Direct Participation Oil/Gas Deals, Things to Look for in a Security Offering

Interview with Colleen Keefe, Director of Securities, Department of Financial Institutions. Kentucky

1- Thanks, for taking the time to answer a few questions for the benefit of our readers and the investing public! Would you mind telling us a little bit about what you do regarding Securities in the oil & gas business?

The Office of Financial Institutions through its Division of Securities regulates the offer and sale of Securities in Kentucky. This includes the sale of securities into or from the Commonwealth. Generally, the Division reviews registration and exemption filings for securities offerings; reviews applications for registration as an agent, broker-dealer, investment adviser, and adviser representative; investigates potential violations of the Securities Act of Kentucky; and educates investors on making informed investment decisions.

2- There seem to be a lot of violations and past fraud in the industry, any ways that individuals can guard against this?

Prior to making any investment, you should review all written materials PRIOR to handing over your money and should be sure you fully understand and are comfortable with the investment. Among other things, a seller should disclose to you the manager’s operating history, risk factors, how the investment proceeds will be used. Never rely on verbal representations especially if they contradict what is in writing. If you do not understand anything you should either ask questions of the seller or consult with an attorney, CPA, or other professional. If you do not understand an investment or cannot get satisfactory answers to your questions, you should not invest. You should also contact your state securities administrator to get background information on the individual or firm selling the investment and to learn if any required filings for the offering have been made. Always remember, if an investment sounds too good to be true, then it is! It’s that simple. For additional resources, consult www.nasaa.org and look at Investor Education and for listing of state securities administrators.

3- Is there a central registry of Securities registered with the state?

The Division of Securities maintains a database of all registration and exemption filings submitted to the Division.

4- What are the requirements for operators selling oil/gas investment units in KY?

The requirements vary depending on how the securities are sold. If an offering is being sold as a “private placement” then the operator may not sell by general solicitation.

5- Who should investors contact to check the background of an operator?

Their state securities administrator. See listing on www.nasaa.org .

6- For operators, is there a template or list of disclosures that would make their offering compliant in KY?

See Offering Circular Guidelines on the Office’s website.

7- What are the penalties for not properly registering a oil/gas investment in KY?

Violators of the Securities Act of Kentucky may be subject to civil monetary penalties and a willful violation of the Securities Act of Kentucky is a Class D felony.

8- Any final advice for someone that is approached for investment?

Investigate BEFORE you invest and if it sounds too good to be true, then it is!