Federal authorities in Atlanta and Savannah said Friday that a group of conspirators ran a Ponzi scheme that tapped $15 million from investors hungry for oil riches.
Richard Paul Underwood, 65, of Fort Lauderdale, Fla., and Colin P. Purcell, 56, of Simpsonville, Ky., were arrested Thursday and charged with conspiracy to commit wire fraud and mail fraud in connection with the alleged scheme, according to the U.S. Attorney's Office in Savannah.
Their arrests followed guilty pleas for their roles in the fraud by David R. Greenlee, 41, of Seguin, Texas, and David A. Stewart, 46, of Portland, Kentucky.
Greenlee and Stewart also face civil securities fraud charges following an investigation by the U.S. Securities and Exchange Commission’s regional office in Atlanta.
According to the SEC's complaint, Greenlee and Stewart orchestrated a Ponzi scheme from 2012 to 2016 in which they promised annual returns of up to 55 percent a year, for decades, from investments in a drilling operation that used "fracking" — or high-pressure drilling techniques — on oil wells in Kansas, Oklahoma and Texas.
But most of the wells didn’t exist, and the alleged fraudsters diverted most of the money to their own use or to pay sales people, according to the SEC.
”Misleading brochures and radio advertisements lured investors into believing they could strike it rich by investing in these oil drilling opportunities,” said Walter Jospin, head of the SEC’s Atlanta office.
The scheme affected at least 150 investors who bought stakes in limited partnerships and joint ventures with names like Southern Energy Group, Black Gold Resources and Tennstar Energy, according to the SEC.
The partnerships had a few actual oil wells to dupe investors who wanted to see the operations in person, the SEC said.
Greenlee and Stewart also broke the law, authorities said, by operating as unregistered securities salesmen, and used fake names when talking to investors to hide their past criminal records as convicted felons in previous investment schemes.
The SEC also charged Underwood with securities fraud for allegedly running a boileroom of telemarketers in Florida to sell the fake oil investments. The agency said Underwood also aided Greenlee and Stewart in drafting fake securities offering documents for the scheme.
The SEC recently warned investors of fraudulent activity among operators selling private offerings of securities in oil and gas ventures. The agency also urges investors to check the backgrounds of people selling investments at its investor.gov website.
The SEC is seeking return of the money the alleged scheme got from investors, plus interest and penalties.
On the criminal charges, prosecutors said Underwood and Purcell face up to 20 years in prison and up to $250,000 fines if convicted. Greenlee and Stewart could be sentenced to up to 5 years in prison and face up $250,000 in fines, authorities said.
Besides the federal offices in Atlanta and Savannah, the investigation involved several agencies and states, including the U.S. Secret Service, the IRS, the securities divisions of Indiana, Texas, Tennessee, and Florida, the Floyd County prosecutor’s office in Indiana, and the Texas Railroad Commission, which oversees the Texas oil and gas industry.
“Our work often follows the disappearance of an unsuspecting victims’ life savings,” said James D. Durham, acting U.S. Attorney in Savannah. “Investment ideas sounding too good to be true usually are. Be vigilant when investing your money. And when you see a scam, let law enforcement know.”
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