SEC Halts Harrison Schumacher In California-Based Oil and Gas Investment Fraud
On August 27th, 2015, the Securities and Exchange Commission (SEC) announced fraud charges and an emergency asset freeze to halt a California-based scheme involving purported investments in oil and gas projects.
According to the SEC’s complaint filed under seal last week in federal court in Los Angeles and unsealed on August 26th, Harrison Schumacher and his two companies Quantum Energy LLC and Quaneco LLC allegedly raised approximately $12.3 million from more than 300 investors nationwide in connection with five exempt offerings that were not registered with the SEC. For each of the offerings, Schumacher and Quantum diverted investor funds from the stated purpose of exploration and development of oil and gas resources to instead cover undisclosed corporate business overhead expenses and Schumacher’s compensation. Contrary to representations that investor funds would be segregated in separate trust or escrow accounts, Schumacher and his companies commingled funds in Quantum’s operating accounts, which was then used to pay Schumacher’s lavish personal expenses including a Porsche. The defendants also concealed diversion of investor funds through phony “turnkey drilling” contracts in which Quantum claimed to pay Quaneco to drill wells. Schumacher and his companies have recently been soliciting funds for a new Utah-based oil-and-gas investment program and planning to raise another $2 million.
The SEC has warned investors about certain risks and possible fraudulent activity involving private offerings of securities for oil-and-gas ventures, and has issued an investor alert specifically about oil-and-gas offerings like those offered by Schumacher and his companies.
The SEC separately announced a settlement with Quantum’s former co-principal and co-founder Paul Mysyk, who participated in some of the offerings before he left the company in November 2012. Mysyk entered into a cooperation agreement with the SEC to assist in the investigation of, and ongoing litigation against, Schumacher, Quaneco, and Quantum.
The complaint filed on Aug. 21, 2015, charges Schumacher, Quantum and Quaneco with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Sections 10(b) of the Securities Exchange Act of 1934 and Rule 10(b) thereunder. The complaint further alleges that Schumacher acted as an unregistered broker in violation of Section 15(a) of the Exchange Act. The complaint requests permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, the establishment of a fair fund for the benefit of harmed investors, the appointment of a receiver, a penny stock bar, a permanent injunction against raising funds from investors, an order prohibiting defendants from encumbering corporate assets, and penalties.
With regard to Mysyk, the complaint alleges that he violated Sections 5(a), 5(c), and 17(a) (2) and (3) of the Securities Act of 1933.Â Mysyk agreed to settle to the charges by agreeing, without admitting or denying the allegations in the complaint, to be enjoined from future violations of law and a penny stock bar. The Commission will defer consideration of a penalty against Mysyk until after his cooperation has concluded.
For further information about this securities law blog post, please contact Brenda Hamilton, Securities Attorney at 101 Plaza Real S, Suite 202 N, Boca Raton, Florida, (561) 416-8956, or to [email protected]. This securities law blog post is provided as a general informational service to clients and friends of Hamilton & Associates Law Group and should not be construed as, and does not constitute legal advice on any specific matter, nor does this message create an attorney-client relationship. For more information about going public and the rules and regulations affecting the use of Rule 144, Form 8K, crowdfunding, FINRA Rule 6490, Rule 506 private placement offerings and memorandums, Regulation A, Rule 504 offerings, SEC reporting requirements, SEC registration statements on Form S-1 , IPO’s, OTC Pink Sheet listings, Form 10 and OTC Markets disclosure requirements, DTC Chills, Global Locks, reverse mergers, public shells, direct public offerings and direct public offerings please contact Hamilton and Associates at (561) 416-8956 or [email protected]. Please note that the prior results discussed herein do not guarantee similar outcomes.
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