Oil / Gas Scams Are Alive & Well | Mark Alexander, P.C.

Oil / Gas Scams are Alive & Well Is This a Good Thing? As consumers we enjoy the low price of gas to fill up our cars, but at the same time fraudulent oil & gas companies are enjoying the low price as it provides them with another tool to steal money from investors. These companies are contacting potential investors and representing that now is the time to invest with them, as the price of oil & gas will significantly increase in the near future, so you better “get in while the getting is good.” Not so fast. What Am I Really Investing In? These scam companies represent to the public that their investment projects are “joint ventures” and not securities. They make that representation in an attempt to avoid the costly Federal and State registration requirements when offering to sell and selling securities. Also, these companies claim that their offerings to the public are exempt from both Federal and State law registration requirements. In nearly all of our oil & gas fraud cases we have proven that these so called “joint ventures” were in fact securities, and that they are not exempt from the laws as represented, which can result in liability to several persons within those companies. They Don’t Want You To Visit Fraudulent oil & gas deals are frequently set up in one state, the operation and physical presence of the oil & gas well/field in a second state, and the offerings made to prospective investors in states other than the initial two states. Thus, there is less chance of an investor dropping by a well site or a nonexistent company headquarters. Our experience has exposed this ruse. Specifically, most fraudulent oil & gas companies solicit investors in far-away states, have their front door locked, have a camera showing who is at their front door, and if that person appears to be an investor, they are not allowed into the office. Can they be anymore unscrupulous? How Did They Get My Name? In order to attract the interest of potential investors, scam promoters frequently “buy” lists of successful people or use the Internet to identify these people. The company has a “boiler room” with banks of phones manned by salespeople with little or no background in energy exploration, but plenty of experience in high-pressure sales to make “cold calls” to these people. Don’t be surprised to learn that after you invested that your salesman has a lengthy criminal record. The salesmen will make all kinds of promises to get your money. Don’t believe a word. We could write a novel of what our clients have been promised by these salesmen. After the phone call, they will send you, the prospective investor, a fancy brochure with really cool graphs, pictures and biographies. Red flag! Over the many years in which we have represented investors, we have proven much of what is sated is the beginning of a long tale of lies. Due Diligence Before You Lose You can minimize the risk of being swindled if you resist pressures to make hurried, uninformed investment decisions. The following are several steps you should consider taking before parting with your money: 1. The Registration Requirements When you receive this “cold call” ask if the oil & gas offering is filed with the office of the state securities commission in your state or the state in which the promoter is located. If the promoter claims that the offering is exempt from registration requirements in the particular state in which the offers and sales are made, ask which of the exemptions are claimed and the terms of the exemption. If the promoter claims a security is not involved at all, ask why. After the call contact the securities commission in the state where the company is located and get verification of all these representations. Significantly, keep notes of what is represented during all of these calls, as it will help you when talking with the state securities commission, and your attorney. 2. The Salesperson If it is a legitimate deal, the salesperson will not be reluctant to answer questions or provide written explanations to questions. Ask if he is registered with their state security commission to offer to sell and sell securities. Contact that state’s securities agency to find out if the salesperson is in fact registered, and if he has been sanctioned for previous violations of securities laws in any other state. In all of our cases, we have gotten the salesman to admit that he has not been properly registered to offer to sell and sale securities, and that most of them have been sanctioned a state securities commission…..some in numerous states. The failure to be registered is a direct violation of the law entitling the investor to get his/her money back 3. The Company Ask the name of the person who controls the company and the project they want you to invest in, as this information is key to possibly have that person be individually liable for your investment. Find out the company’s history in drilling operations. In particular, ask how long it has been in the oil and gas business, the number of wells drilled, the number of wells completed as producing wells, and the average daily production of the wells. All the above information should be contained in the brochure mentioned above, which the promoter must furnish potential investors before they commit their funds. We can help you with this request. If they hesitate to provide this information….hang up. If they do provide you with anything, we suggest that you confirm that information with the state securities commission (or related entity). We would be quite surprised if they provide the potential investors with much, if anything, in this regard. We know they are very reluctant to be open and honest. 4. The Investment Prior to making any investment, secure documents clearly stating that the funds raised by the company will be deposited into a separate escrow account, and that they won’t be commingled with other funds. Also, be certain the funds will not be used for purposes other than those specified. For example, used for personal expenses of the salesman and company owner. Don’t be surprised to later discover that some or most of your investment went directly into the pockets of these people. In some of our cases we have shown that the investors’ money went to purchase cars, suites at sporting events, trips to Las Vegas and even a wedding! If you are told that this is a “turnkey” project, meaning that after your initial investment you should not be asked for a “cash call”…..i.e. more money to complete the well. Cash calls are a well (no pun intended) established way to get more of your money. Generally, if the company makes a “cash call” do not send them any more of your money, but contact a law firm with substantial experience in these cases, as this is another sure sign that this project is a fraud. 5. The Lease Get a history of the property where the drilling is to take place. How and when was it acquired? Your state securities commission (or another state agency) should be able to help you verify what you are represented. Ask for a description of surrounding property, including local well completions and a geologist’s report on the area. We advise our clients to secure this information because many times the salesman will make a representation like, “The wells adjacent to this offering are making a lot of money for those investors.” We have this to very rarely be the case. Ask for a disclosure of the person(s) selling the lease, the cost of the lease and any relationship between the lessor and the operator. In litigating these cases we have found out that many of the oil & gas companies have bought a lease and then “marked up” the price to the investors to an astronomical level. Recently, a company “marked up” this price 600%! Don’t be surprised if they refuse to give you this information. We know that a refusal to give you this information is another tell-tale sign that this project is a scam. Experienced Oil / Gas Scam Attorney There are many more factors to consider prior to investing your hard-earned money with anyone. The Law Firm of Mark A. Alexander, P.C is here to help. Call us today at (972) 544-6968.