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Securities and Exchange Commission Accuses Provident Royalties, LLC of Running $485 Million Ponzi Scheme

Posted by: Jeffrey B. Kaplan
August 07, 2009
Topic: Provident and Shale Royalties

The United States Securities and Exchange Commission ("SEC") has charged Provident Royalties, LLC, Provident Asset Management LLC, and founders Brendan Coughlin, Paul Melbye, and Henry Harrison with securities fraud. The SEC claims that the limited partnership interests and preferred shares that the defendants sold in various Provident and Shale Royalties entities were part of a $485 million investment scam.

The investments purported to provide investors with interests in various oil and gas and other natural resource investments. But, according to the SEC, Provident operated a massive Ponzi scheme, where newer investors' money was used to pay promised investment returns to earlier investors.

According to the SEC's complaint, from at least June 2006 through January 2009, Provident allegedly made approximately $500 million of fraudulent limited partnership and preferred stock offerings under the names Provident Energy, Provident Resources, and Shale Royalties. These securities were sold to approximately 7,700 United States investors. Provident allegedly promised yearly returns of more than 18% and misrepresented the way the funds were going to be used.

Specifically, the SEC's complaint alleges that Provident misrepresented that 85% of the funds raised in securities offerings would be used to purchase oil and gas real estate and other natural resource investments. In truth, the SEC has claimed, less than 50% of the offerings were used for those stated reasons and a significant portion of the proceeds from the raised funds (investors' money) went toward paying out the enormous promised returns to earlier investors and paying expenses. "Provident sold ostensibly safe securities such as preferred stock to thousands of investors," said Ken Israel, the director of the SEC's Salt Lake Regional Office. "But it was actually operating a Ponzi-like shell game in which assets were shuttled from one entity to another and investors were paid returns from whatever money was available, usually that of the most recent investors."

Many of the Provident and Shale Royalties investments were sold through Financial Industry Regulatory Authority ("FINRA") member brokerage firms, such as Workman Securities, GunnAllen, Securities America, Capital Financial Services, Capwest Securities, QA 3 Financial, Okoboji Financial, Wedbush Morgan, and others.

Provident Royalties, LLC and 26 subsidiaries filed for Chapter 11 bankruptcy protection on June 22, 2009, causing the thousands of Provident investors to lose hundreds of millions of dollars. In the bankruptcy proceeding, Provident listed assets of $1 to $10 million and liabilities of $100 to $500 million.

Dimond Kaplan & Rothstein, P.A. (www.dkrpa.com) currently represents a number of Provident and Shale Royalties investors throughout the United States. The firm has filed and will continue to file FINRA securities arbitration claims against the brokerage firms that sold the investments in an effort to recover clients' investment losses. Dimond Kaplan & Rothstein believes that the brokerage firms failed to perform adequate due diligence before recommending and selling the Provident and Shale Royalties investments to their clients, especially in light of the fact that the various Provident and Shale Royalties entities allegedly did not even have audited financial statements. The firm also believes that the brokerage firms that sold the investments misrepresented the nature of the investments and the level of risk associated with the investments.

Dimond Kaplan & Rothstein, P.A. is an AV-rated, nationally recognized law firm with extensive experience representing investors throughout the United States and Latin America in investment fraud and stockbroker and brokerage firm negligence cases. If you lost money in Provident or Shale Royalties limited partnerships or preferred shares, please contact attorney Jeffrey B. Kaplan of Dimond Kaplan & Rothstein, P.A. at (888) 578-6255 or jkaplan@dkrpa.com for a free case evaluation. You also may visit the firm on the web at www.dkrpa.com or http://www.investmentfraud-lawyer.com

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