A Texas federal judge has ruled that a California bar owner who solicited investors for a suspected $18 million oil and gas Ponzi scheme is liable for nearly $400,000 in civil penalties, interest, and disgorgement stemming from the lucrative commissions he received. Roland Barrera, the owner of a nightclub and speakeasy in Costa Mesa, California, was ordered to pay the amount after U.S. Magistrate Judge Mark Lane granted summary judgment to the Securities and Exchange Commission in an ongoing suit brought in December 2013 to halt the scheme allegedly perpetrated by Robert Helms and Janniece Kaelin. The decision by the Commission to include promoters of the alleged scheme, while not unprecedented, is rare amid a flurry of enforcement actions brought to combat suspected oil-and-gas frauds.
According to the complaint filed by the Commission, Helms and Kaelin began soliciting investors in 2011 for Vendetta Royalty Partners ("VRP"), a limited partnership they controlled. Formed in 2009, VRP initially acquired oil-and-gas royalty interests from another limited partnership the two men controlled. However, beginning in 2011, VRP filed documents with the Commission seeking to raise $50 million through the sale of limited-partnership interests. In offering documents, potential investors were told that (1) 99% of the raised proceeds would be used to purchase oil-and-gas royalty interests, (2) that Helms had extensive experience in the oil-and-gas industry, (3) that investors would receive periodic reports on VRP's progress, and (4) no legal proceedings were pending against the company. Potential investors were told to expect a return ranging from 150% - 200% in just several months. In total, approximately $18 million was raised from nearly 100 investors in a dozen states. This included a $3 million investment solicited by Barrera and another defendant, Deven Sellers, from a California investor who was told that he could realize outsized returns and that Sellers and Barrera would only receive a small commission from his investment. In reality, Sellers and Barrera pocketed nearly $400,000 in commissions off that investment.
However, VRP did not achieve the profitable returns promised by Helms and Kaelin. Indeed, rather than invest 99% of raised offering proceeds in oil-and-gas royalty interests, only 10% was in fact invested as advertised. These investments generated de minimus returns. The representations made to investors were also false. Helms did not have 10 years of experience in the oil-and-gas industry; rather, his sole experience came from operating VRP. Investors were never provided with periodic progress reports, and were not informed of significant pending litigation against VRP by an existing investor accusing the company of fraud. Instead, nearly $6 million was paid to existing investors in the form of "income distributions" that was, in reality, funds from new investors in a classic example of a Ponzi scheme. Millions of dollars were also allegedly misappropriated by Helms and Kaelin for their own personal benefit.
According to Bizjournals, summary judgment was also entered against the scheme principals Helms and Kaelin.
The SEC's Complaint is below: