Peters & Peters

Energy & Environmental Investments and others fined in respect of clean energy projects offering fraud

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Key facts:

In February 2023, the SEC filed a complaint against Energy & Environmental Investments, LLC (EE LLC), Energy & Environment, Inc. (EE Inc.), Amir A. Sardari, and Narysa Sardari Luddy (collectively, the defendants), alleging that from, March 2011 through April 2020, they perpetrated an offering fraud, raising US$9.3 million from over 200 investors nationwide.

The SEC alleged that EE LLC fraudulently offered and sold securities from a call centre based in Orange County, California, claiming it would use the money to acquire and develop clean energy projects with an emphasis on the oil and gas sector. The SEC alleged that, in fact, the defendants spent investor funds on the call centre’s payroll, marketing, personal expenses, and to pay other investors in a Ponzi-like scheme.

In May 2023, the United States District Court in the Central District of California Southern Division, by consent, against all of the defendants, in relevant part ordered them, collectively, to pay disgorgement, prejudgment interest, and civil penalties aggregating to approximately US$6.9 million.

According to the complaint, from March 2011 to April 2020, EE LLC, which was not registered with the SEC, fraudulently offered and sold securities through a private placement offering reflected in its Confidential Private Offering Memorandum (CPOM), which stated that the company was formed “with the purpose of developing or acquiring Clean Energy SolutionTM projects, with an emphasis on projects in the oil and gas, manufacturing and commercial building areas”. Its purported flagship project was a process by which waste oil flare gases are converted to liquefied natural gas that can be used as a substitute for diesel fuel. EE LLC was offering 12 million membership units to investors at a price of US$1.25 per unit, with the goal of raising US$15 million.

The SEC alleged that the defendants made a series of false and misleading statements through cold calls to potential investors and written material, including the CPOM, regarding EE LLC’s record of successfully implementing its business plan, its prospects for financial performance, exit plan and plans for future offerings, and EE Inc’s business relationships with major energy companies such as Chevron and Unocal. They also failed to disclose to investors a 2011 cease and desist order for violations of Colorado state securities laws in connection with the same securities offering.

In fact, EE LLC had no legitimate business operations or revenue and EE Inc had no current or contemporaneous business relationships with Chevron and Unocal, and the defendants spent about US$4.42 million (47% of investor funds) on the call centre’s payroll, marketing, and other expenses, including transferring approximately US$1.01 million to Luddy personally, who spent the money on personal expenses.

The defendants also used investor funds to pay investor returns in a Ponzi-like scheme, contrary to the CPOM, which stated that investor returns “shall be funded by the Managing Member [EE Inc], and not from the proceeds obtained through this offering”.

Sardari, EE LLC’s manager, President and CEO (and President and CEO of EE Inc), had repeatedly announced that EE LLC would conduct a second offering, which never materialised, even after initial efforts to arrange an offering came to an end and no further efforts were made. He also signed forms filed with the SEC and had signatory authority over bank accounts.

Luddy, EE LLC’s former Vice President of Investor Relations and Senior Director for Operations, communicated with investors and supervised EE LLC’s call centre employees and viewed and approved the sales scripts that callers would read to potential investors and other material sent to potential investors. She opened and had signatory authority over EE LLC bank accounts and received approximately US$1.01 million from EE LLC investor funds.

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