A wedding on a cruise ship, investing in Guatemala’s jade industry, and a private jet: these are just some of the things that investors who thought they’d get rich with the oil industry paid for instead. Two lawsuits filed by the Securities and Exchange Commission last month against Ponzi-style scammers selling fraudulent investments in the largest oil field in the United States show what the American oil and gas boom is really like the Wild West.
The first SEC lawsuit, filed in December and released this week, is an absolute rat’s nest of dozens of different LLCs, debt funds, and other details of the rampage in the Permian Basin of Texas. A company called Heartland Group Ventures, founded in 2018, began raising funds from investors for labor stakes in two Permian wells that the company claimed were producing 200 barrels of oil and gas a day. The company that operates the wells belonged to a man named Manjit “Roger” Sahota, according to Heartland, who, according to Heartland, founded his company in 2003 and has years of experience in the industry.
The remarkable thing about this case is that much of this information is pretty easy to verify. The lawsuit stated that Heartland’s owners failed to bother looking up the alleged superproductive wells they were selling to investors on the Texas Railroad Commission’s website, which indicated to them that none of the wells were or were actually produced barrels, let alone oil. Nor did they look at the Texas Foreign Minister’s records, which showed that Sahota’s company was actually founded in 2017. But then two of the four Heartland directors – all four of whom are also named as defendants in the lawsuit – weren’t exactly oil men; The SEC case helpfully notes that the two founders never “had any experience running an oil and gas company.”
None of this seemed to matter. Over the next three years, Heartland continued to raise millions of dollars from investors in various funds, allegedly for stakes in various superproductive wells in Permian (none of which were actually very productive), according to the lawsuit. The defendants used much of that money to allegedly pay off other investors to keep the program going. But the lawsuit found Heartland also owed $ 54 million ($ 74 million) to Sahota, who in turn used his new-found money to buy a private jet, helicopter, and real estate in the Bahamas. The lawsuit also states that one of Heartland’s founders channeled nearly $ 500,000 ($ 687,850) in investor money towards a jade investment in Guatemala, where he owed other people money from a failed jade investment years ago, and cashed in a cool $ 11 ($ 15). Millions to a separate LLC that he controlled.
Notably, according to the lawsuit, Heartland’s owners appear to have still not performed due diligence on their business partners or verified public information about the oil and gas production of one of the wells themselves, even though Sahota refused to provide copies of invoices or information about the wells. In reality, the wells generated less than $ 500,000 ($ 687,850) in revenue.
Just over a week after the Heartland lawsuit was filed, the SEC turned on yet another Ponzi fraudster in the Permian. In the lawsuit filed on December 15 against Marco “Sully” Perez and his company, it is said that Perez has more than 265 investors but more than 9 million, but unlike the Heartland people who produce real oil – and exaggerated gas sources, according to the lawsuit, Perez did not even have a business; he had never worked with the companies he referred to as customers.
Separately, Perez targeted investors – including “military members and veterans,” the lawsuit said – by highlighting his alleged self-made background and history in the military and providing people with a website that they could easily use with a credit card or bank could “invest” transfer. The website has also encouraged investors to post positive reviews for their “business” on the Better Business Bureau website. Then he spent the money he raised to pay off other investors to keep the program going again and to call his “extravagant lifestyle”. Some of the nicer things in life that Perez has used investor money on include “luxury cars, a helicopter, private jet travel, and jewelry.” The lawsuit also states that he used the money to pay for casino expenses and to fund his wedding on the Queen Mary.
These cases show how much of Permian economic activity resembles a modern day gold rush, filled with dozens of small businesses really trying to beat Paydirt – and plenty of room for scammers to sneak into. The amount of money flowing into the Texas oil fields and the resulting oil and gas boom was actually a factor driving the price of oil down; Investors are increasingly demanding that producers cut production and instead focus on shareholder returns in an attempt to get some of their money back. And the fact that the US fracking boom in the region was fueled by so many small actors backed by so much free and seemingly undisputed money has worrisome implications for pollution regulation.
