SEC Charges Oil and Gas Company CEO for Theft
The Securities and Exchange Commission is ordering a Texas-based oil and gas company and its CEO to pay $750,000 for misleading investors about amounts spent on commission payments to sales agents and administrative expenses, and for misappropriating investor funds for personal expenses.
According to the SEC’s complaint, from approximately November 2014 through July 2016, 7S Oil & Gas LLC and William Alexander “Gilligan” Sewell raised nearly $7 million from at least 70 investors through a series of unregistered offerings in oil and gas projects.
The SEC alleges that 7S and Sewell lured investors primarily through a network of sales agents and a series of YouTube videos, including one in which Sewell claimed that, “for sure you will get some type of return because there’s no such thing as a dry hole.”
The SEC also alleges that the company’s offering documents told investors that no more than 10 percent would be spent on marketing costs, commissions to sales agents, and salaries and that 85 percent of investor funds would be spent on oil and gas operations.
However, the complaint alleges that 7S Oil & Gas paid commissions as high as 35 percent to its sales agents out of investor proceeds and applied approximately 57 percent of investor funds toward operating the wells.
7S and Sewell also allegedly used more than $90,000 in investor funds to pay tuition for his children, entertainment expenses, and other personal expenses. The complaint also noted that 7S paid out sham “royalty payments” to some investors, which led investors to believe that the company was making a return on their investment based on oil sold to an independent third party.
The SEC’s complaint, filed in the U.S. District Court for the Southern District of Florida, charges 7S and Sewell with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934.
Without admitting or denying the SEC’s allegations, 7S and Sewell each consented to the entry of a final judgment permanently enjoining each of them from violating the charged provisions of the federal securities laws. The judgments also require 7S to pay disgorgement of $492,000, and Sewell to pay disgorgement of $93,500, prejudgment interest of $4,440, and a civil penalty of $160,000. The settlements are subject to approval by the court.