Thanks Mitch for taking the time out of your busy schedule, would you mind telling our readers a bit about your practice and background?

I am an associate with the law firm Scheef & Stone, LLP in Dallas, Texas. I practice commercial litigation, and a large portion of my practice is devoted to securities and oil and gas fraud. I graduated from Harvard University with a BA in Government and received my law degree from the University of Texas. I have ringside trial experience and have a good track record of obtaining rescission for oil and gas investors.

2- I heard you played defensive end on the Harvard football team, which is more difficult firing a quarterback or firing an unscrupulous operator/promoter? Which one is more enjoyable?

Capturing a quarterback is more difficult. Taking down a promoter is more rewarding. Quarterbacks get up. If I’m doing my job well, sometimes a promoter doesn’t get up.

3- Regarding oil/gas fraud, it seems that people do not understand that many promoters do not structure their deals correctly. Please explain.

There really is no “right” or “wrong” way to structure a promoter deal. “Fair” or “unfair” is probably a better comparison. As an oil and gas investor, you should be aware that there is a huge risk of losing your entire investment. Oil and gas are extremely risky, and you shouldn’t invest money you can’t afford to lose. Most investors want an opportunity to make money; Unfortunately, many promoted investments in oil and gas do not give the investor that fighting chance. If he understands the industry, and can think like a thief, he can tell the difference.

4- What is a Reg D offer?

That’s a great question that I’ll try to condense into a small answer. “Reg D” refers to Regulation D of the Securities Act of 1933, an important piece of federal legislation. Regulation D covers private offerings. When Google has an “IPO”, it is obviously a public offering for which registration is required under the ’33 Act. Most oil and gas transactions are offered privately under a registration exemption: Regulation D. The issuer of the security cannot use public solicitation and must accept only accredited investors. There are plenty of other restrictions, but that’s generally what Reg D offers.

5- What is a termination and how does it work?

Good question. I will refer to the Texas Securities Act for ease of reference. An interest in an oil and gas lease (ie a working interest) is a security. As a result, the types of investments we are discussing fall under the rubric of the Texas Securities Act and federal securities law.

In basic terms, a rescission is getting your money back with interest and attorney fees. Under Texas law, there are a couple of things that trigger a termination:

(1) Publicly offering unrecorded value (cold phone calls, Internet, etc.), and

Offering unrecorded security through a misstatement or omission of a material fact.

Here’s the key message: There’s nothing wrong with selling unregistered securities as long as you have an exemption. If you do something to violate the exemption, such as offering it publicly or simply committing fraud, investors get their money back.

6-Are they difficult to get?

That depends on the financial means of the issuer of the security and, in my experience, the depth of the fraud. I have obtained rescissions for clients with demand letters, and have had securities fraud litigation that dragged on for two and three years. The answer to your question is probably “Sometimes”.

7- What are some telltale signs that an investor has been harmed?

Some of the characteristics of oil and gas fraud include:

(1) Lack of communication with the investor;

(2) Significant measures are taken on the project without the consent or acknowledgment of the investor;

(3) returns that are well below pro forma projections;

(4) Have your interest “transferred” to another project;

Significant and unexplained drilling delays; Y

(6) Reduction in the investor’s working interest.

8- What is a cease and desist order?

A cease and desist (“C&D”) order is an order generally issued by a government agency, such as a state securities board or the SEC, directing a security issuer to immediately “cease and desist” from selling securities at a certain state or selling securities together. I would encourage any investor to do some research online to determine if the company trying to sell it has been C&D’ed and get a reasonable explanation from the company. You need to make sure you get the full story before you invest.

9-Can you talk about the liability associated with owning a working interest in a field? Any asset protection strategies to employ before buying, like buying them in an LLC or another way?

Liability is virtually unlimited; You need to understand that this is an investment where you can lose your entire investment and then some. When you buy an active interest, you must understand that you are responsible for your prorated share of the costs associated with drilling and completing an oil or gas well, which isn’t cheap these days.

The oil and gas developer has many tools to hedge his bet, the most common of which is the “turnkey offer”. The promoter promises to put you a hole to x feet to y dollars. If the hole is drilled for less than y dollars, you keep the difference. If it costs more, eat the difference.

What the investor does not know is that the well can be drilled for ½ year or even 1/10 of a year. It is the biggest scam out there right now.

10- Have you seen a marked increase in cases of investor fraud with the recent rise in oil?

Absolutely. It’s dragging. Please be careful in Texas.

11- Any state or federal agency that we can contact for information on companies that offer units?

Yes absolutely. Before making an investment in a Reg D, Rule 506 oil and gas offering, ensure that the issuer has filed a Form D with the Securities and Exchange Commission and with the Secretary of State or the Securities and Exchange Commission of the state in which who resides

Private offering issuers are required to make these filings when requesting a waiver. If there is no Form D already on file or within 15 days of making your investment, that should be a major red flag.

12- Any independent forums or other resources that you would recommend to our readers.

If you’re curious about oil and gas investing, you should check out a site run by Bernie Bicoy called Venture Research Info and his message boards. You can find it at http://www.vcresearch.info.

13- How can we contact you and how do you work? Hourly rate or contingency?

You can reach me by email at [email protected] or by phone in the Dallas area at 214.472.2140. I work on both an hourly rate and a contingent rate; I usually leave that up to the investor.