We write today about an action filed by the Securities and Exchange Commission (SEC) against Jeffory D. Shield, Geodynamics, Inc., and numerous other Geodynamics-affiliated entities, for allegedly operating a multi-million dollar fraudulent scheme involving oil and gas investments. According to the complaint, defendants “defrauded over 60 investors of at least $5 million since January 2010 through fraudulent and unregistered securities offerings of interests in four oil and gas investments, attracting investors through boilerroom cold calls.” The complaint further alleges that the defendants “continue to seek new investors in their fraudulent scheme.” The six-count complaint alleges that Shields and Geodynamics violated various provisions of the Securities Act and the Exchange Act, and seeks, among other things, temporary and permanent injunctive relief to prevent the “offering and selling of Geodynamics Securities and from violating the federal securities laws,” “an accounting of all funds received from investors,” “an Order freezing the assets of Defendants,” payment of “civil money penalties,” and “disgorge[ment] of all illegal gains.”

The SEC filed its complaint on Aug. 15, 2011, in the U.S. District Court for the District of Colorado. According to the complaint, “[i]n approximately September 2009, Shields caused the formation of Geodynamics and he continues to control the company and be its de facto chief executive officer.” The complaint alleges that Shields “formed or caused the formation of the Geodynamics purported ‘joint ventures’” and “has retained de facto control over each of Geodynamics purported ‘joint ventures.’” According to the complaint, “[i]n an effort to evade federal and state securities regulations, Shields and Geodynamics claim that their securities offerings are ‘joint ventures,’ not securities.”

According to the complaint, “Shields hired salespersons at Geodynamics to solicit prospective investors in the Geodynamics Securities through boiler-room cold-calls” and that “Shields prepared, or directed the preparation of Geodynamics’ written offering materials including, but not limited to, Confidential Information Memoranda (“CIMs”) and Joint Venture Agreements (“JVAs”),” which represented to investors that “investor funds [would] be used for oil and gas drilling operations.” The complaint alleges that although the CIMs stated that “there [would] be no commingling of funds … at Shields’ direction, Geodynamics not only commingled funds, but also routinely used funds for the various purported joint ventures to pay drilling and operational expenses of other purported joint ventures.”

According to the complaint, “Shields has used investor deposits as a personal slush fund, taking over $2 million to pay for personal expenses, including a Learjet, luxury vehicles, travel, designer clothing, sporting events, rent for homes in Colorado and Florida, home furnishings, electronics, jewelry, and cash withdrawals and transfers to personal accounts.” The complaint alleges that Shields and Geodynamics “diverted about $2 million for excessive administrative expenses at more than a dozen Geodynamicsaffiliated entities that Shields controls, and paid undisclosed sales commissions of up to 15% to Geodynamics’ boiler-room staff and to Shields.” The complaint further alleges “that all of the Geodynamics Securities combined spent just $613,494 on oil and gas drilling operations.” (emphasis in original).