DALLAS (CN) – The two men who run Striker Petroleum took $57 million in a nationwide debentures scam, the SEC claims in Federal Court. It sued Striker, Mark Roberts, 58, and Christopher Pippin, 35, both of Frisco, Texas.
The SEC says the men defrauded investors of $57 million in debentures collateralized by oil and gas properties. It says the offering materials “included material misrepresentations and omissions concerning Striker’s earnings and asset valuations, use of investor proceeds and the existence of a third party independent trustee for the debenture collateral.”
The SEC says that though the first of Striker’s three tax-advantaged oil and gas offerings initially achieved projected returns, production soon fell off and the two later offerings never achieved projected returns, and declined in the months after their offering dates.
Reichmann Petroleum Corp., the operator of most of the legacy properties, was forced into bankruptcy in December 2006, further disrupting production, the SEC says. Striker was paying only negligible returns by early 2007.
“As a result of among other things, the losses from the RPC bankruptcy, Striker’s inability to acquire and successfully develop additional oil and gas properties, and the low production from the legacy properties necessitating Striker’s use of debenture proceeds to pay the Legacy fixed returns and debenture interest payments, Striker could no longer meet many of its financial obligations,” according to the complaint. “Consequently, just four months after completing the $12.5 million Series B-4 offering, Striker defaulted on its obligation to pay the interest due to the debenture holders.”
The SEC says the company’s inflated its assets by at least $178.1 million.
“In truth, Striker should not have included these amounts as assets on its financial statements because it had merely contracted with the Legacy LLCs to participate in the drilling of any additional wells on the PUD sites in exchange for 85% of the working interests held by the LLCs in each successful well,” according to the complaint. “Striker did not own any mineral interest until a well was successfully completed – it only had a contractual right to participate in the drilling of any PUD wells.”
Striker recently transferred most of its assets to another company, Llano Consolidated Resources LLC, in exchange for shares of Llano stock, which could make assets more difficult to secure for the investors, the SEC says.
Llano claims that its agreement with Striker gives it ownership of the oil and gas properties collateralizing the debentures – collateral that Striker claims to have assigned previously.
The SEC seeks disgorgement, penalties and an injunction. It also wants Striker’s assets frozen and a receiver appointed.