Texas E&P Partners, a Texas based broker-dealer formerly known as Chestnut Exploration Partners, Inc., has been expelled from Financial Industry Regulatory Authority (FINRA) membership, and the firm’s president, Mark A. Plummer, has been barred from associating with any FINRA member in any capacity according to a FINRA Office of Hearing Officers Extended Hearing Panel Decision containing findings that: the firm and Plummer obstructed a FINRA investigation by furnishing false documentation; the firm failed to properly supervise its business; and Plummer misappropriated customers’ funds. Department of Enforcement v. Texas E&P Partners, Inc. et al., No. 2014040501801 (Dec. 13, 2016).
According to the Decision, from October of 2007 to June of 2008, joint venture interests in oil and gas were sold to investors via Chestnut – the joint venture’s broker and placement agent. Particularly, the joint venture, Chestnut 2007 4×4, sold customers interests through Chestnut Exploration, Inc., which was a managing venturer and Chestnut entity which Plummer controlled.
The Decision stated that a Chestnut 2007 4×4 confidential information memorandum was provided to investors prior to the purchases of venture interests taking place. Evidently, this offering document, made by Chestnut and Plummer, stated that for each joint venture interest unit purchased, investors would be responsible for a completion assessment totaling $17,908.00. The figure was apparently associated with each prospective well to be completed.
The Chestnut 4×4 investors, eighty-eighty in total, made collective contributions totaling $3,890,266.00 in the initial offering phase of the investment, and later contributed $1,740,000.00 which represented completion assessments. In sum, $5,600,000.00 was accumulated according to the venture.
Apparently, a portion of the investors’ completion assessment was misused by Plummer pertaining to a third prospective well. Particularly, the funds were reportedly collected by Plummer after a vote from investors, and was supposed to be used for purposes of addressing well completion costs; however, Plummer never utilized the funds for the stated purposes. The Decision stated that investors did not provide Plummer with authorization for the investors’ funds to be utilized for any purpose other than well completion costs. Apparently, certain investors have not been paid back by Plummer after Plummer took possession of the customers’ funds. Accordingly, FINRA found that Plummer’s conduct was violative of FINRA Rule 2010, 2150(a) and NASD Conduct Rule 2330(a).
The Decision further reported that the firm’s supervision systems and procedures were not adequate because they did not consider conflicts of interest that the offerings contained. Particularly, Plummer was the firm’s chief executive officer at the time that the offerings took place, and was tasked with the responsibility to conduct due diligence on the firm’s offerings. Critically, during this time, the placement broker and agent, Chestnut, and the seller of the investment, Chestnut Exploration, Inc., were both controlled by Plummer.
The Decision indicated that both Chestnut and Chestnut Explorations, Inc. were in a position to financially gain from the joint venture and offering. FINRA found that the firm’s written supervisory procedures did not address this conflict of interest, and enable another individual than Plummer to conduct a due diligence review for offerings conducted by the firm’s affiliates. Evidently, Plummer never addressed these conflicts of interest. FINRA found that the firm’s supervisory failures in this regard constituted violations of NASD Rule 2010 and 3010.
The Decision further stated that the firm and Plummer provided a falsified Turnkey Acquisition and Drilling Contract to FINRA in December of 2014 during the time in which FINRA investigated the firm and Plummer for misconduct. According to FINRA, the document was altered by Plummer in order to deceive FINRA personnel concerning its composition.
Apparently, DR, who acted on behalf of the firm at this time, was aware of the alterations and never indicated to FINRA that the document was not genuine. Apparently, this altered document was provided to FINRA personnel at a time when both the firm and Plummer knew it was false. FINRA found that the firm and Plummer’s conduct was violative of FINRA Rule 2010 in this regard.
FINRA also found that in December of 2014, misleading and false testimony was provided by Plummer in connection with the Turnkey Acquisition and Drilling Contract. FINRA found that Plummer’s conduct in this regard was violative of FINRA Rules 2010 and 8210, which served as an independent basis for FINRA to permanently bar Plummer.
FINRA Public Disclosure reveals that Plummer has been named in five customer arbitrations. Particularly, on April 15, 2010, a customer initiated investment related arbitration claim involving Plummer’s actions was settled for $220,000.00 in damages based upon allegations that Plummer sold the customer securities that were not properly registered, and made omissions concerning investments.
On November 28, 2011, another customer initiated investment related arbitration claim concerning Plummer’s conduct was resolved for $210,000.00 in damages based upon allegations that Plummer made misrepresentations to the customer concerning investments purchased by the customer, and that Plummer was responsible for the customer’s losses. On May 19, 2014, a customer filed an investment related arbitration action concerning Plummer’s conduct, in which the customer requested $162,800.00 in damages based upon allegations that Plummer defrauded the customer in connection with the Chestnut 2007 4×4 joint venture.
Subsequently, on April 13, 2016, a customer brought an investment related arbitration claim concerning Plummer’s activities, in which the customer requested $277,219.77 in damages based upon allegations that Plummer violated the California Unfair Competition Law and California Corporations Code pertaining to the sale of limited partnerships and oil and gas joint ventures. Further, on June 13, 2016, a customer filed an investment related arbitration action concerning Plummer’s conduct, in which the customer requested $338,549.00 in damages based upon allegations that Plummer made misrepresentations and committed fraud pertaining to the customers’ investments.
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