SEC Calls ND ‘Man Camps’ a Ponzi Scheme

     Two men bilked $62 million from real estate investors eager to get in on North Dakota’s oil boom, the Securities and Exchange Commission claims in Federal Court.
     (CN) – Two men misappropriated $62 million from investors eager to snag a piece of the real estate explosion connected to the North Dakota oil boom, the Securities and Exchange Commission claims.
     The SEC sued North Dakota Developments and its owners Robert Gavin and Daniel Hogan in Federal Court on Tuesday.
     “Since May 2012, defendants have fraudulently raised over $62 million from hundreds of investors in various states in the U.S. and foreign countries through the sale of interests in the development of short-term housing or ‘man camps’ for workers in the Bakken oil field region of North Dakota and Montana,” the SEC says in a 25-page complaint.
     The oil boom in North Dakota has tripled or quadrupled the population of small towns such as Williston and Watford City and created a housing crisis. Because there are not enough rental units or hotels to accommodate the oil-field workers, camps of RVs known as “man camps” have popped up to house those who could not find anywhere else to live.
     As a result, rental rates for apartments have reached levels that one would expect to find in Manhattan rather than small-town North Dakota, and the area has seen an explosion of real estate development.
     Defendants allegedly capitalized on this critical need for housing by telling investors they would reap unusually high returns up to 42 percent in the first year of the man-camp project. They also offered a “guaranteed” annual return of up to 25 percent of the purchase price of the unit without regard to actual rental income, the SEC says.
     “In reality, NDD, Gavin and Hogan each knew that at least by late 2013 NDD’s first man-camp project was significantly delayed and occupancy was low and that the remaining projects were delayed or not yet begun. As a result, defendants’ promised returns were unreasonable after that time. Moreover, even at the present time, none of the projects is fully operational and one of the projects offered does not even have governmental approval for construction to begin,” according to the complaint.
     Rather, NDD owners Gavin and Hogan allegedly misappropriated over $62 million in investor funds to pay undisclosed commissions to brokers, for their own personal benefit, and to make Ponzi-like payments to investors.
     Defendants have used at least $5.5 million of investors’ funds to buy acreage near Williston and Trenton, North Dakota, and $1.9 million to finance an oil and gas project in the name of Augusta Exploration, LLC.
     The town of Williston lies in the center of the Williston Basin, which geologists believe may contain one of the largest oil fields in the world.
     “Hogan also spent almost $250,000 from the NDD operating account on meals, alcohol, entertainment, and other expenses while working in the United States, even though inadequate accounting records exist to substantiate the business purpose of these amounts,” the SEC claims.
     The company allegedly paid up to 16 percent of investor proceeds in commissions to agents who solicited the investments, and used $2.4 million in funds from later-stage investors to pay returns to earlier investors.
     The SEC seeks to enjoin defendants from further illegal activities and disgorgement of all their ill-gotten gains, with pre- and post-judgment interest plus civil penalties.
     The agency is represented by Polly Atkinson with the SEC’s Denver office.
     North Dakota Developments did not immediately respond to requests for comment.

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