DALLAS (CN) - The CEO of Provident Royalties pleaded guilty to running a $485 million oil and gas Ponzi scheme.
Paul R. Melbye, 47, pleaded guilty Thursday to conspiracy to defraud investors.
He faces up to 5 years in federal prison. U.S. Magistrate Judge Amos Mazzant, in Sherman Federal Court, did not set a sentencing date.
Prosecutors said Melbye took the money from more than 7,700 investors nationwide, promising up to 18 percent annual returns.
"Melbye, acting on behalf of Provident, made materially false representations and failed to disclose material facts to investors in order to induce the investors into providing payments to Provident," prosecutors said in a statement. "Among those omissions of material fact were that another Provident founder, Joseph Blimline, had received millions of dollars in unsecured loans; that Blimline had been previously charged with securities fraud violations by the state of Michigan; and that funds from investors in later oil and gas projects were used to pay individuals who invested in earlier oil and gas projects."
Blimline pleaded guilty in September 2010. He was sentenced in May this year to 20 years in federal prison.
Two other Provident principals, Brendan Coughlin, 46, and Henry Harrison, 47, were indicted in July and await trial.
The SEC sued Melbye, Couglin and Harrison in July 2009, freezing their accounts. "Provident sold ostensibly safe securities such as preferred stock to thousands of investors," SEC spokesman Ken Israel said at the time. "But it was actually operating a Ponzi-like shell game in which assets were shuttled from one entity to another and investors were paid 'returns' from whatever money was available - usually that of the most recent investors."
The SEC said the men spent less than half the money they took on the oil and gas leases, and eventually ran it as a Ponzi scheme.
Read the Top 8
Sign up for the Top 8, a roundup of the day's top stories delivered directly to your inbox Monday through Friday.