We previously blogged about securities regulation of interests in oil and gas exploration and development. Industry participants, state and federal securities regulators have recently cautioned investors regarding investing in oil and gas ventures.
At the federal level, the U.S. Securities and Exchange Commission (SEC) issued an investor alert aimed at private oil and gas offerings. In addition to the usual cautions to investors to do their homework on these deals, the SEC encouraged investors to verify that the person offering the investment is licensed as a broker-dealer. The SEC recently stepped up its efforts to pursue “finders” and other unlicensed persons compensated by issuers to assist in finding investors. Companies raising investment funds need to understand that persons who they engage to assist in selling investments are required to have a securities license. Failure to do so exposes the issuer to civil liability, including rescission claims by investors, and potential criminal liability in cases where material misstatements or omissions are made in the private placement memorandum or other offering material, or other fraudulent activity is present. The investor alert cites several examples of recent enforcement actions where such illegal activity was involved.
At the state level, the North American Securities Administrators Association (as the name implies, an association in which all the securities administrators are members), recently issued a similar investor alert. This covers much of the same ground as the SEC investor alert, but focuses more on recommended investor due diligence.
Though these alerts are directed at investors, they are useful to issuers and their advisors in two respects:
- They highlight compliance issues that need to be addressed in any oil and gas securities offering, and
- They offer guidance on key disclosures unique to oil and gas offerings that should be included in any private placement memorandum or similar disclosure document.
These investor alerts suggest that federal and state securities regulators are giving heightened scrutiny to offerings of oil and gas investments. Issuers and other participants would be well advised to examine their offering processes and disclosure documents with an eye toward compliance with the securities laws.