barry Liss and Steve Blasko are their salesmen.
About 41 investors scattered across the nation put up over $2.4 million to purchase unregistered securities in the form of limited partnership units. Investor funds were sent to K-T 50. The goal was to raise $10 million. The K-T-50 PPM offered 100 limited partnership units for $100,000. Each unit represented a 1% working interest in the limited partnership. Each supposedly carried a net revenue interest of 0.075% per unit, although the executive summary for the offering document claimed that the net revenue interest was 75% per 100 units. The offering proceeds were to be used for business and oil well drilling expenses. Up to 35% of the funds could be paid to the Managing General Partner for filing, legal, bond/insurance, advertising/marketing, sales commissions and accounting and administrative – assuming the offering was fully subscribed. The remaining offering proceeds were to be used for drilling.
To solicit investors Ms. Wayland and her son set up “Sahara Wealth Advisers” in Irvine, California. A website was established along with Linkedin and Facebook accounts. Two press releases were issued.
The sales staff was divided into two groups – the Fronters and the Closers. The former were typically given a script and made calls off of lead sheets. The latter followed-up. During the solicitation investors were promised high returns and assured that the firm had experienced management. Neither representation was true, although Defendants Wayland and Mueller did lease and operated at least one well for K-T-50. Ms. Wayland and Mr. Mueller also misappropriated much of the investor money.
The Commission’s complaint alleges violations of Securities Act Sections 5(a), 5(c) and each subsection of 17(a) and of Exchange Act Sections 10(b) and 15(a). The action is pending. See Lit. Rel. No. 23876 (July 7, 2017).