SEC Says Texas Man Sold $11.8M in Fake Oil Securities

GC Resources, LLC and its owner, Brian J. Polito, have been charged in the U.S. District Court for the Northern District of Texas with securities fraud in a Ponzi scheme involving oil wells the company never owned.

According to the SEC complaint, Polito operated a legitimate business through GC Resources until late 2011 when he became frustrated that GCR wells were not producing enough, which hindered his ability to attract investors. Polito visited the GCR well site and discovered that nearby wells were highly successful. He then visited the Texas Railroad Commission’s website and learned the name of the company that owned those successfully producing wells.

The SEC complaint says that Polito then made the decision to solicit investments based on the production of those successful wells — wells that GCR did not own. He raised approximately $11.8 million by falsifying an agreement with the oil company that owned the successful wells. Polito allegedly forged signatures on the fake contract and then used it to sell interests in the wells his company claimed to own to investors. The complaint charges that Polito operated a Ponzi scheme by using investor funds to make payments to other investors and to purchase luxury items and vacations for himself.

The SEC has charged GC Resources and Polito with securities fraud under Section 10(b) and Rule 10b-5 of the Exchange Act, and Section 17(a) of the Securities Act. Polito has also been charged with violating Section 15(a) of the Exchange Act by operating as an unregistered broker-dealer. The SEC is seeking permanent injunctions, civil penalties, disgorgement and prejudgment interest, and other relief against GC Resources and Polito.

In a separate action, criminal charges have been filed against Polito by the U.S. Attorney’s Office for the Northern District of Texas, Dallas Division.

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