The US Securities and Exchange Commission obtained a temporary restraining order and emergency asset freeze on July 2 against Dallas-based Provident Royalties LLC and its three founders in a $485 million offering fraud and Ponzi scheme.
In a complaint filed in US District Court for the Northern District of Texas, the SEC said that Paul R. Melbye, Brendan W. Coughlin, and Henry D. Harrison orchestrated the fraud and scheme through Provident Royalties, which they owned and controlled. The court appointed a receiver to preserve and marshal assets for investors’ benefit in addition to freezing the company’s assets, the federal securities regulator said on July 7.
Its complaint said that Provident made a series of fraudulent preferred stock and limited partnership offerings from at least June 2006 until January 2009 for the purpose of generating promised returns through investments in oil and gas assets. The sales were made through 21 affiliated entities to more than 7,700 investors throughout the United Sates, it said.
It also alleged that Provident Asset Management LLC, an affiliated broker-dealer, made some direct retail sales of securities, but primarily solicited unaffiliated retail broker-dealers to enter into placement agreements for each offering, and those retail broker-dealers sold the stock to retail investors nationwide.
Provident falsely promised yearly returns of up to 18% and misrepresented to investors that 85% of the funds raised through the offerings would be used to purchase interests in oil and gas real estate, leases, mineral rights, and interests, exploration and development, according to the complaint. It alleged that, in fact, less than 50% of investors’ funds were used for their stated purpose, and the proceeds from later offerings were used to pay expenses related to earlier offerings and returns to investors in those offerings.
In addition to the temporary restraining order and emergency asset freeze, the SEC sought preliminary and permanent injunctions, and disgorgement of ill-gotten gains plus pre-judgment interest and financial penalties. It also asked that Melbye, Coughlin, and Harrison be barred from serving as officers or directors of companies, and named five affiliated companies which did not sell securities as defendants for purposes of disgorgement.
Contact Nick Snow at[email protected]