SEC Charges Brian Polito With Oil and Gas Fraud
The Securities and Exchange Commission (“SEC”) Division of Enforcement filed suit against GC Resources, LLC and Brian J. Polito for oil and gas fraud. According to the allegations, Polito defrauded investors through the sale of interests in oil and gas wells in a company he did not own. Through GC Resources, Polito solicited investors using cold calls and sent potential investors a package that included an accredited investor survey, joint venture agreement, operating agreement, and limited power of attorney. Despite using accredited investor questionnaires borrowed from another entity, GC Resources still sold investments to approximately thirty-five non-accredited investors. According to the allegations, Brian J. Polito had a falling out with his former colleagues, and then bought out their interests in GC Resources. GC Resources continued to conduct legitimate business until December 2011, selling interests in approximately twenty-five wells, some of which are still producing.
In late 2011, Polito became frustrated that the GC Resources wells were not producing much oil or gas, which hindered his ability to raise additional investments. When Polito visited the well site, he discovered several nearby wells that were tremendously successful. Polito visited the Texas Railroad Commission’s website and learned that EOG Resources owned the adjacent wells.
Rather than alter the drilling strategy of GC Resources, Polito engaged in oil and gas fraud by soliciting investments for EOG Resources wells that it did not own. Polito’s first step was to draft a false contract between GC Resources and EOG Resources, and then forge the signature for representatives of EOG Resources. To create the appearance of legitimacy, Polito attached the actual drilling permits for EOG Resources, which he located online.
Polito used the fraudulent contract to lure prospective investors to GC Resources. Interested investors were sent a package with the fake EOG Resources contract, information from the Texas Railroad Commission with production history for the EOG Resources wells GC Resources purported to own, a geological book, an accredited investor questionnaire, and a paid return envelope. To further the oil and gas fraud, Polito and his salesmen took prospective investors to the EOG Resources well sites.
If investors had further questions, Polito instructed his salesmen to direct investors to the Texas Railroad Commission website to verify the information on the EOG Resources wells. This misdirection worked because, even though GC Resources did not own them, the wells existed and were producing. Polito also regularly sent investors a record of the production history from the Texas Railroad Commission website for the EOG Resources wells, but he increased the expenses to minimize investor payouts.
From early 2012 to mid-2014, Polito used approximately twelve wells belonging to EOG Resources in the lucrative oil and gas fraud.
The SEC enforcement action charged both defendants with securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 thereunder, and Section 17(a) of the Securities Act of 1933. The complaint also alleges that Polito violated Section 15(a) of the Exchange Act by acting as an unregistered broker-dealer. The SEC’s complaint seeks permanent injunctions, civil penalties, disgorgement plus prejudgment interest, and other relief against both of the defendants.
In a parallel action, the U.S. Attorney’s Office for the Northern District of Texas, Dallas Division also filed criminal charges against Polito.
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Brenda Hamilton, Going Public Attorney
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Boca Raton, Florida 33432
Telephone: (561) 416-8956
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