7.2.2009 The SEC obtained a temporary restraining order and emergency asset freeze in a $485 million offering fraud and Ponzi scheme orchestrated by Paul R. Melbye, Brendan W. Coughlin and Henry D. Harrison through a company they owned and controlled, Provident Royalties LLC. In addition to the asset freeze, the court has appointed a receiver to preserve and marshal assets for the benefit of investors.
The SEC alleges that from at least June 2006 through January 2009, Provident made a series of fraudulent offerings of preferred stock and limited partnership interests for the purpose of generating promised returns through investments in oil and gas assets. The SEC alleges that the sales were made through 21 affiliated entities to more than 7,700 investors throughout the United States. It is 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.
According to the SEC, 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. The SEC alleges that, in fact, less than 50% of investor 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.
Click http://www.sec.gov/litigation/litreleases/2009/lr21118.htm to access the SEC litigation release.