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Sethi Petroleum, LLC and Tips for Avoiding Investment Scams

McBride Law Blog

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The Court Grants Relief Requested by the SEC

In SEC v. Sethi Petroleum, LLC, the court granted the relief requested by the agency, including preliminarily injunction, asset freeze, and appointment of a receiver, among other things, pending final judgement.[1]  The court said that the SEC has made a proper prima facie showing that: (i) the defendants directly or indirectly engaged in the violations alleged by the SEC; (ii) there is a reasonable likelihood that those violations will be repeated; (iii) unless restrained, the defendants may dissipate, conceal, or transfer assets that could be subject to an order of disgorgement or an order to pay a civil monetary penalty in this action; and (iv) entry of a preliminary injunction, asset freeze, and order for other equitable relief as set forth below is necessary and appropriate.[2]

A few words on asset freeze.  In civil securities fraud cases such as this one, case law shows that a district court has the authority to impose a temporary asset freeze to ensure that the defendant has not secreted assets and that there will be assets available to compensate defrauded investors in the event a violation is established at trial.[3]  Thus, when a court is making a determination as to whether an asset freeze is appropriate, it will consider whether the freeze is in fact in the allegedly defrauded investors’ interests.[4]  Once a freeze is in place, all funds and assets of the defendant remain frozen unless otherwise authorized by the receiver or by further order from the court.  This, obviously, is an extraordinary measure, one that can be extremely disruptive to the defendant’s business.  While the SEC’s ability to obtain an asset freeze may be a powerful enforcement tool, whether it’s fair to impose such an extraordinary measure without full consideration of the merits of the case is not so clear.

 

This post is a part of a multi-post blog series on the SEC’s recent enforcement action against Sethi Petroleum LLC and how to avoid investment scams.  You can find the other post by searching our blogs.  In our next post, we will take a closer look at Sethi’s prior history of securities law violations and what investors can do to avoid an investment scam like this.

 

This posting is intended to be a planning tool to familiarize readers with some of the high-level issues discussed herein.  This is not meant to be a comprehensive discussion and additional details should be discussed with your transaction planners including attorneys, accountants, consultants, bankers and other business planners who can provide advice for your circumstances.  This article should not be treated as legal advice to any person or entity.

 

Steps have been taken to verify the contents of this article prior to publication.  However, readers should not, and may not, rely on this article.  Please consult with counsel to verify all contents and do not rely solely on this article in planning your legal transactions.

 

About the Author

So-Eun Lee – So-Eun Lee is an associate attorney in the New York office of The R. Shawn McBride Law Office, P.L.L.C.  She concentrates her practice on business law.  So-Eun can be contacted at: (347) 921-0173 or soeun.lee@rsmlawpllc.com.  Her profile is available on www.mcbrideattorneys.com.

Shawn McBride – R. Shawn McBride is the Managing Member of The R. Shawn McBride Law Office, P.L.L.C. which helps clients in legal issues related to starting companies, joint ventures, raising capital from and negotiating with investors and outside General Counsel functions. Shawn can be contacted at: (214) 418-0258; shawn.mcbride@rsmlawpllc.com, or www.mcbrideattorneys.com.

 

[1] See generally SEC v. Sethi Petroleum, LLC, Agreed Order Granting Preliminary Injunction, Asset Freeze, and Other Relief, Civil Action No. 4:15-CV-338 (E.D. Tex. May 26, 2015).

[2] Id. at 1–2.

[3] Vince P. Schmeltz III, et al., Asset Freeze and Forfeiture Procedures in Criminal and Civil Cases, ABA Section of Litigation and Criminal Justice Section Annual CLE Conference, Apr. 13–15, 2011: What To Do When the Government Freezes Your Client’s Assets, at 2 (internal citation omitted).

[4] Id.

Facebooktwittergoogle_pluslinkedinmailAbout the Author Shawn works successful, private business owners in their growth and missions to make a company that stands the test of time. You can email or call (214) 418-0258.

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