Court enters injunction against HEI Resources, Inc., others in securities fraud case

DENVER — Colorado Securities Commissioner Gerald Rome announced today that Denver District Court Judge Michael A. Martinez has entered an injunction against HEI Resources, Inc., Heartland Energy Development Corporation, Charles Reed Cagle, Brandon Davis, James Pollack, and John Schiffner after finding that the Defendants violated the Colorado Securities Act, which includes securities fraud in the connection with the sale of interests in oil and gas well drilling projects.

The injunction comes after a lengthy civil process that began in 2009 when the Division of Securities, part of the Department of Regulatory Agencies (DORA), first filed a complaint alleging securities fraud by a large network of companies and agents within Colorado.

The court has also ordered the defendants to pay restitution in an amount to be determined at a later hearing. The division alleges that investors lost over $65 million, and will seek that amount at the hearing. Attorneys from the Colorado Attorney General’s office are representing the division.

Named defendants in the order are HEI Resources, Inc., a company that operated out of Colorado Springs and Denver, and which previously did business as Heartland Energy, Inc.; Heartland Energy Development Corp. (HEDC), a Denver corporation; Charles Reed Cagle of Colorado Springs; Brandon Davis of Castle Rock; John Shiffner of Parker; and James Pollack of Denver.

In the 39-page order, the judge found that the defendants perpetrated a scheme to defraud investors nationwide by engaging in the fraudulent offer and sale of unregistered securities in the form of interests in oil and gas drilling operations using unlicensed sales representatives. The court found that Charles Reed Cagle, HEI's founder and CEO, as well as Brandon Davis, John Shiffner and James Pollack committed securities fraud by failing to disclose to investors the significant role Cagle’s business partner played in operating the businesses in order to hide his previous SEC injunction. Defendants also failed to disclose the approximately 27,000 dry holes located in the well drilling area. 

In addition, the court found that HEI, HEDC and Cagle committed securities fraud by withholding financial information relating to the actual costs incurred in the drilling of the wells. The court found that these defendants structured the offering to where they could arbitrarily set and control the amount raised per venture, knowing they were not at risk of losing money if the well did not produce.         

“I want to extend my thanks to the investigations team with the Division of Securities, and to the attorneys at the Colorado Attorney General’s Office who tirelessly pursued this case,” stated Commissioner Rome. The court’s injunction in this case is a big win for Colorado investors because it finally puts a stop to the fraudulent sales practices used by these defendants to sell their oil and gas investments. Unscrupulous sales practices like these, and the harmful results for investors, are exactly what the Colorado Securities Act was put in place to prevent.”

The date for the restitution hearing has not been set. A copy of the court’s ruling can be found on the Division of Securities website.