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Aug 10, 2016

SEC Litigation Release - August 10, 2016: Sethi Petroleum, LLC and Sameer P. Sethi

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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 23615 / August 10, 2016

Securities and Exchange Commission v. Sethi Petroleum, LLC and Sameer P. Sethi, No. 4:1315-CV-338 (E.D. Tex.)

Purveyors of Fraudulent Oil and Gas Investments Found in Contempt of Court

On August 9, 2016, a federal court in Texas entered contempt orders against Sameer Sethi, Praveen Sethi, and John Weber after they violated the court's May 26, 2015 preliminary injunction restraining Sameer Sethi and Sethi Petroleum, LLC from participating in oil and gas securities offerings. The Honorable Amos L. Mazzant, U.S. District Judge for the Eastern District of Texas, entered the order after finding that the defendants had created Cambrian Resources, LLC in order to evade the Court's injunction and continue to raise investor funds.
The SEC's complaint against Sameer Sethi and Sethi Petroleum, filed in May 2015, alleged that they raised approximately $4 million through the fraudulent offer and sale of securities in the Sethi-North Dakota Drilling Fund-LVIII Joint Venture beginning in approximately January 2014. According to the complaint, the offering materials represented that 70 percent of investor funds would be used to acquire working interests in, to drill, and to complete 20 oil and gas wells in the Bakken Shale formation in North Dakota. But the SEC's complaint alleges less than 25 percent of the amount raised was used for these purposes. Instead, more than 75 percent of investor funds allegedly were spent on undisclosed and unapproved expenditures such as diverting $1.6 million to Sameer Sethi, his family, and Sethi Petroleum's parent company and paying more than $1 million to sales employees. The complaint alleges that less than $1 million of the funds raised went to actual oil and gas operations. The court subsequently enjoined Sameer Sethi and Sethi Petroleum from continuing to raise funds and appointed a receiver over their assets.
On June 22, 2016, the SEC filed an emergency motion with the Court after determining that Sameer Sethi was continuing to raise investor funds through his father Praveen Sethi and attorney John Weber under an entity named Cambrian Resources, LLC.
In finding the defendants in contempt of its injunction, the Court articulated 22 specific facts - "an extraordinary amount of evidence" - that "demonstrate that the creation and operation of Cambrian by Sameer, Praveen, and Weber was nothing more than an attempt to evade the Court's injunction and continue utilizing Sameer's skills in selling securities." The Court rejected the defendants' arguments that the Cambrian interests were structured in such a way to be exempt from the federal securities laws, finding that investors had "a complete dependency on Cambrian," making the Cambrian interests investment contracts and subject to securities laws. The court ruled that "[t]he actions taken by Sameer, Praveen, and Weber clearly violated both the spirit and the letter of the Court's order. This is supported by clear and convincing evidence that the parties deliberately attempted to disguise the nature of their involvement with Cambrian and the illusory nature of the interests that Cambrian was selling."
Judge Mazzant ordered that within 14 days, Sameer Sethi, Praveen Sethi and John Weber must provide a sworn accounting for all Cambrian assets, return nearly $80,000 to the Cambrian investors and pay the SEC's costs in filing the emergency motion. If they fail to do so, the court will consider jail time or a fine.
The SEC's investigation was conducted by Samantha S. Martin, Keith Hunter and Jessica B. Magee of the SEC's Fort Worth Regional Office. Ms. Magee, Matthew J. Gulde, and Timothy L. Evans are conducting the Commission's litigation. The case is supervised by David L. Peavler.
For additional information, see Litigation Release No. 23265 (May 19, 2015).

http://www.sec.gov/litigation/litreleases/2016/lr23615.htm