June 18, 2014 Dallas, Texas. Nowak & Stauch, LLP and Lyons & Simmons, LLP are continuing the fight that began in 2008 to recover for victims of the Halek Energy oil and gas scheme that defrauded hundreds of investors out of tens of millions of dollars.
On February 19, 2014, Halek Energy, LLC, finally emerged from bankruptcy. Notably absent, however, was the company's founder and namesake, Jason Halek. Mr. Halek started the company in 2002 under the name Halek's Truck, LLC, which was later changed to Halek's Enterprises, LLC, and finally Halek Energy, LLC in 2008. Halek had previously operated a "tote the note" used car operation in Dallas, Texas. He later decided to make his fortune in the oil and gas business during the frenzied days of the Barnett Shale play. Halek Energy utilized a series of private placement memoranda to sell investments in Texas oil and gas projects that the Securities and Exchange Commission ("SEC") would later determine to be "false and misleading" in an effort to lure investors into working interest oil and gas projects. In total, Halek, through his affiliated companies Halek Energy and CBO Energy, had raised at least $21,452.137 in ill-gotten investor funds.
Halek Energy was eventually targeted by the SEC and by "Operation Broken Trust," a nationwide operation organized by the Financial Fraud Enforcement Task Force and the United States Department of Justice. Unfortunately, by that time, much of the investor money was already gone; some investors had given Halek Energy all of their retirement savings. Halek and his Company would later enter into a consent judgment with the SEC that prevented him from denying that he committed fraud in any proceeding in which the SEC was a party.
The civil action filed by the SEC in the US District Court for the Northern District in Dallas ultimately led to Jason Halek, Halek Energy, and CBO Energy being held jointly and severally liable for disgorgement of $21,452,137, plus pre-judgment interest of $5,048,920.17, in connection with the scheme. Jason Halek was also required to pay a $50,000.00 civil penalty. On August 5, 2013, the United States Court of Appeals for the Fifth Circuit issued an opinion that affirmed the disgorgement order and final judgment against Halek, thwarting Halek's last attempt to avoid disgorgement.
Not long after the SEC had filed its enforcement proceeding, Halek Energy was defending claims from its investors in both state and federal courts. The law firms of Nowak & Stauch and Lyons & Simmons were engaged by a number of investors victimized by the Halek Energy scheme. Several lawsuits were filed in state court and arbitration proceedings were initiated with AAA, all in an effort to bring some relief to investors who had lost millions of dollars as a result of false and misleading tactics employed by Halek Energy.
Halek Gets Drilled
Halek Energy's scheme was built upon slick brochures full of false, misleading statements, inflated budgets and unrealistic expectations. And it worked really well. It worked so well, in fact, that Halek Energy and other affiliated entities were able to raise more than $21 million between June 2007 and September 2009, making millions even while they drilled multiple dry holes for the investors. Ironically, things began to crumble when Halek Energy actually struck oil in Jack County, and completed the most prolific well in the history of that county.
For Halek Energy, hitting this gusher was a chance to turn Halek Energy into a legitimate oil and gas company. But for investors and creditors who had suffered from the investment scheme, including the SEC, these Jack County wells, which were producing more than $1 million per month by the end of 2010, were the much-needed assets that provided some hope of a recovery through litigation. Up to that point, the state court litigation and arbitration efforts against Halek and his affiliated companies had failed to force any change.
In late 2010, Nowak & Stauch and Lyons & Simmons decided to strike at the heart of the company and its newly-developed wells in Jack County, Texas. Unfortunately, most of Halek Energy's investors were not investors in these Jack County wells. Employing the seldom-used but highly effective theory of constructive trust, the law firms filed suit on behalf of a small subset of clients who had invested in the Jack County wells, claiming that all investor funds had been co-mingled and used to drill new wells, and that the production from such new wells must be preserved in a constructive trust for the benefit of all investors whose money had made the drilling of the new wells possible. Although the imposition of a constructive trust upon the Jack County operations of Halek Energy would be devastating, the Court granted a Temporary Restraining Order that shut down the Company's operations and suspended any further revenue distributions over the holidays in 2010. In retaliation, Halek and his lawyers filed suit against the bond posted in support of the injunctive relief, and added claims against attorneys Tom Stauch and Michael Lyons, individually. Following a temporary injunction hearing in February 2011, the Court found there was sufficient evidence to support an injunction against Halek and Halek Energy for the alleged fraud, and ordered the Company to suspend certain revenues, produce financial records, and submit to a financial audit. In the face of this ruling, Halek Energy filed for Chapter 11 bankruptcy protection, attempting to remain a debtor in possession and avoid certain obligations, including the state court order to turn over the Company's books and records.
Once before the U.S. Bankruptcy Court for the Northern District of Texas in Fort Worth, however, the law firms petitioned the Court to appoint a Chapter 11 Trustee to preside over and operate the company and take away control of the company from Jason Halek. Once Halek Energy initiated Bankruptcy proceedings, the SEC entered an appearance as a creditor, which prevented Jason Halek from denying that he or Halek Energy had committed fraud, in accordance with the prior consent judgments. With nowhere to run, and no more legal maneuvers to avoid a trial, Mr. Halek and Halek Energy were forced to deal with the investor victims through the bankruptcy court process. Through a series of negotiated settlements, the group of more than 30 claimants represented by Nowak & Stauch and Deans & Lyons were assigned the ownership interests of Halek Energy.
Still Fighting to Maximize the Clients' Recovery
Halek Energy was left with several operating wells but a severe cash shortage courtesy of the previous management - a firm that was contracted by the bankruptcy trustee. Although there was a $21 million disgorgement judgment in the SEC case, none of those millions were available to distribute to those injured by the scheme. To make matters worse, the wells that had been producing at a rate of $1 million per month when the bankruptcy began were nearly all shut in by the time the bankruptcy trustee turned the Company over to the law firms in 2013. Determined to recover for their clients, the firms set out to sell the Company's remaining leasehold interests and wells. When the trustee's efforts failed to produce more than a salvage value offer, Stauch took over the process of selling the Company's assets, and negotiated a sale price more than seven times higher, including retention of overriding royalties on all existing and future wells on the Jack County leases.
Even in the face of being sued personally by Halek's lawyers, Stauch and Lyons never backed down, and those claims were later dismissed. "From the beginning, our goal has been, and continues to be, maximizing the recovery for our clients. Through the five-year fight, we've had some ups and downs, but we never wavered in our commitment to pursue justice for these folks. I'm proud of our team and the results we achieved," reflects Tom Stauch. Michael Lyons adds, "Helping investors who have been the victims of securities fraud can sometimes be a daunting task. The bad guys will employ virtually every strategy to avoid liability and to delay recovery. Returning the Company and the only meaningful assets that remained to our clients is a satisfying feeling, but, more importantly, it gives these investors some satisfaction in knowing that the perpetrators involved in this scheme didn't get away with it."
"I am so thankful for the efforts of these lawyers," says Gregory Kitchen, "and am glad I decided to retain them to represent me. Without their tireless work over five years, and their most professional handling of all aspects of this complex case, there would have been no recovery at all." Of the more than 300 investors who trusted Halek with their money, only those who trusted the lawyers at Nowak & Stauch and Deans & Lyons were able to recover by sharing in the ownership of the Company after the bankruptcy.
Nowak & Stauch, LLP and Lyons & Simmons, LLP are Dallas-based law firms with a focus on complex commercial litigation and seeking justice for victims of securities fraud.