According to the SEC’s order, between 2016 and 2019, the respondents and salespeople acting on their behalf sold debt and equity securities to retail investors in unregistered offerings based on working interests in oil and gas wells. The order finds that the respondents made material misstatements and omitted material facts in both debt and equity offerings. In particular, the respondents provided insufficiently supported projections of future oil production, made statements about potential tax benefits that were unavailable to certain investors, overstated cash reserves, and made incomplete disclosures regarding potential uses of investor funds, including the amount of funds that would be used for payments to prior debt and equity investors. The order further finds that the respondents should have known that their statements and omissions were materially misleading.
“Today’s settlements provide important protections for investors, including prohibiting the respondents from participating in any oil and gas offerings for two years and requiring an independent compliance consultant to review policies, procedures, and offering materials for any further offerings for three years,” said Carolyn M. Welshhans, Enforcement Division Associate Director. “Investors are entitled to materially accurate disclosures so they can make informed investment decisions.”
The SEC’s order finds that the respondents violated the antifraud provisions and the registration provisions of the Securities Act of 1933, and further that Powell and Toth acted as unregistered brokers. Without admitting or denying the SEC’s findings, the respondents agreed to a cease and desist order and to undertakings that, among other requirements, prohibit them from participating in any unregistered oil and gas related offerings for two years, require them to post a referenced link to the SEC’s order on all of their websites for three years, and require an independent compliance consultant for a period of three years. Powell and Toth also consented to collateral and penny stock bars and investment company prohibitions, with a right to apply for re-entry after two years. Finally, Resolute Capital and Homebound Resources each agreed to pay a civil penalty of $225,000, and Powell and Toth each agreed to pay a civil penalty of $75,000.
The SEC’s investigation was conducted by Brian Fitzsimons and Brian Vann with assistance from Joshua Braunstein, James Smith, Dean Conway, Jan Folena, Donald Furlano, and Deborah Russell. The investigation was supervised by Brian O. Quinn and Ms. Welshhans. The SEC appreciates the assistance of the Nevada Securities Division, the Securities Division of the Washington State Department of Financial Institutions, and the Financial Industry Regulatory Authority.