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NOTICE OF INTENT TO FINE AND NOTICE OF RIGHT TO HEARING DOCKET NO. CF-18-8308-S |
I. PRELIMINARY STATEMENT
| 1. | The Banking Commissioner (“Commissioner”) is charged with the administration of Chapter 672a of the General Statutes of Connecticut, the Connecticut Uniform Securities Act (“Act”), and Sections 36b-31-2 to 36b-31-33, inclusive, of the Regulations of Connecticut State Agencies (“Regulations”) promulgated under the Act. |
| 2. | Pursuant to Section 36b-26(a) of the Act, the Commissioner, through the Securities and Business Investments Division (“Division”) of the Department of Banking, has conducted an investigation into the activities of Respondents to determine if Respondents have violated, are violating or are about to violate provisions of the Act or Regulations (“Investigation”). |
| 3. |
As a result of the Investigation, the Commissioner has reason to believe that Respondents have violated certain provisions of the Act. |
| 4. | As a result of the Investigation, the Commissioner has the authority to issue a cease and desist order against Respondents pursuant to Section 36b-27(a) of the 2018 Supplement to the General Statutes (“2018 Supplement”). |
| 5. |
As a result of the Investigation, the Commissioner has the authority to impose a fine upon Respondents pursuant to Section 36b-27(d) of the 2018 Supplement. |
II. RESPONDENTS
| 6. |
Leland Energy, Inc. (“Leland”) is an active Nevada corporation formed on June 7, 2001. Leland’s principal place of business and address last known to the Commissioner is 8950 West Olympic Boulevard, #415, Beverly Hills, California 90211. |
| 7. | Leland Tennessee Holdings, Inc. (“Tennessee”) is a Nevada corporation formed on December 12, 2011. Tennessee’s principal place of business and address last known to the Commissioner is 2360 Corporate Circle, Suite 400, Henderson, Nevada 89074-7722. Tennessee’s business license with the Nevada Secretary of State’s Office was revoked on December 31, 2013. Tennessee is a wholly owned subsidiary of Leland. |
| 8. | Opportunity Drilling & Acquisition Fund, LLP (“Opportunity Fund”) is a Nevada limited liability partnership and investment fund formed on January 10, 2013. Opportunity Fund’s principal place of business and address last known to the Commissioner is 2360 Corporate Circle, Suite 400, Henderson, Nevada 89074-7722. Tennessee was the managing partner of Opportunity Fund. Opportunity Fund’s business license expired with the Nevada Secretary of State’s Office on January 31, 2014. |
| 9. | Stephen M. Thompson (“Thompson”) is an individual whose address last known to the Commissioner is 8950 West Olympic Boulevard, # 415, Beverly Hills, California 90212. Thompson is the president and/or control person of Leland. Thompson was also the president of Tennessee and, individually and/or through Leland, the owner and/or control person of Tennessee and the Opportunity Fund. Thompson, alone and through a series of related companies, has been involved in the oil and gas industry for approximately thirty years. |
| 10. | The purported purpose of Leland, Tennessee and the Opportunity Fund (collectively, the “Leland Companies”) was to invest in the oil and gas industry. |
III. STATEMENT OF FACTS
11.
Investor A is a Connecticut resident. In 2013, Investor A discovered the website for the Leland Companies (www.lelandenergy.com) on the Internet. The website included at least one video presentation by Thompson touting the benefits of investing in oil and gas wells. After contacting the Leland Companies, Investor A was solicited to invest in the Opportunity Fund by a representative of the Leland Companies. The representative represented to Investor A that his investment in the Opportunity Fund included a “Petroleum Deficiency Pledge” (“PDP”) underwritten by a company called Petroleum Mutual LLC; that the PDP protected Investor A’s investment against any dry wells; and that Petroleum Mutual LLC would reimburse Investor A for any investment losses.
12.
13.
To date, the Leland Companies have only returned approximately $3,000 in “dividends” to Investor A from his investments in the Opportunity Fund.
Respondents' Regulatory History Pre-2013
14.
