| Thanks Mitch for taking the time out of your | | | | three years. The answer to your question is |
| busy schedule, would you mind telling our readers | | | | probably "Sometimes." |
| a little bit about your practice and background? | | | | 7- What are some tell tale signs an investor has |
| I am an associate with the law firm of Scheef | | | | been wronged? |
| & Stone, LLP in Dallas, Texas. I practice | | | | Some of the hallmarks of oil and gas fraud include: |
| commercial litigation, and a large part of my | | | | (1) Lack of communication with the investor; |
| practice is devoted to oil and gas and securities | | | | (2) Significant action being taken on the project |
| fraud. I graduated from Harvard University with | | | | without the investor's consent or |
| Bachelor's degree in Government and received | | | | acknowledgement; |
| my law degree from the University of Texas. I | | | | (3) Returns that fall far short of pro forma |
| have first-chair trial experience and have a good | | | | projections; |
| track record of obtaining rescission for oil and gas | | | | (4) Having your interest "rolled over" into another |
| investors. | | | | project; |
| 2- I heard you played Defensive End on the | | | | Significant unexplained drilling delays; and |
| Harvard football team, what's more difficult | | | | (6) Reduction in the investor's working interest. |
| sacking a quarterback or sacking an unscrupolous | | | | 8- What is a cease & desist order? |
| operator/promoter? Which one is more | | | | A cease and desist order ("C&D") is an order |
| enjoyable? | | | | that is typically issued by a governmental agency, |
| Sacking a quarterback is more difficult. Taking | | | | like a state securities board or the SEC, that |
| down a promoter is more rewarding. | | | | directs an issuer of securities to immediately |
| Quarterbacks get up. If I'm doing my job right, | | | | "cease and desist" from selling securities in a |
| sometimes a promoter won't get up. | | | | certain state or selling securities altogether. I |
| 3- With respect to oil/gas fraud, it appears people | | | | would encourage any investor to do some |
| do not understand that many promoters do not | | | | research online to determine whether the |
| structure their deals correctly. Please Explain. | | | | company trying to sell you has been C&D'ed |
| There's really no "right" or "wrong" way to | | | | and get a reasonable explanation from the |
| structure a deal as a promoter. "Fair" or "unfair" is | | | | company. You've got to make sure you're getting |
| probably a better comparison. As an investor in oil | | | | the whole story before you invest. |
| and gas, you have to know going in that there is | | | | 9-Can you speak to liability associated with owning |
| a giant risk of losing your entire investment. Oil | | | | working interest in a field? Any asset protection |
| and gas is extremely risky, and you shouldn't | | | | strategies to employ before purchasing such as |
| invest money you can't afford to lose. Most | | | | buying them in an llc or other form? |
| investors want a fighting chance to make money; | | | | The liability is virtually limitless; you have to |
| unfortunately, many promoted oil and gas | | | | understand going in that this is an investment in |
| investments do not provide the investor with that | | | | which you can lose your entire investment and |
| fighting chance. If you understand the | | | | then some. When you purchase working interest, |
| industry--and you can think like a crook--you can | | | | you've got to understand that you're liable for |
| tell the difference. | | | | your pro rata share of costs associated with the |
| 4- What is a Reg D offering? | | | | drilling and completion of an oil or gas well, which |
| That's a very big question that I'll try to condense | | | | doesn't come cheaply these days. |
| into a small answer. "Reg D" refers to Regulation | | | | The oil and gas promoter has many tools to |
| D to the Securities Act of 1933, an important | | | | hedge your bet, the most common of which is |
| piece of federal legislation. Regulation D covers | | | | the "turnkey offering." The promoter promises to |
| private offerings. When Google has an "IPO," | | | | make you a hole to x feet at y dollars. If the hole |
| that's obviously a public offering for which | | | | is drilled for less than y dollars, he keeps the |
| registration is required under the '33 Act. Most oil | | | | difference. If it costs more, he eats the |
| and gas deals are offered privately under an | | | | difference. |
| exemption to registration--Regulation D. The issuer | | | | What the investor doesn't know is that the well |
| of the security cannot use public solicitation and | | | | can be drilled for ½ y or even 1/10 y. It's |
| must take in only accredited investors. There are | | | | the biggest scam going right now. |
| many other restrictions, but that's generally what | | | | 10- Have you seen a marked increase in investor |
| a Reg D offering is. | | | | fraud cases with the recent rise in oil? |
| 5- What is a rescission and how does it work? | | | | Absolutely. It's rampant. Please, please be careful |
| Good question. I'll make reference to the Texas | | | | in Texas. |
| Securities Act for ease of reference. An interest | | | | 11- Any state or federal agencies we can contact |
| in an oil and gas lease (i.e. working interest) is a | | | | for information on companies offering units? |
| security. As a result, the types of investments | | | | Yes, absolutely. Before you make an investment |
| we're discussing fall under the rubric of the Texas | | | | in a Reg D, Rule 506 oil and gas offering, make |
| Securities Act and Federal securities law. | | | | sure that the issuer has filed a Form D with the |
| In basic terms, a rescission is getting your money | | | | Securities Exchange Commission and with the |
| back with interest and attorney's fees. Under | | | | Secretary of State or Securities Commission of |
| Texas law, there are a couple of things that | | | | the state in which you reside. |
| trigger a rescission: | | | | Issuers of private offerings are required to make |
| (1) Offering an unregistered security publicly | | | | these filings when claiming an exemption. If there's |
| (telephone cold-calling, internet, etc.), and | | | | no Form D already on file or on file within 15 days |
| Offering an unregistered security by means of a | | | | after your investment is made, that should be a |
| misstatement or omission of material fact. | | | | major red flag. |
| Here's the key message: there's nothing wrong | | | | 12- Any independent forums or other resources |
| with selling unregistered securities as long as you | | | | you would recommend to our readers. |
| have an exemption. If you do something to | | | | If you're curious about oil and gas investments, |
| violate the exemption, like offering it publicly or | | | | you should check out a site run by Bernie Bicoy |
| just out-and-out fraud, the investors get their | | | | called Venture Research Info and its message |
| money back. | | | | boards. You can find it at |
| 6- Are they difficult to get? | | | | 13- How can we contact you and how do you |
| That depends on the financial wherewithal of the | | | | work? Hourly rate or contingency? |
| issuer of the security and, in my experience, the | | | | You can contact me via e-mail at or by telephone |
| depth of the fraud. I have obtained rescissions for | | | | in the Dallas area at 214.472.2140. I work on both |
| clients with demand letters, and I have had | | | | an hourly rate and contingent fee basis; I typically |
| securities fraud litigation drag out for two and | | | | leave that up to the investor. |