In its first crackdown on fraudulent investment activities involving natural gas drilling in the Marcellus Shale, the Pennsylvania Securities Commission (PSC) on Thursday ordered an Allegheny County firm and its owner to stop selling unregistered securities in the state.

The commission issued a summary order to cease and desist against McKelvey Gas Co. (MGC) and Albert T. McKelvey, both of Gibsonia, PA. MGC was offering for sale investments in a Marcellus Shale gas well drilling project; McKelvey was listed as the owner. "The offer and assertions made to prospects by McKelvey represent violations of Pennsylvania securities law," the commission said.

According to the commission, earlier this month McKelvey placed an advertisement titled "Investment Opportunity" in a Pittsburgh-area newspaper. The ad stated, "Here is an opportunity to earn money from the Marcellus shale gas well drilling," said authorities.

"The ad specified a minimum investment is $5,000; that 'all investment notes are locked in for 36 months' and investors will earn 6% interest the first year, 6.5% interest the second year and 7% interest the third year. The ad further stated that interest was to be paid at the end of each 12-month period; and that 'wells produce for 20 to 30 years.'"

A staff investigation found that at least one Pennsylvania resident read the ad and telephoned McKelvey for information.

According to commission documents, the resident was told that investors would receive an "interest certificate" with a corporate seal; that the certificate would be an "official state document" and would be "just like having a U.S. Savings Bond paying interest"; and that as long as investors kept their money with MGC, they would receive a 0.5% increase in interest annually, without limitation.

Documents stated that McKelvey "also told the caller that he was 'bonded to do 500' wells and only needed eight to be able to repay investors; and that the prospect did not need to know anything about oil and gas as MGC would do everything."

MGC, said the commission, failed to make material information available to the prospective investor, which also violates Pennsylvania law that requires MGC to disclose its financial condition; financial risks of the program; the identity and relevant background of the corporate officers; an operating history; that the program is not registered in Pennsylvania; and that around April 2006, McKelvey was convicted in U.S. District Court for the Western District of Pennsylvania for impersonating a U.S. Marine Corps officer.

MGC and McKelvey were ordered to stop offering and selling the program in the commonwealth. According to the commission, "any further solicitations or sales made by MGC, McKelvey or their affiliates in Pennsylvania will constitute further violations of the 1972 Act."

Anyone who is or was solicited by MGC or McKelvey was asked to notify the commission by calling (800) 600-0007, or in Harrisburg, PA, at (717) 787-8061.

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