At the time of his investment, Investor A did not receive full disclosure regarding various prior regulatory proceedings involving Respondents and/or their affiliates. Such information would have been material to Investor A’s decision to invest. These proceedings included the following:
(a)
Federal Trade Commission:
In 1985, the Federal Trade Commission (“FTC”) obtained a $2.5 million settlement against Leland Industries, Inc. resolving FTC charges that Leland Industries, Inc. and related defendants misrepresented to investors crucial information about lotteries for oil and gas rights on federal lands. Among the related defendants was officer Stephen M. Thompson who agreed to pay $10,000 to settle the matter. (FTC v. Leland Indus., Inc., Civ. No. 83-3518-CBM (PX) (C.D. Cal. 1983);
(b)
Wisconsin:
On October 7, 2002, the State of Wisconsin, Department of Financial Institutions, Division of Securities issued two separate Orders of Prohibition and Revocation (Consent) against Leland and Thompson arising out of allegations which included the offer of unregistered securities and employing an unlicensed securities agent (File Nos. S 02100(EX)) (collectively, “Wisconsin Orders”). The Wisconsin Orders prohibited Leland and Thompson from offering or selling unregistered securities; violating Wisconsin statutes pertaining to fraudulent practices in connection with the offer, sale or purchase of securities; and employing unlicensed securities agents. The Wisconsin Orders also revoked any otherwise applicable registration exemptions;
(c)
Pennsylvania:
On January 6, 2004, the Pennsylvania Securities Commission accepted an Offer of Settlement from Leland, relating, among other things, to the alleged offer of unregistered securities (Docket No. 2003 05-05). Leland was barred from offering or selling securities in the Commonwealth of Pennsylvania unless it retained counsel knowledgeable and experienced in securities laws to make filings with the Pennsylvania Securities Commission. Leland was also ordered to permanently cease and desist from violating the Pennsylvania Securities Act;
(d)
California:
On January 30, 2012, the Department of Corporations of the State of California entered into a Settlement Agreement with Leland, Thompson and others (OAH Case No. L-2011030410) (“California Settlement Agreement”). The California Settlement Agreement arose out of allegations that Leland and Thompson, in connection with the offer and sale of securities, made misrepresentations of material fact or omitted to state material facts to investors. The California Settlement Agreement required Leland and Thompson to, inter alia, reimburse investors $1,365,977 for securities losses and pay administrative penalties of $51,500 to the Department of Corporations. Subsequently, since Leland and Thompson failed to comply with the California Settlement Agreement, the State of California sought injunctive relief against them (People v. Leland Energy, Inc., Stephen M. Thompson, et al. (Case No. BC599672). A default judgment was entered against Leland and Thompson on September 21, 2016; and
(e)
Rhode Island:
On January 10, 2013, the Rhode Island Department of Business Regulation Division of Securities entered into a Consent Order with Leland and Thompson. The Consent Order arose out of allegations regarding the offer and sale of unregistered securities, and transacting securities business without a license or an exemption from licensure (DBR No. 12SC045) (“Rhode Island Consent Order”). The Rhode Island Consent Order permanently barred Leland and Thompson from engaging in any activity in Rhode Island requiring licensing or registration absent compliance with the Rhode Island Uniform Securities Act and the regulations promulgated thereunder.
Unregistered Offers and Sales of Securities
15.
In 2013, at the time the Leland Companies offered and sold securities in the Opportunity Fund to Investor A, the securities were not registered in Connecticut under Section 36b-16 of the Act nor were they the subject of a filed exemption claim or claim of covered security status.
Fraud in Connection with the Offer and Sale of Securities
16.
17.
Moreover, when soliciting Investor A to invest in the Opportunity Fund, the Leland Companies failed to adequately disclose the prior multiple regulatory actions to which Thompson and/or they had been subject. The existence of these regulatory actions was material information that should have been disclosed to Investor A in order for him to make an informed investment decision. The failure to disclose these actions was an omission of material fact.
Respondents Continued to be the Subject of Regulatory Proceedings
Over the Ensuing Four Years
18.
