SEC Files Offering Fraud Action
The Commission filed another offering fraud action tied to the sale of interests in the development of oil and gas wells prior to the recent downturn in the price of oil. Beginning in 2010 the defendants raised about $4.4 million from 60 investors through a nationwide offering. The defendants largely dissipated the investor funds, according to the complaint. SEC v. Mieka Energy Corporation, Civil Action No. 3:15-cv-01097 (N.D. Tx. Filed April 10, 2015). See Lit. Rel. No. 23239 (April 10, 2015).
Named as defendants in the action are: Mieka Energy, a wholly owned subsidiary of another defendant, Vadda Energy Corporation, based in Flower Mound, Texas, which registered its shares under the Exchange Act; Daro Blankenship, the founder and managing director of Mieka and also the President and CEO of Vadda of which he and his wife own 79%; Robert Myers, Jr., Mieka’s vice president of project development; and Stephen Romo, previously a real estate broker, who sold interests in Mieka.
Beginning in September 2010 Mieka Energy marketed what were called joint venture interests nationwide to investors. The offering package contained brochures, newspaper and magazine segments, a Confidential Information Memorandum, a joint venture agreement, a subscription agreement and an investor questionnaire. Investors were told that the funds raised in the offering would be used to drill, test and complete horizontal and vertical gas wells in Westmoreland County, Pennsylvania. The documents also authorized the payment of offering and organizational costs and discussed a fee for Mieka Energy. These were supposed to be turnkey projects undertaken with an affiliate.
The interests were marketed through extensive boiler-room type calls. While investors were told that they would be acquiring joint venture interests, in fact they had little control. Two of the salesmen in this effort were defendants Myers and Romo. Neither was registered with the SEC or associated with a Commission registered broker-dealer.
Contrary to the representations made to investors, Mieka Energy did not drill the horizontal well. It did do work on a vertical well. That well was not functional, however, because it was never connected to a transmission line for the gas. About $850,000 was spent on development activities. Overall the commissions and those development costs constituted a little over 21% of the total funds raised from investors.
When most of the investor funds were gone, Mr. Blankenship furnished investors with a series of update letters. Those letters indicated that the wells would be developed and completed in the near future. Filings made with the Commission by Vadda did not disclose the true nature of the project.
The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a) and 15(a) and control person liability under Section 20(a). The case is pending.