WILLISTON, N.D. - A Ponzi scheme that promised investors high rates of return on North Dakota oilfield housing defrauded hundreds of investors worldwide out of $62 million, the U.S. Securities and Exchange Commission said in documents filed Tuesday.
The SEC filed a complaint in U.S. District Court against North Dakota Developments LLC, Robert L. Gavin and Daniel J. Hogan, who are alleged to have bilked investors since 2012 for Bakken housing projects that were never finished.
Gavin, who owns 80 percent of the business, is a resident of Kuala Lumpur, Malaysia, and Hogan, who owns the remaining 20 percent, is a resident of the United Kingdom, court records say.
The scheme took advantage of the international fascination with the North Dakota oil boom, said Michael Daley, enforcement attorney for the North Dakota Securities Commission, which is working with the SEC.
"The hook here was that there was inadequate housing and these housing developments, many hotels, man camps, would be very lucrative," Daley said. "They were targeting individuals looking for high rates of return and touting that it was low-risk, but obviously that didn't turn out to be the case."
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North Dakota Securities Commissioner Karen Tyler also took action, ordering Gavin and Hogan to cease and desist from engaging in fraudulent practices involving the sale of investments in Bakken oilfield housing.
Investigative records indicate 980 investors from 66 countries invested more than $62 million through Gavin, Hogan and sales agents located in the United States and several other countries, according to a news release from the North Dakota Securities Commission.
No North Dakota investors have been identified, Daley said.
Investors were sold interests in six different housing developments in western North Dakota and eastern Montana, promised rates of return as high as 42 percent in the first year, the North Dakota Securities Commission said.
Only one of the six developments, Great American Lodge Watford West in McKenzie County, was partially completed and operational, Daley said.
Gavin and Hogan touted the "success" of that project, failing to disclose to investors that the project began experiencing delays and operational problems in the fall of 2013. Although millions were invested, there is significant work remaining on all of the housing projects and North Dakota Developments had less than $100,000 in its operating account, court records say.
One investor, a 35-year-old civil engineer from California, wrote in a document filed in court that he learned about North Dakota Developments in the summer of 2014 while researching Bakken real estate opportunities. He and his wife agreed to invest more than $75,000 in a hotel project planned to open in Parshall by 2015. He was offered "rental assurance," or 20 percent of his purchase price annually, and 110 percent of the purchase price within three years.
However, the man became concerned in January when he learned that construction had not started and requested his money back, but was denied.
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The court complaint alleges Gavin and Hogan misappropriated investor assets to make Ponzi-like payments to earlier investments and to pay commissions of up to 20 percent to sales agents that were not disclosed to investors. Court records also say the investor assets were diverted to unrelated projects owned by Gavin and Hogan and for personal expenses such as meals, alcohol and entertainment.
U.S. District Court Judge Daniel Hovland granted a request for a temporary restraining order to freeze the assets of North Dakota Developments, Gavin and Hogan, which includes assets in the United Kingdom and Malaysia. A court hearing is scheduled for May 18 in Bismarck.
The U.S. Securities and Exchange Commission's Office of the Investor Advocate can be found at www.sec.gov/investorad.
The North Dakota Securities Department can be reached at (701) 328-2910 or (800) 297-5124.
