Ponzi scheme suspects face enforcement action by Oklahoma Securities

Journal Record, The (Oklahoma City), Oct 10, 2008 by Marie Price

The people behind an alleged Ponzi scheme that regulators say cost investors more than $40 million now face an enforcement action filed by the Oklahoma Securities Department.

On Wednesday, agency Administrator Irving Faught asked the Oklahoma County District Court for a permanent injunction and other relief against Powder River Petroleum International Inc. and CEO Brian Fox, a Canadian, alleging various claims related to securities fraud.

Publicly traded Powder River was placed in receivership in July, as part of a lawsuit filed in Tulsa. The assets of Powder River and Fox were also frozen. A hearing is scheduled for Friday in the Tulsa case.

The state securities agency alleges that from February 2004 to March 2008, Powder River sold working interests in oil and gas leases in Oklahoma, Texas, Louisiana and Wyoming to more than 2,000 Asian investors "at substantially inflated prices," collecting more than $40 million.

According to the filing, an appraisal estimated the fair market of the interests owned by the working interest investors at $1.6 million as of Jan. 1, and $1.27 million as of Aug. 1 of this year.

Receiver Bruce Day said Thursday that Powder River guaranteed investors a minimum return of 9 percent per year.

Day said he did not know the Securities Department filing was coming, but is not surprised.

"I certainly agree with the allegations," he said.

He said Powder River reported selling leaseholds to the Asian investors in 2006 for $17 million, which the company had purchased for $142,000.

"It's outrageous," he said of the actions of Fox and Powder River.

The Oklahoma securities agency filing alleges that Powder River used funds received from more recent working interest investors to make payments to earlier investors, and did not disclose the guarantee or the payment scheme to the U.S. Securities and Exchange Commission.

In an earlier report to the Tulsa court, Day said that when he was appointed receiver, the total cash available in all known bank accounts was $71,120, and the company's monthly oil and gas production revenue, after deducting utilities and operational costs, was $18,933 for July.

Day also said in his August report that despite court orders in Canada and Oklahoma requiring Fox's cooperation, it appeared that either Fox or other Powder River employees in the Calgary, Canada, office destroyed company records by deleting e-mail from company servers.

Day said Ponzi schemes are the most commonly prosecuted criminal investment-fraud cases.

State regulators are making three claims of violations of the Oklahoma Uniform Securities Act of 2004 by Powder River:

* Making untrue statements and omissions of material fact in connection with the offer, sale or purchase of securities.

* Employing a device, scheme or artifice to defraud.

* Engaging in an act, practice or course of business that operates or would operate as a fraud or deceit.

Faught is asking for temporary and permanent injunctions against Powder River and Fox.

If the asset freeze and receivership ordered by the Tulsa court are vacated, the Securities Department is asking for similar orders in its case.

An attorney for Fox did not return a call seeking comment.