Court rules in favor of Securities Commissioner in oil and gas investment fraud case
DENVER (April 11, 2016) -- A Colorado District Court has ruled in favor of the state Securities Commissioner in its determination that oil and gas interests offered and sold by HEI Resources, Inc. and Heartland Energy Development Corporation are securities and fall under the Commissioner’s jurisdiction through the Colorado Securities Act. This ruling, which was a response to an appeal by the Commissioner, allows the Division to proceed with allegations against HEI and their partners of violations of the anti-fraud, registration, and licensing provisions of the Securities Act.
The Division initially brought these allegations in 2009 in a complaint against HEI Resources, a Texas corporation which previously did business as Heartland Energy, Inc., Heartland Development Corp., and Bedrock Energy Development, Inc. The complaint also named Charles Reed Cagle of Colorado Springs and Brandon Davis of Castle Rock as Defendants.
The complaint alleged that the Defendants had conducted a fraudulent operation under which investors were offered and sold unregistered securities by unlicensed sales representatives who were employed by “boiler rooms” in Colorado Springs, Englewood, and Greenwood Village. Boiler rooms are operations that utilize numerous salesmen making unsolicited calls to individuals and using intensive, even coercive, sales methods to sell investments. Often these calls are made to unsophisticated investors who fall victim to promises of high returns with little risk. In this case, the Division alleged that most investors who were approached by HEI and partners were senior citizens and had little to no knowledge of oil and gas investments.
During proceedings in 2011, the trial court ruled that the “joint venture” business model utilized by HEI and the other Defendants did not meet the requirements for the sale of securities. The Division pursued an appeal, asking the appellate court to review the legal standard used by the trial court. After winning the appeal, the case was sent back to Judge Martinez, who then issued the current order. This time, the court has ruled that this joint venture business’ model does in fact constitute the offer and sale of securities.
“We are pleased with the judge’s ruling. When investors are cold-called and offered investment opportunities using their money on the promise of profits through scripted, high-pressured sales tactics, it seems clear to us that those investors should be afforded the protections of the securities laws,” stated Colorado Securities Commissioner Gerald Rome. “With this common sense ruling we are now able to proceed with our complaint for an injunction against the defendants and restitution on behalf of the investors.”
“We appreciate the efforts of the Colorado Attorney General’s Office, whose lawyers have represented us in this matter.”
As part of the court’s ruling, the matter will proceed to trial at a date to be determined.