SEC Accuses Heartland Group Ventures of Lying to Investors

On December 1, 2021, the Securities and Exchange Commission (SEC) announced charges against Heartland Group Ventures and seven other Heartland-affiliated entities, including Heartland Drilling.  The SEC complaint details the alleged scheme in which $122 million was raised from 700 investors nationwide purportedly for working on existing and drilling new oil wells.  James Ikey, John Muratore, Thomas Brad Pearsey, Rustin Brunson, and, Manjit Singh (aka Roger) Sahota were all named individually in the complaint.

According to the complaint[1] filed by the SEC:

The alleged scheme involved raising approximately $122 million through five unregistered securities offerings, including three debt funds and two equity funds.  Only about half of the investor funds raised were spent on oil and gas projects, which collectively generated only about $500,000.  The Heartland Defendants sent about $54 million of investor funds to Defendant Sahota, who used the funds to make purchases that included “a private jet, a helicopter, real estate in the Bahamas, and on other non-oil and gas expenditures,” according to the complaint.  $26 million of investor funds were also allegedly used to make payments to the funds’ investors, in a classic ponzi scheme payoff.[2] 

Lies About Oil Production  

In order to induce investments, the Heartland Defendants made a series of false representations.  “For example, they falsely told investors that certain oil wells were producing hundreds of barrels of oil a day, including wells that had yet to produce a single barrel of oil.”  The Defendants also made material misrepresentations regarding the experience of the oil and gas operators involved, the production and reserves for the project, and a number of other key factors.  Sahota also provided periodic statements that misrepresented production by inflating or otherwise altering valuation for gas reserves.

The parties included:

• The Heartland Group Ventures, LLC
• Heartland Production and Recovery LLC
• Heartland Production and Recovery Fund LLC
• Heartland Production and Recovery Fund II LLC
• The Heartland Group Fund III, LLC
• Heartland Drilling Fund I, LP
• Carson Oil Field Development Fund II, LP
• Alternative Office Solutions, LLC

SEC Complaint Alleges Ponzi-Like Scheme

The SEC’s complaint charges The Heartland Group Ventures, LLC, Heartland Production and Recovery LLC, as well as Heartland Production and Recovery Fund LLC, Heartland Production and Recovery Fund II LLC, The Heartland Group Fund III, LLC, Heartland Drilling Fund I, LP, Carson Oil Field Development Fund II, LP, and Alternative Office Solutions, LLC (collectively “the Heartland-Affiliated Entities”); ArcoOil Corp. and Barron Petroleum LLC; and James Ikey, John Muratore, Thomas Brad Pearsey, Rustin Brunson, and, Manjit Singh (aka Roger) Sahota with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and aiding and abetting violations of these provisions.  After initially filing the complaint under seal, the United States District Court for the Northern District of Texas issued a temporary restraining order against all Defendants, which froze the assets of certain Defendants, and appointed a receiver to recover assets for victims of the scheme.  

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