The Securities and Exchange Commission has filed fraud charges and imposed an emergency asset freeze to halt a California-based oil and gas drilling investment scheme, the SEC announced Thursday.
Harrison Schumacher, an unregistered broker, and his two companies, Quantum Energy LLC and Quaneco LLC, raised $12.3 million from more than 300 investors nationwide for supposed investments in oil and gas drilling operations, the SEC complaint says. The complaint, filed in the U.S. District Court in Los Angeles, was unsealed Wednesday.
Schumacher and the two companies are charged with making five investment offerings that were not registered with the SEC. For each of the offerings, Schumacher and Quantum diverted investor funds from the stated purpose of exploration and development of oil and gas resources to instead cover undisclosed corporate business overhead expenses and Schumacher’s compensation, the SEC says.
The money was used to pay his lavish personal expenses, for things including a Porsche, the complaint says. The defendants also concealed the diversion of investor funds through phony “turnkey drilling” contracts in which Quantum claimed to pay Quaneco to drill wells. Schumacher and his companies have recently been soliciting funds for a new Utah-based oil-and-gas investment program and planning to raise another $2 million, the SEC says.
The complaint requests permanent injunctions, disgorgement of ill-gotten gains with prejudgment interest, the establishment of a fair fund for the benefit of harmed investors, the appointment of a receiver, a penny stock bar, a permanent injunction against the defendants’ raising funds from investors, an order prohibiting them from encumbering corporate assets, and penalties.
Two years ago, the SEC warned investors about the risks and possible fraudulent activity involving private offerings of securities for oil and gas ventures, such as those offered by Schumacher and his companies.