Beware grand claims

Court documents reveal Young Oil reps made false statements

By BURTON SPEAKMAN

GLASGOW — A history of dry holes and investors who almost never saw a profit eventually led to a legal finding that a Knob Lick oil company and its owner violated the Kentucky Securities Act and committed fraud.

Franklin Circuit Judge Thomas D. Wingate issued a decision last week against Metcalfe County resident Anthony Young and his company Young Oil Company.

“The defendants materially misled investors in connection with the offer and sale of securities, and made untrue statements of material fact and/or failed to disclose material facts necessary in order to make the statements made, in light of the circumstances not misleading; and engaged in acts, practices and a course of business which operated to perpetrate fraud or deceit upon investors in violation of KRS 292.320,” Wingate wrote in his findings of fact, conclusions of law and order.

During Young’s testimony at the three-day bench trial, he admitted that at the most one of his 55 partnerships had resulted in a profit for investors. This statement was contrary to Young’s representations to investors, according to court records. Young also testified he could not remember any partnership that resulted in a return of more than 26 percent.

The drilling history presented during the trial also shows that 74 of the 147 wells drilled for the first 54 partnerships were dry holes and this information was also not presented to investors.

“David Brown (a Young Oil Company employee), in a recorded voice mail message, informed investors that they were always successful, and that only occasionally did they fail to strike oil, because the land where they drilled is rich with natural gas,” according to court records.

Young and his attorney, Hunter Durham, of Columbia, had argued during the bench trial that partnerships in Young Oil Company were private securities and therefore were not subject to the Kentucky Securities Act.

Young raised nearly $20 million from investors from 1997 through 2008, according to information from the Kentucky Department of Financial Institutions. The agency investigated and then filed a complaint against Young and his company after receiving complaints about the company from investors.

Young had used the money from his scheme to lease a Lear Jet, purchase an $86,000 Corvette and take numerous vacations, according to financial institutions.

Kelly May, spokeswoman for financial institutions, said all of Young’s property with the exception of the jet is still being frozen by the Franklin Circuit Court. The jet has been seized by its owner and the company has sued Young in U.S. District Court in the Western District of Kentucky .

Financial Institutions was able to show general solicitation and advertising of securities throughout the country, according to court records. It also proved that Young had sold the securities in a public manner and should have registered with the state.

Young and a few select inside investors were the only persons who benefitted from “the big producers” highlighted in press releases sent to prospective investors.

Young Oil Company would typically pay $800,000 for drilling costs plus $150,000 for completion costs to Tenntucky, a drilling company owned by Young. An expert testified during the hearing that drilling these type of wells would only cost $85,000 to drill, according to court documents.

In one year Young and Young Oil Company raised more than $7 million from the sale of securities, purportedly for building costs. Most of Young’s profit was through the Tenntucky contract and production revenues.

Young Oil Company has filed for chapter 11 bankruptcy, but Young has not filed for personal bankruptcy, May said.

The date of the monetary judgement hearing has not been scheduled, May said.

The company is not the first oil and gas exploration company to come under fire.

In the last four years representatives from at least five companies have been convicted of criminal offenses involving their business.

The issue isn’t just with oil and gas companies, May said. Oil and gas exploration is a very complex investment.

“We always advise people that they shouldn’t invest in anything if they can’t explain it in their own words,” she said.

The North American Securities Administrators Association lists natural resource investments in its list of top investor traps.

“NASAA expects to continue to see a rise in energy and precious metals scams promising quick, high returns. Investors anxious to recover losses quickly likely will be hooked by oil and gas schemes, as well as fraudulent offerings of investments tied to natural gas, wind and solar energy, and the development of new energy-efficient technologies,” according to the organization’s Web site.

There is a lot of natural gas in Kentucky and there are companies that are drilling, May said. There’s a reason people invest. They just have to make sure they understand the process being used.

Calls to Young Oil Company, which is the only listed phone number for Anthony Young, were not returned.

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