By the time Norman businessman Robert Arrowood used $10,000 of investors' money from his oil and gas lease investment company to fund a swank trip to Las Vegas that included a stay at the Bellagio resort and casino and rides in a rented limousine, the company had devolved into a Ponzi scheme, state security regulators claim.
The Department of Securities claims Arrowood cheated investors in the 2001 Trinity Fund from Utah, Missouri, Texas and Florida out of as much as $4 million, spending most of the funds on an ostentatious lifestyle for he and his wife, Cathy Arrowood, that included luxury vacations, tickets to Oklahoma City Thunder games and thousands of dollars spent on jewelry and clothing purchases.
Arrowood specialized in buying oil and gas leases on the cheap and then flipping them to large exploration and production companies at a premium when natural gas prices reached their peak in 2008. His funders included former University of Oklahoma football players Dusty Dvoracek and Tommie Harris, according to court documents.
Arrowood maintains he has done nothing illegal and that he never sold securities to the people who gave him money, which would be subject to certain disclosures and other regulations. Instead, he claims his financial backers gave him money in the form of loans secured by promissory notes.
“This was back when natural gas prices were extremely high,” Arrowood said in a deposition, taken in the 2001 Trinity Fund's bankruptcy case. “Everybody and their brother wanted to do something in oil and natural gas. And I had people approach me on a daily basis wanting to make some kind of return on their money.”
Although some Trinity funders — like Dvoracek and Harris — were repaid with interest, many were not, according to court documents. The scheme collapsed in 2009 when the 2001 Trinity Fund filed for bankruptcy.
Securities regulators say the number of oil and gas investment scams are on the rise.
With its reputation for oil and gas activity, Oklahoma is a location ripe for such scams to take root, said Irving Faught, administrator of the Oklahoma Department of Securities.
“We are concerned about mainly somebody operating from Oklahoma using the prestige of an Oklahoma address that would imply some type of expertise to people on the East and West coast,” Faught said.
In May, the U.S. Securities and Exchange Commission issued a bulletin to investors warning of the dangers of private oil and gas offering scams, which have become increasingly common over the past several years. In 2005, the SEC investigated only a handful of such scams each year, but that number had jumped to as many as 20 a year in recent years, according to the bulletin.
The Arrowood case is just one of several of enforcement actions or investigations into suspicious oil and gas-related investment opportunities in the state the past year.
The Oklahoma Department of Securities has opened investigations or filed enforcement actions against four oil and gas related investment businesses in the past 12 months ending in July, and three such schemes in the previous 12 months.