Enforcement in 2017: From Oil-Drilling to Crypto-Mining

Jan 31

In 2017, the Texas State Securities Board took enforcement actions in cases ranging from millions of dollars in oil-and-gas fraud to an emergency order that led a cryptocurrency promoter to shutter its sales operations in North America.

In criminal actions, the State Securities Board assisted in the prosecution of investment fraud cases brought against 19 individuals. The cases resulted in prison sentences totaling 77 years, community supervision of 58 years, and orders of restitution of $44.8 million.

Besides oil and gas – a staple of investment fraud in Texas – criminal cases included real estate development, defrauding elderly investors, overseas investments, and a concert-promotion business.

The State Securities Board worked in cooperation with prosecutors and law enforcement agents in 12 counties and three federal jurisdictions in Texas, including United States Attorney offices, the FBI, the U.S. Postal Inspector, IRS-Criminal Investigation, and county law enforcement agencies.

“Our coordination with state and federal authorities is critical to the effective prosecution of investment fraud in Texas,” said Texas Securities Commissioner Travis J. Iles. “We are able to leverage resources to help shut down and prosecute large, complex fraudulent schemes that are inflicting harm on Main Street investors in Texas.”

In addition to criminal prosecutions, the State Securities Board conducts compliance examinations of investment advisory firms and can impose administrative penalties that include fines, suspensions, revocation of securities licenses, and cease and desist orders.

The Securities Commissioner also enters administrative orders against unregistered entities selling securities. In December 2017, Texas became the first state securities regulator to issue an administrative order against a company selling investments tied to cryptocurrency.

Commissioner Iles entered an Emergency Cease and Desist Order against USI-Tech Limited, a secretive, Dubai-based firm promising it could deliver low-risk, triple-digit returns from investments tied to Bitcoin mining. Neither the two sales agents named in the order nor the company is registered to sell securities in Texas.

USI-Tech solicited Texas investors through targeted craigslist advertisements, YouTube videos, and standalone websites. Within three weeks of the order, USI-Tech announced it would cease sales operations in the U.S. and Canada.

In certain criminal cases, district attorneys’ offices appoint State Securities Board attorneys to act as special prosecutors. In 2017, those cases included:

  • James Elton “Jim” Warr, who was sentenced in Travis County to 15 years in prison for stealing $1.1 million from individuals who bought real estate notes offered by his company;
  • Also in Travis County, David Rosen, a one-time entertainment promoter, was sentenced to 10 years in prison for defrauding individuals who bought investments in his concert-promotion business; and
  • Mark Christopher Parman of Frisco was sentenced in Collin County to six years in prison for selling interests in oil and gas drilling projects in Texas and Louisiana, then spending investors’ money on his and his wife’s personal expenses.

In federal cases, State Securities Board staff provided investigative assistance to the U.S. Attorney’s Office for the Western District in the prosecution of a massive oil and gas fraud, which resulted in 78-month sentences for each of the defendants and an order of restitution of $29 million.

In the Eastern District, a State Securities Board financial examiner assisted in the prosecution of an investment adviser in The Woodlands who convinced elderly clients to transfer their investment holdings to him, then absconded with the funds.

The adviser was sentenced to 60 months in prison and ordered to pay restitution of $948,058. Actions by the State Securities Board led to the seizure of funds from the defendant and the return of money to at least one elderly investor.

Besides criminal actions, the State Securities Board imposes administrative sanctions against registered and unregistered individuals and firms. The Securities Commissioner entered 16 administrative orders in 2017.

The Securities Commissioner revoked the registration of one firm, Jackson Financial Services of Irving, after its president, David Jackson, repeatedly refused to turn over emails regarding his solicitation of clients to invest in private securities offerings.

Individuals and firms paid $59,500 in fines imposed in nine separate actions. All fines are deposited into the General Revenue Fund of Texas.

In addition, administrative orders imposed six suspensions totaling 405 days.