Former Owner of Oil-and-Gas Company Indicted in Multi-Million-Dollar Investment Scheme
|U.S. Attorney’s Office December 03, 2009|
NASHVILLE, TN—United States Attorney Edward M. Yarbrough; Chris Pikelis, Special Agent in Charge, Nashville Field Office, Internal Revenue Service-Criminal Investigation; and My Harrison, Special Agent in Charge, Memphis Division, Federal Bureau of Investigation announced that Gary Milby, the former owner of Mid America Energy, Inc. and Mid America Oil & Gas, LLC (collectively, “Mid America”), was indicted on December 2, 2009, on charges stemming from a multi-million-dollar investment scheme he allegedly perpetrated from approximately December 2004 to August 2006. Milby, 55, of Campbellsville, Kentucky, was charged with three counts of mail fraud, one count of securities fraud, and three counts of money laundering in an indictment returned by a federal grand jury.
According to the indictment, Mid America was an oil-and-gas company operating out of Portland, Tennessee. Through the company, Milby raised several million dollars by selling interests in various oil-and-gas investment programs to investors located throughout Middle Tennessee and elsewhere. Each program was set up as a separate limited liability partnership under Tennessee law with names such as “Big Creek Oil #1,” “Black Gold #5,” and “Fort Knox #3,” among others. Each program included up to three oil wells to be drilled and operated in different parts of Kentucky. In most cases, each program offered 25 subscription units, and investors paid between $18,000 and $49,000 to purchase a single unit, in return for which they would receive a percentage of the oil revenue raised from the wells in the particular program.
The indictment further alleges that, to induce clients to invest with Mid America, Milby made various material misrepresentations and omissions about his company’s status and his own financial condition. For example, Milby failed to disclose to investors that state securities regulators in several states had issued cease-and-desist orders to Mid America or had instituted other disciplinary proceedings against the company for violations of state laws or regulations. Milby also falsely told investors that Mid America was registered with the United States Securities and Exchange Commission when, in fact, it was not. Milby further failed to disclose his own personal bankruptcy. In addition, Milby allegedly exaggerated the likely investment returns an investor could expect, based on the anticipated oil revenue. Contrary to those exaggerated claims, the areas in Kentucky that Mid America planned to drill had historically produced only a small fraction of the oil Milby claimed was obtainable.
According to the indictment, Milby also misappropriated investor funds after they were received by Mid America. Milby failed to invest the funds in the manner and at the levels promised in the written agreements with investors and instead, used a substantial amount of the funds for salaries, vehicles, and lavish personal spending. For example, among the transactions alleged in the money laundering charges, Milby is alleged to have used investor funds to wire $100,000 from a Mid America bank account to an account in the Turks & Caicos Islands and to purchase a $28,000 BMW automobile. Finally, of the little oil revenue that was actually generated by drilling, the indictment alleges that Milby still failed to pay to investors their promised percentage of that revenue.
United States Attorney Ed Yarbrough commented, “The public must be able to trust that those who offer investments are telling the truth about themselves, about their investment opportunity, and about how investor funds will be used. Unfortunately, schemes like this one break that trust and leave behind a trail of innocent victims The United States Attorney’s Office will continue to work with its law-enforcement partners to bring to justice, those who concoct such schemes and to deter similar criminal conduct by others.”
The case was investigated by agents with the Internal Revenue Service-Criminal Investigation and the Federal Bureau of Investigation. The United States is represented by Assistant U.S. Attorney Ty Howard.
The public is reminded that an indictment is merely an accusation and is not evidence of guilt. All defendants are presumed innocent unless and until proven guilty in a court of law.