The Securities and Exchange Commission recently filed a lawsuit claiming a Kentucky man carried out illegal broker activities and earned more than $600,000 in commissions in the sale of unregistered securities in oil and gas projects.
The lawsuit filed Aug. 13 in the U.S. District Court for the Southern District of Florida claims Chad Anthony Lewis allegedly solicited investors and assisted other sales agents in soliciting and raising money from investors in unregistered, fraudulent securities offerings conducted by Aegis Oil LLC and 7S Oil & Gas LLC.
“Lewis did not hold any securities licenses; was not registered with the commission; was not associated with commission-registered broker dealers nor did he qualify for an exemption,” the lawsuit stated. “Lewis was thus not permitted to sell securities.”
According to the lawsuit, Aegis and 7S offered and sold unregistered securities in the form of “joint venture units” in oil and gas development projects located in Texas.
“Through Lewis and other sales agents, Aegis raised approximately $35 million from about 250 investors nationwide, and 7S raised approximately $7 million from at least 70 investors,” the lawsuit said. “Lewis, through his work at Aegis and 7S, earned approximately $625,000 in commissions from the sale of these Aegis and 7S units.”
The $35 million was raised between October 2010 and October 2015 through the fraudulent, unregistered offers and sales of securities in a continuous series of 15 offerings, the lawsuit stated.
“Between November 2014 and July 2016, 7S, which previously served as the field operator for the Aegis projects, began offering and selling its own investments in oil well projects to the public,” according to the lawsuit.
The $7 million was raised during that time through the fraudulent, unregistered offers and sales of securities in a continuous series of 8 offerings, the lawsuit said.
The lawsuit accused Lewis of violating violating the Securities Act of 1993 and of the Securities Exchange Act of 1934.
“Unless enjoined, defendant is reasonably likely to continue to violate the federal securities laws,” the lawsuit said. “Lewis is not, and has never been, registered with the commission, the Financial Industry Regulatory Authority (FINRA), or any state securities regulatory authority.”
According to the lawsuit, Aegis and 7S offered and sold their securities to the public primarily through a network of sales agents who would cold-call potential investors throughout the country using lead lists.
“Aegis generally paid its sales agents a 35 percent commission on each sale, which came out of the investor’s principal investment,” the lawsuit stated. “7S paid its agents commissions ranging from 20 percent to 35 percent also out of investor money. Neither Aegis nor 7S disclosed to investors the payment of commissions higher than 10 percent.”
Sales agents pitched the Aegis and 7S securities to potential investors based on promises of exaggerated rates of return while minimizing the risks associated with the investment, according to the lawsuit.
“Between September 2013 and July 2016, Lewis worked at different times both for Aegis and 7S,” the lawsuit said. “Lewis was recruited by Aegis to work in the company’s sales department because of his knowledge of oil wells and previous experience working in the oil and gas industry.”
During this time, Lewis allegedly “acted as or associated with a broker or dealer, effected transactions in, or induced or attempted to induce the purchase or sale of securities, while he was not registered with the commission as a broker or dealer or when he was not associated with an entity registered with the commission as a broker-dealer.”
The lawsuit asks for a permanent injunction restraining Lewis and other parties from violating the Securities Act. The SEC is also asking for Lewis to give back all profits he allegedly gained illegally and to pay a civil money penalty.