FINRA Charges Sandlapper and Execs with Fraud
The Financial Industry Regulatory Authority has filed a complaint against an independent broker-dealer and certain executives for their alleged role in a saltwater disposal well private placement investment scheme.
FINRA alleges that from April 2011 through November 2015, Sandlapper, its founder and CEO Trevor Gordon, and national sales manager Jack Bixler “defrauded investors” by selling investments in saltwater disposal wells at “excessive, undisclosed markups through a middleman development company they owned and controlled.” The markups totaled more than $8 million, according to the complaint.
Saltwater disposal wells earn revenue by accepting saltwater and other byproducts of oil and gas extraction. In 2011, Gordon, Bixler and two former registered representatives formed a fund, Tiburon Saltwater Reclamation Fund I, to invest in saltwater disposal wells. Interests in the fund were sold through Sandlapper, and shortly after starting the fund, they formed a development company to invest in the wells.
FINRA alleges that the fund had the resources to directly purchase interests in the wells, but instead, the development company purchased the interests which were sold to the fund at undisclosed markups ranging between 161 percent and 270 percent.
The development company was also used to purchase interests in individual saltwater disposal wells outside the fund, which were later “resold to retail investors, sometimes through Sandlapper, at undisclosed, excessive markups ranging from 67 percent to 376 percent.”
According to the complaint, since the development company was engaged in buying and reselling securities, it was technically a securities dealer, although it was not registered as such with FINRA or the SEC.
The fund’s private placement memorandum states that “its principal objectives are to preserve and protect investor capital and provide a long-term 15 percent return.” Commissions, fees and allowances totaled more than 16 percent (plus additional fees if the well was undeveloped). Approximately 170 investors purchased units in the fund totaling approximately $12.5 million.
FINRA also alleges that Sandlapper “failed to adopt or implement reasonable procedures to address conflicts of interest in transactions involving affiliates.”
Sandlapper, located in Greenville, South Carolina, is a full-service broker-dealer and dealer-manager of investment products. The company currently has approximately 60 registered representatives and 13 branch offices.
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