Guaranteed investment returns of 227% to 363% over six years. Sounds too good to be true, right? Not so fast. What if the oil and gas investment includes a guaranteed monthly stream of income for six years regardless of oil prices? Well, investors in 28 states took a piece of the action.
During two years ending in 2016, 70 retail investors gave William J.Milles, Jr. and Donald J. Lutzko almost $4 million to invest in an oil and gas Ponzi scheme according to an SEC Complaint filed in Austin, Texas this year.
Written Guarantees Are No Guaranty At All
A Pennsylvania investor received a written guarantee for monthly payments over six years of $2,414 regardless of oil prices. This unemployed, divorced mother of three invested approximately $95,000. She actually received $12,312 before the Ponzi Scheme failed. She’s one of many who answered a cold call to invest in oil and gas producing wells. Several investors reported receiving similar oral and written promises.
According to the complaint, Milles and Lutzko sold interests in five projects claiming wells were producing hundreds of thousands of barrels. The truth was a little less exciting, with some wells plugged, abandoned and even non-existent.
Even seasoned oil and gas investors can fall for Ponzi schemes because there are many successful oil and gas investors who struck it rich.
Take The Money and Run
Milles and Lutzko took the $3.9 million of investor money and paid sales commissions of $1.2 million, another million to pay personal expenses and salaries, along with cash withdrawals. And, to keep the scheme going, they paid over $800,000 in Ponzi payments.
Misleading investors in the Private Placement Memorandum and submitting falsified documents regarding production were a central part of the scheme. Milles and Lutzko claimed to be reworking oil and gas wells in Oklahoma and Texas that had significant reserves or past production. The real production numbers were insignificant. SEC Complaint
Milles Had a History of Scamming Investors
Had investors looked into the history of Milles, they would have uncovered a 2011 Pennsylvania cease and desist order against a Texas company, American Energy, a company Milles founded and controlled. At that time, Milles was promising oil and gas investors a 35% return over 12-18 months. Not surprising, Milles ran a cold calling campaign selling securities to inexperienced investors. Yet another cease and desist order against Milles’ Texas company, XL Hydrocarbon Assets, LLC claimed Milles cold-calling campaign promised guaranteed returns of 131%.
Oil and Gas Investment Fraud is All Too Common
To help steer clear of bad investments, remember:
- Investigate the history of the parties involved, not just the company names, investment offerings or sales people.
- If you have not invested successfully in oil and gas investments, stop. Give your attorney and investment advisor a call, reach out to the Texas Securities Commission and the SEC for more information. Slow down.
- Hang up. If you receive investment opportunity information from high pressure, cold-calling sales people, hang up.
- Don’t believe everything you read. Frequently the Ponzi scheme is perpetuated with falsified documents including false production reports and financial information.
We hope all your oil and gas investments are profitable. But if you find yourself searching for an experienced oil and gas litigation lawyer, we are here to help.
Mark Alexander
5080 Spectrum, Suite 850E
Addison, Texas 75001
Ph: 972.544.6968
Fax: 972.421.1500
E-Mail: mark@markalexanderlaw.com
www.commerciallitigationtexas.com
www.oilandgasfraudlawyer.com
Below is for reference only, NOT part of the article:
SEC v. William J. Milles, Jr. and Donald J. Lutzko
SEC Press Release: https://www.sec.gov/litigation/litreleases/2019/lr24538.htm
SEC Complaint: https://www.sec.gov/litigation/complaints/2019/comp24538.pdf