Texas Oil Ponzi Schemes Allegedly Funded Private Jets, Luxury Cars, and a Wedding on the Queen Mary

Texas Oil Ponzi Schemes Allegedly Funded Private Jets, Luxury Cars, and a Wedding on the Queen Mary

A wedding on a cruise ship, investments in the jade industry in Guatemala, and a private jet: Those are just some of the things investors who thought they were getting rich in the oil industry paid for instead. Two Securities and Exchange Commission lawsuits filed last month against Ponzi-style scammers selling fraudulent investments in the biggest oilfield in the U.S. show how the American oil and gas boom really is the Wild West.

The first SEC suit, filed in December and made public this week, is an absolute rats’ nest of dozens of different LLCs, debt funds, and other details of drifting run amok in Texas’ Permian Basin. A company called Heartland Group Ventures, which formed in 2018, began raising funds from investors for working interests in two wells in the Permian that the company claimed were producing 200 barrels of oil and gas each day. The company operating the wells, Heartland told investors, was owned by a man named Manjit “Roger” Sahota, who Heartland said had founded his companies in 2003 and had years of experience in the industry.

What’s remarkable about this case is that a lot of this information is pretty easy to fact check. The suit said that Heartland’s owners didn’t bother to look up the supposedly super-productive wells they were selling to investors on the Texas Railroad Commission website, which would have shown them that neither of the wells had been finished or actually produced barrels of anything, let alone oil. Nor did they look at Texas Secretary of State records, which showed that Sahota’s companies were actually founded in 2017. But then two of the four principals at Heartland — all four of whom are also named as defendants in the suit — weren’t exactly oilmen; the SEC case helpfully notes the two founders never “had any experience running an oil and gas company.”

None of that seemed to matter. For the next three years, according to the suit, Heartland kept raising millions of dollars from investors in various funds, ostensibly for shares in different super-productive wells in the Permian (none of which were actually very productive at all). The defendants used much of that money to allegedly pay off other investors to keep the scheme going. But the suit found that Heartland also funneled $US54 ($74) million to Sahota, who in turn used his newfound cash to buy a private jet, a helicopter, and real estate in the Bahamas. The suit also notes that one of Heartland’s founders channeled nearly $US500,000 ($687,850) in investor funds to jade investments in Guatemala, where he owed other people money from a failed jade investment years before, and kicked a cool $US11 ($15) million to a separate LLC he controlled.

Remarkably, according to the suit, Heartland’s owners seemingly continued to not do any due diligence on their business partner or check the public information about the oil and gas production of any of the wells themselves, even as Sahota refused to share copies of invoices or information about the wells. In reality, the wells generated less than $US500,000 ($687,850) in revenue.

Just a little over a week after the Heartland suit was filed, the SEC turned its attention to another Ponzi scammer in the Permian. The suit, filed December 15 against Marco “Sully” Perez and his company, states that Perez raised more than $US9 ($12) million dollars from more than 265 investors for a business he claimed was providing sand used in the fracking process. But unlike the Heartland guys, who were exaggerating the output of real oil and gas wells, Perez, per the suit, didn’t even have a business; he had never worked with the companies he claimed as clients.

Regardless, Perez targeted investors — including “military members and veterans,” the suit says — by emphasising his supposedly self-made background and history in the military, providing people with a website where they could easily “invest” with a credit card or bank transfer. The site also incentivized investors to leave positive reviews for his “business” on the Better Business Bureau website. He then spent the money he raised paying off other investors to, again, keep the scheme going as well as on what the suit calls his “extravagant lifestyle.” Among the finer things in life the suit states Perez used investors funds for are “luxury cars, a helicopter, private jet travel, and jewellery.” The suit also notes he used the money for casino expenses and funding his wedding on the Queen Mary.

These cases show how much of the economic activity in the Permian is akin to a modern-day gold rush, filled with dozens of small companies genuinely trying to strike paydirt — and lots of room for scammers to wiggle their way in. The amount of money pouring into Texas oilfields and resulting oil and gas boom was actually a factor in driving the price of oil down; investors are increasingly demanding producers curb production and instead focus on shareholder returns to try and get some of their money back. And the fact that the U.S. fracking boom in the region was driven by this many small actors, backed by so much free and seemingly unquestioned cash, has worrisome implications for pollution regulation.

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