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The U.S. Securities and Exchange Commission (“SEC”) has charged Delta Onshore Management, LLC, Jerry P. Jackson, a principal of Delta Management, and Peter J. Brooks, Jason Hertz, and Daniel Cohen, all of whom were unlicensed salesmen of the Delta Venture.  According to the SEC the defendants raised $2.8 million from 50 investors nationwide in what the SEC described as an “off-shoot of a previously filed massive securities oil-and-gas related offering fraud case, SEC v. Michael J. McNaul, II, et al., pending in the United States District Court for the District of Kansas, Wichita Division.

The complaint alleges that defendants Delta Management and Jackson offered and sold securities in the same fraudulent manner as the defendants in the McNaul case, including using offering materials that are virtually identical to the materially false and misleading materials used by the McNaul defendants. Among other things, defendants Delta Management and Jackson allegedly misrepresented that the venture had acquired two drilling rigs that were “ready to go to work” earning the venture annual returns of 25% to 36%. In fact, as of early August 2008, when defendant Jackson was contacted by the SEC and ceased the offering, the Delta venture had not acquired any drilling rigs and investors had not received any returns over the seven-month period of the scheme. Moreover, the complaint alleges that approximately half of the funds raised from investors was used to pay exorbitant sales commissions to unlicensed securities salesmen, including defendants Brooks, Cohen and Hertz, who “cold called” unsuspecting investors, over half of whom are 60 years old or older.

Notice two things about this case.  First, it is an “off-shoot” of an earlier scam.  Oftentimes people involved in an earlier scam get a look at how easy it is to make money by misrepresenting the facts and decide to keep the scam going with another name after the SEC shuts down the main scam.  Notice that in this case the defendants used offering materials almost identical to those used in the earlier scam.  Why reinvent the wheel, right?

Finally, notice that the salesmen charged were driven by the enormous commissions paid for the sale of the investments.  That is always the case.  Remember that the scam artists running such scams are not concerned about keeping expenses low to generate a profit.  They are not investing the money - they are simply keeping it moving.  To attract salesmen who can keep the flow of new investors coming, the promoters pay very large commissions. 

Before you invest, know how much your broker or investment adviser is earning for the transaction.  If he is honest with you, the size of the commission will reveal whether he has a self-interested bias in favor of the investment he is trying to sell.  If you are a baby boomer or senior citizen, the smartest course is to have a former SEC Enforcement Branch Chief investigate both the investment and the broker.  Many have saved their retirement savings that way.  Many others have lost their nest eggs for failure to ask an expert.