Subsequent to the time period involved in this matter, Thompson and/or one or more of the Leland Companies have continued to be the subject of securities enforcement actions. These actions include the following:
(a)
Idaho:
On June 21, 2013, the Department of Finance of the State of Idaho entered into an Agreement and Order with Leland arising from allegations of omissions of material fact, failure to disclose material information and engaging in fraudulent conduct in connection with the offer, sale and purchase of unregistered securities (Docket No. 2012-7-04-B). Pursuant to the Agreement and Order, Leland voluntarily agreed, inter alia, not to sell or offer oil and gas related investment interests to Idaho residents, and to pay $175,000 in restitution to Idaho resident investors;
(b)
Colorado:
On April 17, 2014, an Order of Permanent Injunction and Other Relief was entered against defendants Thompson and Leland by the District Court, City and County of Denver, Colorado, in an action brought by the Acting Securities Commissioner of the State of Colorado (Rome v. Stephen M. Thompson, Joseph E. Finateri, and Leland Energy, Inc., Case No. 201414CV31557) (“Colorado Injunctive Order”). Pursuant to the Colorado Injunctive Order, Leland and Thompson were permanently restrained and enjoined from, inter alia, (i) offering and selling any securities and investments in Colorado; (ii) engaging in business in Colorado as a securities broker-dealer, sales representative, investment adviser, or investment adviser representative in violation of the Colorado Securities Act; and (iii) engaging in fraudulent conduct in connection with the offer, sale or purchase of securities. Leland and Thompson stipulated to the entry of the Colorado Injunctive Order and agreed, jointly and severally, to pay restitution of $700,000 to investors;
(c)
Wisconsin:
On February 17, 2015, the State of Wisconsin, Department of Financial Institutions, Division of Securities issued two separate Cease and Desist Orders (Summary) against Leland and Thompson ordering them to cease and desist from offering or selling unregistered securities in Wisconsin and prohibiting them from employing an unregistered agent (File Nos. S-225797 (EX)). The Orders also revoked any otherwise applicable registration exemptions;
(d)
Washington:
On August 28, 2015, the State of Washington, Department of Financial Institutions, Securities Division, issued Findings of Fact and Conclusions of Law and a Final Order to Cease and Desist, to Impose Fines, and to Charge Costs as to Stephen M. Thompson, Leland Energy, Inc. and Leland Tennessee Holdings, Inc. (Order No.: S-12-1066-15-FO07) (“Washington Order”). The Washington Order found that Thompson, Leland and Tennessee violated the anti-fraud provisions of the Securities Act of Washington; and that Thompson and Leland acted as an unregistered broker-dealer or securities salesperson. Thompson was ordered to pay a fine of $100,000, and Leland and Tennessee were fined $100,000, jointly and severally;
(e)
Michigan:
On December 1, 2016, the State of Michigan, Department of Licensing and Regulatory Affairs, Corporations, Securities and Commercial Licensing Bureau (“Michigan Securities Bureau”) issued a Notice and Order to Cease and Desist against Leland for (i) offering and selling unregistered securities, (ii) employing or associating with an unregistered agent, and (iii) omitting to state material facts in connection with the offer and sale of a security (Complaint No. 329424). On December 1, 2016, the Michigan Securities Bureau also issued a Notice and Order to Cease and Desist against Thompson for materially aiding Leland’s securities violations (Complaint No. 329444). Leland and Thompson failed to request a hearing on their respective Notice and Order to Cease and Desist and, by operation of law, each Notice and Order to Cease and Desist became a Final Order on January 10, 2017. The Final Orders imposed a fine of $80,000 on Leland and a fine of $10,000 on Thompson; and
(f)
Arizona:
On June 9, 2017, the Securities Division of the Arizona Corporation Commission issued a Notice of Opportunity for Hearing Regarding Proposed Order to Cease and Desist, Order for Restitution, Order for Administrative Penalties and Order for Other Affirmative Action against Thompson, Leland, Tennessee and Opportunity Fund (Docket No. S-21014A0-17-0174). The action alleged the offer or sale of unregistered securities, transactions by unregistered dealers or salesmen, and fraud in connection with the offer or sale of securities. The action is pending.
