Understanding Private Oil & Gas Offerings

A number of incidents involving investor fraud in connection with private securities offerings of oil and gas ventures have come to light over the past few years, and the number of investment and securities fraud cases brought by the Securities Exchange Commission concerning these ventures has been increasing.

What Are Some Of the Examples Of Fraud Concerning Oil and Gas Private Offerings?

Some examples of oil and gas private investment fraud prosecuted by the Security Exchange Commission include:

  • Misuse of investment funds and proceeds. One example of fraud in connection with investment oil and gas private offerings involve the misuse, or undisclosed use of, investment funds and/or proceeds. Investor funds have been misused to pay out huge broker’s fees and other compensation to promoters, and unrelated expenses, and personal uses by the investors.
  • Inflation of proposed drilling and completion funding. Another example is where promoters grossly inflate the proposed cost associated with drilling or completing a well in order to dupe investors into putting up considerably more money than needed. The promoters either own the drilling company, or plans to contract out the drilling work and keep the leftover investment funds.
  • Exaggerations (lies). Like all frauds, oil and gas private offering scams are fraught with deceptions. Unusually high returns, guaranteed profits, and promises of can’t miss wells, are some of the most commonly touted sales fraudulent pitches associated with these scams.

Protecting Yourself

In order to safeguard your investment in oil and gas private offerings, take steps to protect yourself.

  • Work only with a registered broker or financial advisor. In most private offering investment opportunities, the person making the offer needs to be registered as a broker with the SEC, and needs to be a member of the Financial Industry Regulatory Authority (FINRA). Working with a registered professional may provide you, the investor, with certain legal protections if something goes wrong.
  • Ask for a due diligence report and a recommendation about the opportunity. An unbiased, registered broker is required to conduct an independent review of the investment opportunity prior to making a recommendation to investors. The broker should conduct a review of the opportunity and prepare a due diligence report, and should be able to provide an investor with the report upon request.
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