SEC Files Offering Fraud Action Centered on Three Schemes In Three Years

SEC Files Offering Fraud Action Centered on Three Schemes In Three Years

 The SEC brought another in a series of offering fraud cases. This one, however, does not focus on just one offering but three since mid- 2011. Promoters Robert Helms and Janniece Kaelin, their entities and Deven Sellers and Roland Barrera are named as defendants. SEC v. Helms, Civil Action No. 1:13-cv-1036 (W.D. Tx. Filed Dec. 3, 2013).

The first scheme centered on Vendetta Royalty Partners, Ltd. That partnership was formed in 2009. It acquired certain oil and gas royalty rights at that time. Subsequently, on August 15, 2011 Vendetta Partners filed a notice on Form D with the Commission. The Form stated that Vendetta Partners sought to raise $50 million by selling limited partnership interests. The PPM contained a series of misrepresentations including:

Prior sales: It claimed that there were no sales prior to the filing of the PPM which was false since there had been two for a combined investment of $275,000;

Experience: Representations regarding the industry experience of Mr. Helms at various firms were false since most of his experience was with Vendetta Royalty;

Litigation: Although the PPM claimed there were no material pending legal proceedings against the partnership, the general partner and its affiliates, in fact there was a material private suit alleging fraud and a state EPA action;

Commissions: While the PPM told investors that only modest commissions would be charged, in fact Defendants Deven Sellers and Roland Barrera were paid commissions of about $400,000 for a $3 million investment; and

Use of proceeds: The PPM told investors that the offering proceeds would be used to purchase royalty interests, pay 10% of Vendetta Partners’ credit facility and for promotional expenses when in fact most of the funds were misappropriated.

Mr. Helms and Ms. Kaelin also grossly understated bank loan payments made with the offering proceeds while concealing the fact that default was imminent. Overall, about $17.9 million was raised from 80 investors who purchased securities issued by Vendetta Royalty beginning in July 2011.

In July 2012 the defendants launched a second scheme, Vesta Partners. This venture claimed it would provide investors with predictable, quarterly cash distributions, an attractive yield and a 300% to 500% return within five to seven years, according to representations made to investors. In fact there was no basis for making these representations, according to the complaint.

Finally, in 2013 Rock Partners filed a Form D with the Commission signed by Defendant Helms. The firm sought to raise $300 million over a period of up to one year. This venture also claimed that within five to seven years investors would have returns of 300% to 500%. Again the claim is baseless, according to the complaint.

The complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The Court granted a freeze order at the time the complaint was unsealed. The case is pending. See Lit. Rel. No. 2286 (Dec. 6, 2013).

 For more commentary on developing securities issues, visit SEC Actions, a blog by Thomas Gorman.

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