Posted 5/12/15 (Tue)
By Neal A. Shipman
Investors from 66 countries who were promised high returns on their investment in the development of man camps in the Bakken oil field region of North Dakota and Montana have been bilked of millions of dollars.
And two of the developers, Robert L. Gavin, and Daniel J. Hogan of North Dakota Developments LLC, who fraudulently sold interests in six different housing developments in Western North Dakota and Eastern Montana (Great American Lodge Watford West, Great American Lodge Watford East/aka McKenzie Crossing, Great American Lodge Montana (Culbertson, Mont.), Transhudson Hotel (Parshall), Transhudson Apartments Williston Heights, and Bakken Base Camp), have been sued by the U.S. Securities and Exchange Commission for running a Ponzi scheme.
North Dakota Securities Commissioner Karen Tyler has ordered North Dakota Developments LLC, to Cease and Desist from engaging in fraudulent practices in connection with the offer and sale of investments in man camp housing developments in the Bakken oil field region of North Dakota and Montana.
In addition, the Securities and Exchange Commission also took action last week, filing in U.S. District Court for the District of North Dakota a Complaint and Emergency Motion for a Temporary Restraining Order.
The Securities Department’s Order alleges that North Dakota Developments LLC, Gavin and Hogan violated NDCC 10-04-15(2) by engaging in material misstatements of fact and material omissions of fact in selling securities to investors, and also engaged in misappropriation of investor funds and Ponzi-like activity. North Dakota Developments LLC, Gavin and Hogan also violated NDCC 10-04-04 and NDCC 10-04-10 in selling unregistered securities, acting as an unregistered broker-dealer and engaging in unregistered agent activity.
Investigative records indicate 980 investors from 66 countries invested over $62 million through Gavin, Hogan and sales agents located in the United States and several other countries.
Among other alleged misrepresentations, investors were told to expect returns as high as 42 percent in the first year, and a guaranteed buy-back of their investment in three years.
Among other alleged misappropriations, investor assets were used to make Ponzi-like payments to earlier investors, to pay undisclosed sales commissions of up to 20 percent to North Dakota Developments LLC sales agents, were diverted to real estate projects beneficially owned by Gavin and Hogan, and used for personal expenses such as meals, alcohol and entertainment.
One of the investors who lost thousands of dollars that they invested into the developments was Gaston Procopio of Spain. In an e-mail to the McKenzie County Farmer, Procopio stated that he had been defrauded almost $44,000 from North Dakota Developments LLC, the developer of Great American Lodge Watford City, Eastern Montana and recently, Alexander Base Camp.
According to Procopio, he tried to reach an amicable solution with Daniel Hogan and Robert Gavin by letting them know of his discoveries of fraudulent securities transactions, evidence of fraud, misrepresentation and wrongful and deliberate actions with the intention to defraud through a bogus financial Ponzi scheme.
“I had no option but to file a criminal complaint with the Sheriff of McKenzie County,” wrote Procopio. “I also blew the whistle under my name before the North Dakota Securities and Exchange Commission. After bringing dozens and dozens of worldwide victims, the case had expanded so much with the evidence I provided during three months of work 24/7 without assistance of counsel, the state requested the assistance of the federal SEC and the FTC.”
“Oil development in western North Dakota and our state’s economic growth story routinely make headlines - locally, nationally and internationally,” stated Tyler. “It’s important to remember that con artists follow the headlines looking for their next exploitation opportunity.”
Tyler cautions that investors need to conduct extensive due diligence when pitched an investment represented to be a private transaction not subject to regulatory review and registration, especially when the pitch includes the promise of high returns, low risk and a guaranteed exit.
Red flags of fraud in this type of transaction include, but are not limited to promise of a high, guaranteed return; promise of a guaranteed investment buy-back; high pressure sales tactics; unsubstantiated claims by the promoter of extensive industry expertise, unsubstantiated claims of success in previous projects; resistance to providing offering documents, lack of substantive information in offering documents; and claims or warnings that there is no need for investors to contact regulators.