Many enforcement actions have to do with an oil and gas operator who has not made the proper disclosures to investors about where their money was going, Faught said.
The agency launched an investigation earlier this year into Duncan-based Gates Oil & Gas Ltd. Gates' senior drilling consultant Jimmy W.Gray once ran a company called Jasmine Inc that has been cited in at least two states for selling unlicensed securities. Although Gates claims on its website to be a third-generation oil and gas operator, the company was incorporated only in Oklahoma in 2012, according to state records.
Records show Jasmine has been banned from soliciting investors in at least two states, Pennsylvania and Wisconsin, for selling unregistered securities.
Lance Bowman, chief financial officer for Gates Oil & Gas, declined to comment on the state investigation. Faught declined to comment on any of the open investigations or enforcement actions the department is involved in.
While many schemes involve a promoter getting a larger-than-average cut of the profits or giving sweetheart deals to related parties to provide drilling and other oil-field services, others are outright Ponzi schemes, said attorney H. Wayne Cooper, who specializes in oil and gas and securities law with the firm Doerner, Saunders, Daniel & Anderson.
In one of Oklahoma's most infamous cases, the Tulsa-based Home-State Production Co. defrauded more than 1,500 investors out of nearly $100 million through annual securities offerings in the 1970s in what was later discovered to be a Ponzi scheme.
In some instances, Home-State investors were shown “oil fields” where irrigation pipes had been painted to look like oil equipment, said Cooper, whose firm was involved with some of the litigation stemming from the Home-State swindle.
In many cases, a business will begin as a legitimate venture, but will become a Ponzi scheme once a promoter realizes it's easier and more lucrative to run a scam.
Case still unfolding
Arrowood maintains that he has done nothing to run afoul of state securities law. His attorney, Billy Bock, claims that people in several states gave him money not as investments but as business loans with fixed interest rates.
Bock has submitted promissory notes signed by Arrowood as proof of the loans in the lawsuit that the Department of Securities has filed against the 2001 Trinity Fund, as well as a signed affidavit of one Trinity backer backing up Arrowood's loan claim.
“Each one of these things is a business deal and they are loans,” Bock said. “They didn't say ‘you are investing in this oil well.' These were business loans for Mr. Arrowood to do with what he wanted and then repay.”
Attempts to contact any of the people who gave money to Arrowood or the 2001 Trinity Fund were unsuccessful.