The Securities and Exchange Commission ("SEC") filed charges against a California-based energy company and four men on Tuesday, alleging that instead of drilling oil wells, the company operated an $11 million Ponzi scheme. Progressive Energy Partners LLC, based in Costa Mesa, California, along with Jerry Aubrey, Tim Aubrey, Brian Cherry, and Aaron Glasser were charged with violating the antifraud, securities registration and broker-dealer registration provisions of U.S. securities laws.
According to the SEC, PEP salespeople purchased contact information from lead brokers, and utilized tactics such as cold calls and high-pressure sales tactics to contact potential investors. The salespeople pitched $25,000 private placement investments in the development and support of oil and gas wells in West Virginia. Potential investors were promised annual returns exceeding fifty percent. In total, the company raised $11 million from over 200 investors. Yet, the company used less than $1 million to drill oil wells, and never engaged in any profitable operations. Instead, funds from new investors were used to pay returns to existing investors. Additionally, $2 million was paid to PEP salespeople in the form of commissions, and over $3 million was allegedly misappropriated by the Aubreys to pay rent at their lavish home, which featured giant fish aquariums with miniature sharks, a hot tub, pool, and tennis court.
The SEC action follows moves by at least three other states to obtain cease-and-desist orders against PEP and its salespeople for violations of state securities laws. This included actions by South Dakota, Pennsylvania, and most recently, Washington, which instituted an action in October 2009 charging PEP with securities law violations relating to the unregistered sale of interests in oil and gas wells. Canada also recently opened an inquiry, with the Alberta Securities Commission scheduling hearings as to whether any securities laws were broken by PEP and its principals.
The SEC is seeking relief including permanent injunctions, disgorgement of allegedly ill-gotten gains along with prejudgment interest, and civil monetary penalties.
A copy of the complaint filed by the Washington Department of Financial Institutions is here.