Risk & Compliance

Oil Firm Founder Settles Charges of ICO Fraud

The SEC says David Laurance used misleading marketing materials to try to raise $5 million by selling "Tomahawkcoins."
Matthew HellerAugust 15, 2018
Oil Firm Founder Settles Charges of ICO Fraud

The founder of an oil and gas exploration company has settled allegations that he attempted to raise $5 million from investors through an initial coin offering he promoted with misleading marketing materials.

The U.S. Securities and Exchange Commission said David T. Laurance and his Tomahawk Exploration company offered “Tomahawkcoins” to purportedly fund an oil drilling project in Kern County, Calif., touting Tomahawk’s prospects for success and the “flawless backgrounds” of its principals.

In reality, the SEC said in an administrative order, the promotional materials for the ICO used inflated projections of oil production and failed to mention Laurance’s prior conviction in a penny-stock scam and two personal bankruptcies.

The blockchain-based offering of 200 million tokens failed to raise any money but the SEC said Tomahawk “received value” by issuing approximately 80,000 tokens in exchange for online promotional and marketing services.

To settle the allegations, Laurance agreed to pay a $30,000 fine and consented to being barred from serving as an officer or director of a public company.

“Investors should be alert to the risk of old-school frauds, like oil and gas schemes, masquerading as innovative blockchain-based ICOs,” Robert A. Cohen, chief of the SEC’s Cyber Unit, said in a news release.

Laurance, 76, was convicted of mail fraud in 1993 for scheming to defraud investors in penny stock companies that he promoted and controlled. According to the SEC, he began planning an ICO for Tomahawk in 2017 after previously failing to raise money for the Kern County project through private investments and the public capital markets.

The offering website said Tomahawk expected to produce five million barrels of oil from 50 wells. But according to the SEC, the report of Laurance’s engineer estimated at most 2.4 million barrels of oil recoverable from proved reserves.

Laurance also allegedly removed his middle initial from the website so “it would be more difficult for potential investors to discover his history.”

The SEC has been aggressively targeting ICO fraud following a determination that digital tokens meet the definition of a security because they are investment contracts.

Image: Getty