Alleged Permian Ponzi Scheme Funded Jet, Bahamas Property Purchases

(Bloomberg) -- The shale industry is no stranger to accusations of promising more oil than it could deliver and spending shareholders' money unwisely, but one group of alleged Ponzi schemers in Texas took that to a whole new level.

The U.S. Securities and Exchange Commission this week sued Heartland Group Ventures LLC, its founders and a slew of affiliates who raised $122 million from more than 700 investors from at least October 2018 and October 2021. The defendants only spent about half of the money they raised on oil and gas projects in the Permian Basin, generating less than $500,000 in revenue, according to the suit filed in a Chicago federal court.

Meanwhile, the defendants used the money to buy assets such as a private jet, a helicopter and real estate in the Bahamas, and used funds to set up a Ponzi scheme, the securities regulator said.

The suit offers an extreme example of investors pouring money into the shale boom without getting what they had expected out of it. While such illicit gains are rare, the industry has come under increasing pressure from investors to focus on shareholder returns rather than expand production. Since the pandemic-led oil market crash of 2020, the top producers in the Permian have shown discipline in spending even as prices rallied last year.

The original complaint was filed in December, detailing how Heartland and its affiliates used five unregistered security offerings to fund projects they claimed would bolster existing wells or drill new ones in Texas

The SEC said that while the wells sat dry in the Permian, the defendants told investors the wells were producing hundreds of barrels of oil a day. They also told investors these wells were run by experienced operators working in the field since 2003, while those entities didn't even exist until 2017, according to the lawsuit.

The information about the operators was available on websites for the Texas Railroad Commission and Texas Secretary of State, according to the lawsuit.

The defendants or their lawyers couldn't be reached for comment. Deborah D. Williamson, one of the SEC's representative at Dykema Gossett PLLC, said in a response to questions that "at this time, no counsel has made an appearance for any of the defendants."