SEC v. Berkshire Resources - Charges in Connection with Oil and Gas Offering

On June 8, 2009, the Securities and Exchange Commission filed a complaint in the United States District Court for the Southern District of Indiana charging Berkshire Resources, L.L.C. ("Berkshire"), a Wyoming company purportedly involved in oil and gas exploration, its principals, Jason T. Rose and David G. Rose, the six companies through which Berkshire carried out a securities offering - Berkshire (40L), L.L.P., Berkshire 2006-5, L.L.P., Passmore-5, L.L.P., Gueydan Canal 28-5, L.L.P., Gulf Coast Development #12, L.L.P., Drilling Deep in the Louisiana Water, J.V. (collectively, the "Berkshire Offerings")- with securities fraud in connection with an oil and gas offering fraud. The complaint also charged Berkshire's head sales agents, Mark D. Long and Yolanda C. Velazquez, with securities registration and broker-dealer registration violations.

In its complaint, the Commission alleges that from April 2006 through December 2007, Berkshire raised approximately $15.5 million from about 265 investors in the U.S. and Canada through a series of unregistered, fraudulent offerings of securities in the form of "units of participation." The defendants marketed the offerings to the public through cold call sales solicitations, and at trade shows and "wealth expositions." The purported purpose of the offerings was to fund oil and gas development projects that Berkshire was to oversee. According to the complaint, Jason Rose was the public face of Berkshire and was held out as its lead manager with significant experience in the oil and gas industry. In reality, Jason Rose had no experience managing an oil and gas company, and David Rose, Jason's father, ran the company behind the scenes. David Rose has an extensive disciplinary history for securities fraud and is facing a criminal indictment in connection with another similar but unrelated oil and gas scam.

The complaint further alleges that Berkshire, the Berkshire Offerings, Jason Rose, and David Rose also misled investors, among other things, about the use of investor proceeds. The defendants assured investors they would use 100 percent of their funds for the oil and gas drilling projects. Contrary to these representations, Berkshire spent approximately $6.7 million on items having nothing to do with developing the projects, including its own payroll and outside sales commissions, as well as marketing and promotional expenses. Moreover, of the $6.7 million, approximately $1.3 million went directly to members of the Rose family to pay for mortgages on their homes, home furnishings and electronics, cars, and personal credit card charges. The complaint also alleges that to further their scheme, Jason and David Rose enlisted Velazquez and Long to run two boiler-room type sales offices on Berkshire's behalf; one in Lake Mary, Florida and the other in Jeffersonville, Indiana. Long and Velazquez received commissions for their sales efforts, despite the fact that neither they nor Berkshire were registered broker-dealers. The complaint also alleges that Velazquez violated a prior Commission order issued in March 2005 that barred her from association with any broker or dealer. Finally, the complaint names Brian C. Rose and Joyce A. Rose as relief defendants and alleges that they received ill-gotten gains.