Securities And Exchange Commission v. The Heartland Group Ventures, LLC et al

On December 1, 2021, the United States Securities and Exchange Commission ("SEC"), represented by Danielle N. Rushing, Deborah D. Williamson, Jeffrey R. Fine of Dykema Gossett PLLC and Rose L. Romero of the Law Offices of Romero Kozub, filed civil enforcement action against Heartland Group Ventures, LLC ("Heartland Group Ventures"), Heartland Production and Recovery LLC ("Heartland PAR"), Heartland Production and Recovery Fund LLC ("Debt Fund I and II"), Heartland Drilling Fund I, LP ("Equity Fund I & II") and others, (collectively, “Heartland Defendants”), seeking injunctive relief, disgorgement of ill-gotten gains and civil penalties for the Defendants’ alleged oil and gas fraud. This case was filed in U.S. District Court in the Eastern District of Kentucky with Judge Karen K. Caldwell presiding. 

In the complaint, the SEC alleged that, “This case concerns an oil and gas offering fraud conducted over three years. Between at least October 2018 and October 2021, The Heartland Defendants, have fraudulently raised approximately $122 million from more than 700 investors nationwide, through five unregistered securities offerings-three debt funds and two equity funds-for which there was no applicable registration exemption. Over the course of the five offerings, Heartland Defendants have spent only about half of the investor funds they raised on oil and gas projects, which collectively generated less than $500,000 in revenue. Beginning in at least 2019, the Heartland Defendants used investor funds to make more than $26 million in Ponzi payments to debt fund investors.”

The SEC further alleged that, “The Heartland Defendants made material misrepresentations and omissions to investors regarding the oil and gas projects in offering documents for the five securities offerings. The Heartland Defendants and Defendant Alternative Office Solutions, LLC ("AOS"), which managed Heartland investor accounts, also made material misrepresentations and omissions to investors regarding the oil and gas projects in marketing materials for the five securities offerings, falsely representing production and reserves, among other things. Beginning in at least September 2019, Defendants Heartland Group Ventures, Ikey, and Brunson failed to disclose the majority ownership and control of Heartland Group Ventures by Ikey, who was convicted of conspiracy to commit wire fraud in 2014. The Heartland Defendants entrusted Ikey with investors' personal information, including their financial information.”

The SEC also alleged that, “The Sahota Defendants and Dallas Resources used millions of dollars in Heartland investor fund proceeds to purchase a private jet, a helicopter, real estate in the Bahamas, and on other non-oil and gas expenditures for themselves. Sahota also made misrepresentations about projected production of a gas well that was being drilled to Heartland personnel, persons who solicited investors, and at least one investor who attended an April 2021 field trip to the drill site.”

There are eight claims laid down by the SEC. The first and fifth claims alleged deal with  the violation of 17(a), the second claim alleged deals with the violation of Section 17(a)(2) and 17(a)(3) of the Securities Act, the fourth and seventh claims alleged deal with the violation of 5(a) and (c) of the Securities Act, respectively. The third and sixth claims alleged deal with the violation of Section 1 O (b) of the Exchange Act and Exchange Act Rule l0b-5, respectively. The last claim alleged deals with an Equitable Claim with Respect to the Relief Defendants. 

In its prayer for relief, the SEC has requested that the Court permanently enjoin Defendants for violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and 77q(a)(3)], order disgorgement of all ill-gotten gains with civil penalties and grant such other relief as the Court deems appropriate.

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