The United States Securities and Exchange Commission (SEC) has accused a Texas investment advisory firm of fraudulently raising more than $ 17 million from more than 100 investors for an oil and gas investment fund, including its owners are said to have “filled their pockets with nearly $ 2.7 million.” . “
According to the SEC complaint, APEG Energy GP and its owners, Patrick Duke and Paul Haarman, have raised more than $ 17.4 million from 115 investors through the sale of limited partnership securities in APEG Energy LP. The SEC alleges that the two men personally profited “from a series of misrepresentations and omissions, a deceptive scheme and total disregard of the defendants’ fiduciary duty to the fund.”
The stated objective of the fund was “to engage only in the activity of acquiring, holding, holding and disposing of investments in the energy sector, as may be identified from time to time” . The fund sought to achieve an overall annual return of 25% to investors over a period of three to four years.
Duke and Haarman allegedly made inaccurate representations and omissions in their offering documents, written communications and oral representations regarding the risks of the investments, Duke’s alleged expertise in the oil and gas industry and their compensation for management fund. As the sole managers of APEG, the complaint states that Haarman and Duke had sole control over the company, that they reviewed and approved the fund’s private placement memorandum that was sent to investors, and that they have approved every potential investment for the fund.
The SEC alleges that Haarman promised investors in writing and over the phone that the fund provided risk-free returns because the investments were hedged against future drops in oil prices. But that was false, according to the complaint, that the fund faced “significant risks” such as uncertainties over revenues from oil and gas production and the impact of fluctuations in oil prices on promised returns from oil and gas. investors. And contrary to Haarman’s claims, the company did not use any mechanism to protect against such price fluctuations, according to the SEC.
The regulator also claims that Duke was presented to investors as “a sophisticated businessman with experience in oil and gas exploration” when in reality his only potentially relevant experience included a part-time high school job with a regulatory agency and an academic job. with an oil and gas company more than 25 years before the fund was offered. Nevertheless, it was on the basis of this “expertise” that he took the lead in identifying and verifying the oil and gas assets that the fund was to acquire.
In addition, the complaint states that the fund’s private placement memorandum and partnership agreement provided that APEG’s remuneration was limited to 2% of the fund’s management fees. However, Haarman and Duke are said to have structured asset acquisitions on behalf of the fund so that they personally receive nearly $ 2.7 million in bribes. The SEC said it also withheld these payments from the fund and its investors.
The lawsuit, which was filed in the Western District of Texas, accuses Duke, Haarman and APEG Energy GP of violating the anti-fraud provisions of the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Advisers Act of 1940. The complaint seeks permanent injunctions, restitution of ill-gotten gains with pre-trial interest and civil penalties against each defendant.