SEC Sanctions Penn. Insurance Agent in $122M Oil and Gas Fraud
The U.S. Securities and Exchange Commission settled charges with Zachary Miller, a 44-year-old insurance agent from Birdsboro, Penn., for his role in a fraudulent oil and gas offering. The action stems from Miller’s work as an unregistered broker in connection with offerings tied to The Heartland Group, a Texas-based enterprise that the SEC says orchestrated a $122 million Ponzi-like scheme.
According to the SEC, between October 2018 and October 2021, Heartland Group Ventures LLC, Heartland Production and Recovery LLC and their principals fraudulently raised approximately $122 million from more than 700 investors across the country, purportedly to develop existing wells or drill new wells in Texas through various unregistered offerings.
Between February 2019 and December 2021, Miller raised approximately $18.3 million from 69 investors for Heartland-affiliated entities. To facilitate these sales, Miller utilized a feeder fund model, creating several entities – including D&G Investment Fund 2 and D&G Investment Fund 2019 – to solicit capital exclusively for Heartland.
According to the SEC order, Miller engaged in several activities that required him to be a registered broker-dealer, a status he did not hold. These activities included: recruited investors, including his own insurance clients and his wife, to invest in Heartland securities; providing guidance on the Heartland offerings and helping investors complete necessary documentation; and assisting in transferring funds to Heartland and later advising investors on whether to re-invest or request their money back.
During this time, Miller received commissions ranging from 4.25% to 6% of the total investments he brought in.
The underlying Heartland offerings were characterized by the SEC as highly deceptive. Of the $122 million raised from 700 investors nationwide, Heartland spent only about half on actual oil and gas projects, which generated less than $500,000 in total revenue.
The firm allegedly used over $26 million of investor funds to make Ponzi-style payments to earlier investors to maintain the appearance of success. Marketing materials and offering documents provided by Heartland, which Miller repeated to his clients, falsely claimed that certain wells were producing hundreds of barrels of oil daily when they had yet to produce a single barrel.
Miller settled the charges without admitting or denying the findings. The SEC ordered a cease-and-desist order requiring that Miller stop violating registration provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934.
He is required to pay $612,417 in disgorgement representing his net profits, plus $119,204 in prejudgment interest.
Further, Miller agreed not to seek or obtain any distribution from the court-appointed receiver currently managing the remaining Heartland assets. The SEC noted that it chose not to impose a civil penalty at this time, citing Miller’s cooperation during the staff’s investigation and the related federal civil action in Texas.
In a related action previously reported by AltsWire, the SEC announced sanctions against David C. Underwood for his role in the $122 million fraud. Between February 2020 and December 2021, the SEC says Underwood acted as an unregistered broker-dealer on behalf of Heartland and Heartland-affiliated entities in connection with two of its unregistered offerings.
Similar to Miller, Underwood raised approximately $4.3 million for the offerings through the offer and sale of unregistered securities to 20 individual investors, both directly and indirectly through a feeder fund that he owned and controlled.
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