Area duo to pay millions in drilling scheme
SAN ANTONIO — Two San Antonio-area men accused of ripping off investors in oil and gas ventures are on the hook for millions of dollars after a federal judge found their “fraudulent conduct permeated the projects from start to finish.”
U.S. District Judge Fred Biery this week ordered Paul Russell Montgomery Jr. of Bulverde to pay nearly $3.7 million in civil penalties, ill-gotten gains and and interest. Michael David Fisher of Canyon Lake was ordered to pay more than $3.3 million.
The Securities and Exchange Commission had sued Montgomery, 45, and Fisher, 41, for securities fraud in May in San Antonio federal court.
Montgomery and Fisher didn’t defend themselves in the civil case, leading Biery to grant the SEC’s motion for a final judgment by default.
Biery also permanently enjoined the pair from committing any future violations of federal securities laws.
Biery previously permanently restrained a third defendant, James Hurst Willingham Jr. of Ce
dar Park. The judge has yet to determine the amount that Willingham, 73, will have to pay in the case.
Montgomery still faces criminal charges. He was indicted by a federal grand jury in February on three counts of mail fraud, two counts of filing a false tax return and one count of failing to file his 2016 tax return. He has pleaded not guilty. His trial is scheduled for March, but it has already been postponed multiple times.
Derek Hilley, a San Antonio lawyer, represents Montgomery in his criminal case but not in the SEC’s lawsuit.
“Mr. Montgomery is compelled to refute certain accusations, but would like to get past this difficult time in his life,” Hilley said in an email Friday. “He endeavors to make things right for his investors.”
A call to Fisher was not returned. David B. Fraser, an SEC lawyer based in Fort Worth, declined to comment for this article.
The SEC’s allegations against Montgomery and Fisher were essentially accepted as true by Biery because they didn’t answer the complaint.
According to the judge’s order, Montgomery, Fisher and Willingham raised at least $2.7 million from investors by selling joint venture interests in two oil and gas projects in Wilson County from June 2016 to early 2017.
Promotional videos and
emails sent to prospective investors promised the projects were “low-risk” and would generate returns of at least 32 percent.
“Defendants never drilled or reworked a single well for these projects,” Biery said in his order. The trio also never disclosed to investors that title to the mineral rights for most of the wells was clouded and subject to an injunction that prevented the projects from proceeding, the judge added.
The defendants also didn’t spend the money raised from investors as they said they would, the judge continued.
In one of the projects, a private placement memorandum estimated 5 percent of investors’ money would cover organization costs, 6 percent would be for lease purchases, 10 percent would be for management expenses, and 79 percent would go toward drilling, surveying and related costs.
Instead, $936,279, or 39 percent, went to Montgomery. He later sent $360,311 to
Fisher, according to the judge’s order. Willingham received $221,000, or 9 percent. Sales representatives received $793,000, or 33 percent, in commissions. An investor received $450,000, or 19 percent, as a return on the investment. Montgomery spent at most $100,000 on expenses.
The SEC alleged Willingham and a partner hired Montgomery’s company to drill four new wells and rework four existing wells.
Sales representatives solicited investors using “popup” advertising on websites, followed by emails with attached promotional videos.
Individuals identified in a nearly 12-minute YouTube video as “potential investors” were Fisher’s sister-inlaw and her parents, the suit said. Another person identified as a “professional investor” actually handled IT for the defendants. A person who viewers were told invested $150,000 was a sales representative pitching the investments.
None ever invested, though.
The joint venture interests in the well also should have been registered as securities with the SEC, Biery said.
Biery added Montgomery and Fisher “acted with an intent to defraud” investors because they were aware that Montgomery had a poor track record of oil and gas production. Montgomery also lacked expertise and qualifications marketed to investors.
“Mr. Montgomery is compelled to refute certain accusations, but would like to get past this difficult time in his life. He endeavors to make things right for his investors.”
Derek Hilley, lawyer for Paul Russell Montgomery Jr.