Paul R. Melbye, Provident Royalties‘s CEO, has pleaded guilty to running a $485M Ponzi Scam that defrauded over 7,700 investors in the US. He faces up to 47 years behind bars.
According to prosecutors, Melbye did not disclose material facts to investors and he issued materially false representations to get them to make payments to Provident. The Securities and Exchange Commission had sued Melbye and Provident principals Henry Harrison and Brendan Coughlin over the alleged securities fraud in July 2009. The men were accused of taking the money of investors, who were promised yearly returns greater than 18%, and spending less than half of it on oil and gas leases when they had promised that most of the funds would go toward investments, leases, mineral rights, development, and exploration. The “returns” that older investors received came from the investment money put in by newer investors.
Coughlin and Harrison, who were indicted on criminal charges in July, are waiting to go to trial. The two Dallas men were each charged with 10 counts of mail fraud and one count of conspiracy to commit mail fraud. Per the criminal allegations, starting around September 2006, Harrison, Coughlin, and others made false representations and did not reveal material facts in order to get investors to make payments to Provident. (These allegedly false representations included statements that investors’ money would only go toward a specific oil and gas project.) They also allegedly failed to disclose that Blimline, a Provident founder, had obtained millions of dollars in unsecured loans and he had previously been charged with securities fraud.
In other Texas securities news, the U.S. District Court for the Southern District of Texas has decided not to overturn the $100,000 arbitration award that investment adviser representative Robert Thompson has been ordered to pay in a fee division dispute. The case involves Thompson and Chris Jones, who is a California resident. Both are former Walnut Street Securities representatives.
Jones and Thompson had gone into an agreement together in 2005 to divide fees from Thompson’s clients in the Houston area. Two years later, they became involved in a dispute over this arrangement and they sought resolution via a Financial Industry Regulatory Authority arbitration panel, which refused to have the venue in Texas. Instead, the hearing took place in California where the arbitration panel found that Thompson was liable to Jones for $100,000. All other counterclaims and claims were denied.
Thompson then went to court with a motion to vacate claiming that the decision to have the hearing take place in California prejudiced his rights to cross-examine witnesses and provide evidence. The district court denied Thompson’s motion to vacate.
The court said that since the statutory standards for vacatur under the Texas General Arbitration Act and the Federal Arbitration Act are substantially the same, it would use TAA in its analysis while looking at the common law that oversees the two statutes. The court also said that Thompson did not provide a transcript or order from the arbitration panel, which was needed for his argument. The court determined that regardless of whether or not the arbitration panel made a mistake in placing the venue in California, the award cannot be vacated because Thompson did not show how this venue decision prejudiced his rights.
Texan Pleads Guilty in $485 Million Ponzi, Courthouse News, November 9, 2012
Dallas Men Indicted in $485 Million Investment Fraud Scheme in East Texas, FBI, July 12, 2012
Joint Venture Collapses Into FINRA Arbitration Slugfest Over Fee Division, Forbes, October 8, 2012
More Blog Posts:
Texas Securities Fraud: Investors Bilked in $68M Dallas Ponzi Scam Hope To Recover Some Funds Via Rare Guitar Auction, Stockbroker Fraud Blog, October 25, 2012
Texas Securities Fraud: District Court Says Houston-Based Private Equity Firm Can Proceed with Claim Over $10M Film Financing Investment, Stockbroker Fraud Blog, October 19, 2012
Provident Royalties Faces $485 Million Texas Securities Fraud, Says SEC, Stockbroker Fraud Blog, July 26, 2009
Shepherd Smith Edwards and Kantas, LTD, LLP is a Texas securities fraud law firm. Please contact us to request your free case evaluation.