Bismarck, ND -- North Dakota Securities Commissioner Karen Tyler has ordered North Dakota Developments LLC, Robert L. Gavin, and Daniel J. Hogan to Cease and Desist from engaging in fraudulent practices in connection with the offer and sale of investments in man camp housing developments in the Bakken oil field region of North Dakota and Montana. The Securities and Exchange Commission also took action today, filing in US District Court for the District of North Dakota a Complaint and Emergency Motion for a Temporary Restraining Order.
Investors in the fraudulent scheme were sold interests in six different housing developments in Western North Dakota and Eastern Montana: Great American Lodge Watford West, Great American Lodge Watford East (AKA McKenzie Crossing), Great American Lodge Montana (Culbertson, MT), Transhudson Hotel (Parshall, ND), Transhudson Apartments Williston Heights, and Bakken Base Camp.
Investigative records indicate 980 investors from 66 countries invested over $62 million through Gavin, Hogan and sales agents located in the United States and several other countries.
The Securities Department’s Order alleges that North Dakota Developments LLC, Gavin and Hogan violated NDCC 10-04-15(2) by engaging in material misstatements of fact and material omissions of fact in selling securities to investors, and also engaged in misappropriation of investor funds and Ponzi like activity. NDD LLC, Gavin and Hogan also violated NDCC 10-04-04 and NDCC 10-04-10 in selling unregistered securities, acting as an unregistered broker-dealer and engaging in unregistered agent activity.
Among other alleged misrepresentations, investors were told to expect returns as high as 42% in the first year, and a guaranteed buy-back of their investment in 3 years. Among other alleged misappropriations, investor assets were used to make Ponzi like payments to earlier investors, to pay undisclosed sales commissions of up to 20% to NDD sales agents, were diverted to real estate projects beneficially owned by Gavin and Hogan, and used for personal expenses such as meals, alcohol and entertainment.
“Oil development in Western North Dakota and our state’s economic growth story routinely make headlines – locally, nationally and internationally. It’s important to remember that con artists follow the headlines looking for their next exploitation opportunity.” Tyler cautioned. “Investors need to conduct extensive due diligence when pitched an investment represented to be a private transaction not subject to regulatory review and registration, especially when the pitch includes the promise of high returns, low risk and a guaranteed exit”.
Red flags of fraud in this type of transaction include but are not limited to: promise of a high, guaranteed return; promise of a guaranteed investment buy-back; high pressure sales tactics; unsubstantiated claims by the promoter of extensive industry expertise, unsubstantiated claims of success in previous projects; resistance to providing offering documents, lack of substantive information in offering documents, and claims or warnings that there is no need for investors to contact regulators.
Contact the North Dakota Securities Department before investing to determine if a securities offering is appropriately registered or exempted, and if the promoter/solicitor is appropriately registered or has a regulatory or criminal history.
Michael Daley, Deputy Commissioner/AttorneyKelly Mathias, Examinations and Investigations Supervisor
ND Securities Department600 East Boulevard AvenueState Capitol, 5th FloorBismarck, ND 58505-0510Phone: (701)-328-2910Toll Free: (800)-297-5124Fax: (701)-328-2946Email: ndsecurities@nd.gov