© 2014 The Texas Lawbook.
By Mark Curriden, JD
Senior Writer for The Texas Lawbook
(May 19) – The U.S. Securities and Exchange Commission has charged a 47-year veteran of the oil and gas industry and his Irving-based energy company with operating a $10 million investment fraud scheme.
But Charles Couch, the chief executive officer of Couch Oil and Gas, and his lawyer say the allegations are unfair, unfounded and inaccurate.
“Mr. Couch has cooperated fully with the SEC’s investigation, which has been going on for about seven years,” says Mitch Little, a partner at Scheef & Stone in Frisco who is representing Couch and the energy company. “Mr. Couch has done everything the SEC has asked of him. The SEC has over pleaded this fraud case. The allegations are overly broad and inaccurate.”
The SEC’s Fort Worth Regional Office accuses Couch and his company of fraudulently raising $9.8 million from more than 200 investors in two unregistered offerings of oil and gas securities.
In a 16-page complaint filed last week in the U.S. District Court in Dallas, the SEC claims Couch falsely told investors that they would receive a working interest in various oil and gas wells, but that Couch never transferred the interest to those investors.
The SEC also alleges that Couch, who is 64, falsely promised investors that most of their money would go to drill and complete wells. Instead, the SEC says that about 30 percent of the money went to pay sales commissions to unregistered brokers.
The federal regulatory agency also contends that Couch inflated revenue projections and falsely portrayed that the company had an expertise at radical jet drilling technology.
“Dallas is a hotbed for oil and gas fraud, but the SEC has this one wrong,” says Little. “When all you have is a hammer, then everything looks like a nail.”
In an email to The Texas Lawbook, Couch said that he found it “unusual how the SEC attacks you or slanders a company in public after a few meetings without warning.
“Odd we have been in the business of investing in oil wells for 47 years, running an oil company and now we don’t know what we’re doing,” Couch stated. “It has been over 12 years since I have been able to pay myself a reasonable salary. Definitely made no material gain from the two multi-well packages in question.
“We have always made it a practice to cover cost overruns for working interest owners,” Couch said in the email. “We quit raising funds and drilling wells some years ago with passive investors. We are just in the service work and acquire wells as we can acquire them to beef up packages that did not perform.
“Trying to salvage wells that don’t want to properly produce can be a killer,” he said. “The older we get we spend more time verifying and less drilling or reworking. The days of the old wildcatter have come and gone.”
Couch said that “brokers and the expansion of the Internet” can cause regulatory problems for smaller energy companies like his that have good intentions because they don’t have the resources.
“One person can’t do it all, something will fall through the cracks if you can’t delegate,” he said. “Looks like I delegated the wrong person to supervise responding to the hundreds of Internet inquiries of those seeking to invest or buy a piece of an oil well.
“The political landscape has really changed and is a serious shot across the bow of those looking for capital to drill risky wells or entrepreneurs in the oil patch,” Couch added. “Looks like we became part of the oil field archives that is not too desirable. We definitely shot ourselves in the foot trying to stay up with the door closing security regulations.”
Couch Oil and Gas is the second North Texas energy company this month to be charged by the SEC with investment fraud.
Two weeks ago, the federal agency accused Southlake-based Guardian Oil and Gas and the company’s principal, Rick D. Mullins, in an allegedly illegal oil and gas offering fraud. The federal agency says that Mullins, who is a lawyer, raised about $6.5 million through the fraudulent offering and sale of securities to investors in the firm of limited partnership interests.
The SEC investigation and prosecution team against Couch includes Tamara McCreary, a former lawyer at Munsch Hardt; Jonathan Scott, a 10-year veteran of the SEC’s Fort Worth Regional Office; trial counsel Jessica Magee, a former lawyer at Thompson & Knight; and trial counsel Janie L. Frank.
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