ORDER IMPOSING FINE
a. Violation of Section 36b-16 of the Act by Respondents –
Offer and/or Sale of Unregistered Securities
| 19. | Paragraphs 1 through 18, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 20. |
Respondents offered and sold securities to at least one Connecticut investor, as more fully described in paragraphs 11 through 13, inclusive, which securities were not registered in Connecticut under the Act, as more fully described in paragraph 15. The offer and sale of such securities absent registration constitutes a violation of Section 36b-16 of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the 2018 Supplement, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the 2018 Supplement. |
b. Violation of Section 36b-4(a) of the Act by Respondents –
Fraud in Connection with the Offer and Sale of any Security
| 21. | Paragraphs 1 through 20, inclusive, are incorporated and made a part hereof as if more fully set forth herein. |
| 22. |
The conduct of Respondents, as more fully described in paragraphs 11 through 14, inclusive, and paragraphs 16 and 17, inclusive, constitutes, in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person. Such conduct constitutes a violation of Section 36b-4(a) of the Act, which forms a basis for an order to cease and desist to be issued against Respondents under Section 36b-27(a) of the 2018 Supplement, and for the imposition of a fine upon Respondents under Section 36b-27(d) of the 2018 Supplement. |
V. ORDER TO CEASE AND DESIST, NOTICE OF INTENT TO FINE AND
NOTICE OF RIGHT TO HEARING
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Leland has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Tennessee has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Opportunity Fund has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, as a result of the Investigation, the Commissioner finds that, with respect to the activity described herein, Thompson has committed at least one violation of Section 36b-16 of the Act, and at least one violation of Section 36b-4(a) of the Act;
WHEREAS, the Commissioner further finds that the issuance of an Order to Cease and Desist and the imposition of a fine upon Respondents is necessary or appropriate in the public interest or for the protection of investors and consistent with the purposes fairly intended by the policies and provisions of the Act;
WHEREAS, notice is hereby given to each Respondent that the Commissioner intends to impose a maximum fine not to exceed one hundred thousand dollars ($100,000) per violation upon each Respondent;
WHEREAS, the Commissioner ORDERS that LELAND ENERGY, INC. CEASE AND DESIST from directly or indirectly violating the provisions of the Act including, without limitation: (1) offering and selling unregistered securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
WHEREAS, the Commissioner ORDERS that LELAND TENNESSEE HOLDINGS, INC. CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including, without limitation: (1) offering and selling unregistered securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person.
WHEREAS, the Commissioner ORDERS that OPPORTUNITY DRILLING & ACQUISITION FUND, LLP CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including, without limitation: (1) offering and selling unregistered securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person;
WHEREAS, the Commissioner ORDERS that STEPHEN M. THOMPSON CEASE AND DESIST from directly or indirectly violating the provisions of the Act, including, without limitation: (1) offering and selling unregistered securities in or from Connecticut; and (2) in connection with the offer, sale or purchase of any security, directly or indirectly employing a device, scheme or artifice to defraud, making an untrue statement of a material fact or omitting to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they are made, not misleading, or engaging in an act, practice or course of business which operates or would operate as a fraud or deceit upon any person;
THE COMMISSIONER FURTHER ORDERS THAT, pursuant to Section 36b-27 of the 2018 Supplement, each Respondent will be afforded an opportunity for a hearing on the allegations set forth above if a written request for a hearing is received by the Department of Banking, Securities and Business Investments Division, 260 Constitution Plaza, Hartford, Connecticut 06103-1800 within fourteen (14) days following each Respondent’s receipt of this Order. To request a hearing, each Respondent must complete and return the enclosed Appearance and Request for Hearing Form to the above address. If any Respondent will not be represented by an attorney at the hearing, please complete the Appearance and Request for Hearing Form as “pro se”. If a hearing is requested, the hearing will be held on August 22, 2018, at 10 a.m., at the Department of Banking, 260 Constitution Plaza, Hartford, Connecticut.
The hearing will be held in accordance with the provisions of Chapter 54 of the General Statutes of Connecticut. At such hearing, Respondents will have the right to appear and present evidence, rebuttal evidence and argument on all issues of fact and law to be considered by the Commissioner.
If any Respondent does not request a hearing within the time period prescribed or fails to appear at any such hearing, the allegations herein against any such Respondent will be deemed admitted. Accordingly, the Order to Cease and Desist shall remain in effect and become permanent against any such Respondent, and the Commissioner may order that the maximum fine be imposed upon any such Respondent.
| Dated at Hartford, Connecticut, | ____/s/_____________ | |
| this 7th day of June 2018. | Jorge L. Perez | |
| Banking Commissioner |
CERTIFICATION
I hereby certify that on this 8th day of June 2018, I caused to be mailed by certified mail, return receipt requested, the foregoing Order to Cease and Desist, Notice of Intent to Fine and Notice of Right to Hearing to: Leland Energy, Inc., 8950 West Olympic Boulevard, #415, Beverly Hills, California 90211, certified mail no. 7013 3020 0000 4226 6776; Leland Tennessee Holdings, Inc., 2360 Corporate Circle, Suite 400, Henderson, Nevada 89074-7722, certified mail no. 7013 3020 0000 4226 6783; Opportunity Drilling & Acquisition Fund, LLP, 2360 Corporate Circle, Suite 400, Henderson, Nevada 89074-7722, certified mail no. 7013 3020 0000 4226 6790; and Stephen M. Thompson, 8950 West Olympic Boulevard, # 415, Beverly Hills, California 90212, certified mail no. 7013 3020 0000 4226 6806.
| __/s/____ |
| W. C. Hall |
| Paralegal |