Oil & Gas Securities Offerings: SEC Orders Cease & Desist, Civil Penalties Against Two Companies and Their Principals

In an order issued on September 24^th, 2021, the Securities and Exchange Commission (“SEC”) settled with Thomas Powell, Stefan Toth, and two entities they owned, Homebound Resources LLC (“Homebound”) and Resolute Capital Partners LTD LLC (“RCP”) on several charges of investment and securities fraud relating to oil and gas securities offerings. [1]

The SEC’s order concerns a period of time from 2016 through 2019, during which the SEC alleged that respondents made material misrepresentations and omissions about their oil and gas securities offerings. [1] The order states that neither Powell nor Toth were registered nor even associated with a registered broker-dealer during the relevant time period as they sold unregistered securities to investors. [2]

RCP is described as a private equity firm that “gives smart investors access to beyond-Wall Street assets, such as oil and gas wells” by creating, and then offering, oil and gas debt and equity investment vehicles for oil and gas wells. [2] In so doing, RCP relies on Homebound to identify and purchase these oil and gas wells. [2] During the relevant time period, Thomas Powell owned RCP while Stefan Toth owned and managed Homebound. [2]

Some of the several material misrepresentations and omissions highlighted in the SEC’s order include:

• Circulating offerings materials which falsely stated that respondent’s oil and gas securities were sold by FINRA-member broker-dealers who were registered with the SEC.
• Publishing “one-pager” documents for investors that contained “insufficiently supported oil well production projections.” These projections did not vary by region and projected that three separate wells would produce 510 barrels/day while actual production at these wells landed at only 3-5 barrels/day.
• Failing to take reasonable steps to ensure that investors were accredited, resulting in the sale of unregistered securities to approximately 200 non-accredited investors
• Misleading retirement account investors by advertising the potential tax benefits of oil & gas investments without stating that these benefits were not available to retirement account investors. [2]

Although Powell and Toth neither admitted to nor denied the charges, they have each agreed to pay a civil penalty of $75,000. Homebound and RCP have each agreed to pay a civil penalty of $225,000. The respondents also face several other consequences as part of the settlement, including a two-year prohibition on participating in any unregistered oil and gas related offerings, and a requirement that the SEC’s order be linked on all of their websites for the next three years.

Respondents must also hire an “Independent Compliance Consultant” at their own expense to review their policies and procedures as they relate to federal securities law, as well as to certify that respondents are indeed in compliance with said policies and procedures prior to any offering of securities. [2]

These punitive measures are designed with investor protection and the public interest in mind, as the SEC aims to reduce the instance of similar violations not only by respondents, but also by other equity firms and broker-dealers in the United States. The order also serves as an important reminder for investors to partner closely with trusted professionals in making informed investment decisions, especially in a volatile market like oil and gas.

Sources: [1] https://www.sec.gov/news/press-release/2021-193?utm_medium=email&utm_source=govdelivery [2] https://www.sec.gov/litigation/admin/2021/33-10987.pdf