FINRA filed a complaint against Sandlapper Securities, LLC, as well as brokers Trevor Lee Gordon and Jack Charles Bixler, accusing the respondents of willfully defrauding investors by selling interests in saltwater disposal wells at "excessive, undisclosed markups," which allegedly totaled over $8 million in the firm's Tiburon Saltwater Reclamation Fund I, purportedly sold through middleman company TWSR Development, LLC at artificially inflated prices. Gordon and Bixler also stand accused of fraudulent misrepresentation, omission of material facts, and breach of fiduciary duty.
According to investigators, Gordon as founder, CEO and occasional Chief Compliance Officer of Sandlapper Securities had supervisory responsibility for all sales, while Bixler also served in a principal capacity as President of Sandlapper's Capital Markets Division and a firm Vice President.
The complaint states that Sandlapper sold direct working interests in a saltwater disposal well fund called "Tiburon Saltwater Reclamation Fund I" through a development company that Gordon and Bixler helped create for the purpose of investing or facilitating investment in saltwater disposal wells; the duo helped form TSWR Fund Management, LLC and TSWR Development, LLC in order to further this cause. TSRWD, for instance, shared an address with Sandlapper's main office.
FINRA's facts show the well interests were originally acquired from property owners in the Permian Basin of Texas by RBJ & Associates.
FINRA wrote that despite these representations, Gordon and Bixler "extracted ill-gotten profits for themselves" at the expense of fund investors, charging excessive markups ranging from 161- to 270-percent, thus violating their fiduciary duties to the fund and failing to take steps to ensure fair pricing to the fund.
For example, Gordon allegedly allowed his development company to purchase interests in the saltwater disposal wells and resell them to retail investors, sometimes though Sandlapper, at undisclosed and excessive markups of up to 376%.
Confidential private placement memorandum documents for the Tiburon fund indicate that commissions, fees, and allowances totaled over 16% of investor funds, while Sandlapper was entitled to commissions of seven percent, which, combined with allowances, totaled 11% of gross proceeds raised in the offering.
FINRA wrote that Gordon and Bixler "executed a scheme" to cause the Tiburon fund to purchase well interests at artificially inflated prices by passing investments through TSWR Development, which is accused of "acting as a middleman solely to inflate the price," which FINRA says topped $8 million in fraudulent markups.
Investigators found that "all or nearly all" of TSWR Development's income consisted of profits from excessive markups and returns from well interests retained after selling a portion of holdings to investors at artificially inflated prices.
The bulk of this $8 million+ fraud allegedly occurred from 2011 through 2013, when approximately 170 investors purchased approximately $12.5 million units in Tiburon Saltwater Reclamation Fund I, though the markups continued through the 2015 year.
The wells cited in the fraudulent scheme include the Permian Basin (Texas)'s Tom well and Clark well. Other wells included in the evidence were the Market, Moreland, Haney, Hughes, "137," and Rojo wells. FINRA wrote that interests were occasionally marketed as oil and gas securities, and occasionally as "real estate."
For instance, Haney well interests sold as "real estate" were purchased by TWSR Development for $307,350 and sold to buyers for $716,494—a 233% markup.
FINRA also concluded that Sandlapper Securities itself lacked reasonable supervisory policies and procedures regarding securities sold through the firm by affiliates.
If you have invested with Sandlapper Securities, CEO Trevor Lee Gordon, VP Jack Charles Bixler, or with any broker or financial adviser who has sold you direct working interests in a well fund at a fraudulently excessive markup that has proven harmful to your investments or interests due to deflated returns, exorbitant fees and commissions, or otherwise, please call The Law Offices of Jonathan W. Evans & Associates at (800) 699-1881 for an investigation and consultation.