The case in question is a lawsuit against Scott Stacy Phelps and James Michael Harper who are being sued by the SEC for a fraudulent oil-and-gas investment scheme. The defendants are alleged to have sold securities amounting to $611,000 under the pretense that the proceeds would be used to drill oil in proven fields in the Kentucky District (Polish & Ablaev, 2018). However, the defendants spent a vast amount of this money on themselves and their families, thereby violating, among other laws, Section 17(a) and Section 17(a) of the Securities Act through (a) employing devices, schemes or artifices to fraud; (b) obtaining money or property by means of untrue statement of material fact; and (c) engaging in transactions, practises, or courses of business that operate or would operate as a scheme or deceit (Hazen, 2009).
According to Security Laws, investors are supposed to have accurate, and correct, information about the interests they are buying. These include how much information investors must receive, details about the type of interest and its value. For this purpose, federal laws have been enacted over time based on the Congress' constitutional right to regulate interstate commerce. These laws, administered by the Security and Exchange Commission (SEC) established in 1934, stipulate that penalties for such misconduct as demonstrated by Phelps and Harper (Burton, 1975). These include, among others, permanent injunctions, disgorgement, and civil penalties. Subsequently, the defendants were permanently enjoined from engaging in transactions, acts, practices or courses of business described above, or in the conduct of similar purport and objective. They were also permanently forbidden from participating in the issuance, purchase, offer, or sale of any oil-and-gas related securities, though that provision does not prevent them from purchasing or selling oil-and-gas associated securities for their personal accounts. The effect of their action was the shutdown of their business entities and was stripped off of any employer activities.
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References
Burton, J. C. (1975). SEC enforcement and professional accountants: Philosophy, objectives and approach. Vand. L. Rev. , 28 , 19.
Hazen, T. L. (2009). The Law of Securities Regulation, Hornbook . West.
Polish, J., & Ablaev, A. (2018). United States Securities and Exchange Commission v. Scott Stacy Phelps and James Michael harper [Ebook] (pp. 1-9). Chicago: United States District Court for the Western District of Kentucky Bowling Green Division.
