Judge Allows SEC Case Against Accused Oil & Gas Scam to Proceed
On December 31, 2014, a federal judge in Dallas denied a motion to dismiss a Securities and Exchange Commission complaint against a Texas man accused of defrauding investors out of nearly $10 million.
SEC v. Couch
The defendant, Charles Couch, owns Couch Oil & Gas, Inc. (COG) According to the SEC’s complaint, Couch and COG solicited investments in two sets of oil and gas programs. Couch allegedly raised $7 million for the first investment, known as the 59 Well Program, from 139 investors. The second investment, called the Radial Nine Program, raised about $2.8 million from 65 investors. The SEC said neither Program was properly registered as a securities offering.
Both programs offered “working interests” in existing oil and gas wells. But according to the SEC, Couch “never transferred any working interests to any investors,” and COG, which he wholly controlled, “retained all ownership interest in the Programs’ wells.” Nor did Couch tell investors that upwards of 30% of their money went to pay “sales commissions” to unregistered brokers, instead of going to pay the costs of actually drilling for oil and gas, as he had represented.
Furthermore, once the SEC initiated its investigation of Couch in 2011, he began to “wind down” the Radial Nine Program. However, his unregistered broker allegedly continued to sell investments in the program. The SEC said Radial Nine sold about 84% of its offering after the “wind down” decision, as investors were never informed of Couch’s ongoing regulatory issues.
Couch asked U.S. District Judge Sidney A. Fitzwater to dismiss the SEC’s complaint. Judge Fitzwater held “the SEC has pleaded facts sufficient to permit the court to draw the inference that the alleged misrepresentations made in the PPMs were made in connection with the purchase and sale of securities.” This is not a ruling on the merits, of course, only a finding the SEC’s complaint presents a plausible argument that, if proven, shows Couch committed securities fraud Judge Fitzwater also rejected dismissal on the grounds that Couch, by his account, only sold “interests in a joint venture” rather than securities governed by SEC rules. Citing U.S. Supreme Court precedent, Judge Fitzwater said the court must look to the “substance of the transaction” rather than what a party might call a particular investment. Here, despite the description of the two plans as “joint ventures” in the PPMs, Judge Fitzwater said the SEC had properly alleged they were, in fact, securities. Ultimately, this is an issue that will be resolved at trial.
Always Be Cautious
While this case remains pending in court, and the SEC still has to prove the charges against Couch, there are still important lessons for investors to learn. One is to never purchase securities from an unregistered broker. Another is to verify the exact nature of an investment before making any investment.. Oil and gas partnerships involve substantial risks and are only appropriate for sophisticated investors. Savvy investors must always be on the lookout for seemingly “can’t miss” investments.
If you have been the victim of an investment scam, contact Florida securities fraud attorney Gregory Tendrich, P.A., to discuss if you may be able to recover your investment losses.