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Ponzi Schemes and “Shale” Games

January 1, 1970 · FLEMING | NOLEN | JEZ, L.L.P.

Since Bernie Madoff’s massive Ponzi scheme was discovered in 2008, similar fraudulent businesses have been revealed across the country. As these businesses inevitably close down shop and enter bankruptcy, the bankruptcy trustee is given a wide variety of tools to recover money to be distributed to creditors. Illegal transfers and preferential transfers can be scooped back into the bankruptcy estate. The trustee is allowed to bring other claims that the business held before bankruptcy including contract claims and claims for breach of fiduciary duties. The legal muscle that the bankruptcy trustee can flex is integral to the effort to repair the damage done by these fraudsters.

In 2006 Provident Royalties began selling interests to various entities for the stated purpose of purchasing and owning oil and gas interests. These entities were named things like “Shale Royalties II” and “Shale Royalties 12”. Provident Royalties raised approximately 485 million dollars from over 7,700 investors. Investors were told that 86% of their funds would be used for oil and gas investments. According to allegations of the SEC, individual investors, and the Provident Royalties bankruptcy trustee, only a small portion of the funds were ever used to purchase legitimate oil and gas interests. Instead funds from new investors were used to pay returns to older investors. Like a multi-million dollar shell game, funds from the various “shale” entities were transferred freely from one entity to the next in order to pay investors and present the facade of profitable operation.

The attorneys at Fleming | Nolen | Jez, L.L.P. are currently working with the bankruptcy trustee to “clawback” funds from improperly paid sources and to assert whatever other claims are available in order to pay back hoodwinked investors. In addition, the bankruptcy planned approved by the court in May 2010 allows the trustee to bring assigned claims against responsible 3rd parties. By helping to leverage all of the power available to the trustee, Fleming | Nolen | Jez, L.L.P. is working to maximize the recovery of the victims of this deception.