David Greenlee and David Stewart Jr. recruited and controlled a network of salesmen who sold stakes in various companies purportedly using enhanced oil recovery techniques, such as fracking, to extract and sell oil from wells in Kansas, Oklahoma, and Texas.
Investors were promised profits of between 15% and 55% per year “for decades”.
Greenlee and Stewart are accused of diverting nearly two-thirds of the money raised from investors to pay themselves and their salesmen, as well as to advertise for new investors.
According to the SEC’s complaint, minimal funds were used for oil production at just a few of wells in order to create the appearance of oil production and dupe investors who wanted to see activity in-person.
An accomplice, Richard Underwood, helped Greenlee and Stewart draft false offering brochures and oversaw a boiler room sales team of telemarketers in Florida that solicited investors nationwide.
Fake names and fraud
The SEC’s complaint charges Greenlee, Stewart, and Underwood with violations of the anti-fraud provisions of the federal securities laws.
It is seeking the disgorgement of ill-gotten gains plus interest and penalties as well as injunctions.
Greenlee and Stewart were not registered to sell investments and used fake names like “David Johnson” when speaking to investors to hide their past criminal records.
Greenlee was convicted and served time in a Kentucky prison during 1999 to 2000 for forgery and burglary, and again in 2004 for vehicular manslaughter.
He met Stewart while working with him in selling unregistered securities offerings. In 2007, Stewart was convicted of federal income tax evasion and sentenced to prison.
Underwood was a registered broker-dealer between 1994-97. In 1998, the state of Wisconsin issued a cease and desist order against him for his role in a fraudulent offer and sale of securities. Similar action was taken by the state of Alabama in 2006. A year later, Underwood pleaded guilty to federal income tax evasion.
Unlikely to strike it rich
Walter Jospin, director of the SEC’s Atlanta regional office, said: “As alleged in our complaint, misleading brochures and radio advertisements lured investors into believing they could strike it rich by investing in these oil drilling opportunities.
“Unbeknownst to the investors, most of their money was being used for other purposes,” he said.
In a parallel action, the US Attorney’s Office for the southern district of Georgia is bringing criminal charges against Greenlee, Stewart, and Underwood.