Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

The SEC recently settled an enforcement action against an individual alleged to have sold millions of dollars in securities on behalf of oil and gas companies without being associated with a registered broker dealer, as required by Section 15(a) of the Securities Exchange Act of 1934. Under the terms of the settlement, Behrooz Sarafraz has agreed to pay more than $22 million in penalties, interest, and disgorged commissions. According to the SEC: “Sarafraz worked full-time locating investors for the Opus and Tri-Valley oil-and-gas ventures [two California-based companies]. He described the investment program to investors and recommended they purchase Opus partnership interests or securities of Tri-Valley and its affiliated entities. In return, Sarafraz received commissions that ranged from seven to 17 percent of the sales proceeds that he and members of a sales network generated.”

One common exemption from the requirement that a person engaged in selling securities must be associated with a registered broker-dealer applies to persons who are employed by the issuer; however, that exemption is only operative when the person has legitimate, non-securities-solicitation position with the issuer and the solicitation activities are incidental.

It appears that the SEC has been paying extra attention to oil and gas related offerings in the last few years (see SEC investor alerts relating to oil and gas offerings here and here). This settlement is a good reminder that the cost of non-compliance with the securities laws can be severe.


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