SHERMAN (SE Texas Record) – Two Texas brothers must to cough up all illegal gains from an alleged $23 million fraudulent oil and gas well investment scam as part of a settlement with the U.S. Securities and Exchange Commission in federal court.
The settlement was entered when Judge Amos L. Mazzant III, of the Sherman Division of the Eastern District of Texas, granted the unopposed motion for settlement filed by the SEC litigator Janie L. Frank on Nov. 23. The two brothers, Matthew Carl Griffin, 39, of Flower Mound and William Daniel Griffin, 50, of Argyle, neither admitted nor denied the SEC's allegations. The two also agreed to a permanent obey-the-law injunction, disgorgement with prejudgment interest and a civil penalty to be determined by the court.
The SEC alleged the Griffin brothers made numerous misrepresentations to investors to finance their 3 Well Program in Grayson County, according to court documents. If not for the settlement, the two would have faced allegations they had violated the Securities Act and the Securities Exchange Act.
Those allegations were described in an SEC statement issued the same day as the settlement was agreed to by the court.
"The SEC alleges between November 2013 and July 2014, the Griffins, through their company, Payson Petroleum Inc., conducted a fraudulent two-phase offering of interests in two Texas partnerships, raising $23 million from approximately 150 investors for the purpose of developing three oil and gas wells," the statement said. "The SEC further alleges that the Griffins misled investors about Payson's promised participation in the program and about Payson's compensation as the program's sponsor and operator."
The brothers allegedly misrepresented to investors that the company would provide 20 percent, or $5.4 million, which the inexperienced investors would find an attractive incentive to make their own investments, according to the SEC's complaint.
"They believed that Payson’s putting at investment risk $5.4 million of its own funds would attract investors to the 3 Well Program," the complaint said. "In webinar slides prepared by the Griffins and viewed by investors and the brokers selling the units, Payson’s $5.4 million co-investment was referred to as 'skin in the game.'”
In fact, Payson contributed nothing toward the offering or well costs but appropriated all of the offering proceeds without a way to pay for any coverage. Payson had only about $58,000 in the bank account when it made the offering, according to the complaint.
“When they launched the 3 Well Program, and during the entire time Payson was offering and selling the investments, the Griffins knew that Payson’s financial situation was desperate and that Payson did not have the financial wherewithal to perform the promises it was making, i.e., the promise to co-invest $5.4 million, and to pay any cost overruns,” the complaint said.
The investors that the offering ended up attracting to the 3 Well Program project were geographically dispersed, didn't have much experience in the oil and gas industry, didn't know each other and lacked the means to identifying or contacting each other, the complaint said.
Payson and Payson Operating both filed for Chapter 7 bankruptcy June 10, a filing that later was converted to Chapter 11.
"The bankruptcy trustee has projected that, after administrative expenses, neither company will have funds available to pay its unsecured creditors," the complaint said.