A Dallas man pleaded guilty last week to one count of mail fraud as part of a scheme that defrauded investors in interests in the Barnett Shale natural gas play in North Texas and elsewhere, the U.S. Department of Justice (DOJ) said.
Alan Todd May formed Prosper Oil & Gas Inc. and was its president, DOJ said. The company purported to own and operate oil and gas leases in several states, including Texas, Oklahoma, Colorado and Arkansas. According to plea documents, beginning in July 2008 and continuing through the beginning of March 2010, May ran a scheme to obtain, by false and fraudulent pretenses, about $7 million from investors to purchase royalty interests in oil and gas leases.
"To sell these royalty interests, May, along with others, made various false and misleading statements to investors. For example, May and others told investors that the royalty interests for sale had yielded, or would yield, annual returns greater than 25%," DOJ said. "As a result of these representations, Prosper sold purported royalty interests to more than 170 investors."
May and others were selling mineral interests that Prosper didn't own; overselling mineral interests that Prosper did not own; "wildly overstating" production revenue for Prosper's leases in order to sell mineral interests; and making Ponzi scheme payments, disguised as "royalty" payments, to investors, DOJ said. "May admitted using investor funds for extravagant personal expenses and to make payments to his mother, daughter, brother and ex-wife."
Thursday afternoon before U.S. District Judge Jane J. Boyle May admitting that he raised about $7 million in investor funds under false pretenses. He faces a maximum sentence of 20 years in prison and a $250,000 fine; restitution could be ordered. Sentencing is scheduled for March 31.
May has been in custody since his arrest in June in San Francisco on a related federal criminal complaint filed in the Northern District of Texas. A few weeks later, he was indicted on one count of wire fraud and two counts of mail fraud. The government will dismiss the remaining mail and wire fraud counts at sentencing as outlined in the May's plea agreement.
The U.S. Securities and Exchange Commission (SEC) opened a separate investigation into May and Prosper Oil and Gas, and in March 2001 filed a civil complaint against them alleging that May and Prosper raised at least $6 million from at least 99 investors throughout the U.S. in fraudulent securities offerings, consisting of fractional, undivided royalty interests in oil and gas properties.
U.S. District Judge Sam A. Lindsay ordered that Prosper Oil and Gas, and any assets of Alan May, be placed in receivership. The SEC identified six accounts that Prosper used to receive investor funds, receive oil and gas revenues and make payouts to Prosper investors. Those accounts revealed approximately $6.7 million in total incoming investor funds; approximately $441,000 of total oil and gas revenue; and approximately $1.2 million of investor distributions.