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Another Gold Mining Scam!

Will people never learn?

7/20/2012 @ 12:04PM

The Securities and Exchange Commission (“SEC”) charged a Nevada company with operating a fraudulent investment scheme that lured investors with the promise of a 35,000% return on an investment in an $11 billion gold mine. 3 Eagles Research and Development, LLC (“3 Eagles”), along with Harry Dean Proudfoot III and his children Matthew Dale Proudfoot and Laurie Anne Vivilo (collectively, the “Proudfoots”), were charged with multiple violations of federal securities laws in connection with the scheme, which raised at least $2.7 million from over 100 investors nationwide. The SEC is seeking injunctive relief, disgorgement of all ill-gotten gains, and civil monetary penalties.

3 Eagles was formed by Harry Proudfoot in April 2008. Shortly after, Proudfoot hired his children Laurie and Matthew in various executive positions. From September 2009 to October 2011, 3 Eagles solicited potential investors to purchase royalty units for a purported Ohio mining project. One royalty unit consisted of a $5,000 investment and entitlement to a portion of future gross mining profits. According to 3 Eagles, investors were told they could receive a return of 35 times their original investment!

Through Power Point presentations distributed via email, UPS, and in-person meetings, investors were given an outline of the project, which included representations that 3 Eagles had an expert geologist team and had obtained an exclusive license to extract mineral deposits in over 300 acres of land in Ohio. According to 3 Eagles, the land had a “$11,250,000,000.00 gross value”, and would generate approximately $1.6 million in gross monthly revenues once a “pilot plant” was built and preliminary production started in late 2010. Based on these representations, the company raised nearly $3 million from 140 investors in 23 states.

However, according to the SEC, these promises were “flat out lies.” Investor funds were not used to build a pilot plant, purchase mining equipment, or to operate any gold mine in Ohio. There was no “geology expert”, nor did there exist a mineral rights lease to any property. Instead, more than $1 million of investor funds was misappropriated by the Proudfoots to support lavish lifestyles that included $245,000 for personal travel, clothing and medical expenses, nearly $100,000 in automobile costs, and $30,000 annually for vitamins and nutritional supplements. Additionally, Matthew Proudfoot used investor funds to make monthly personal bankruptcy payments. As a result of the numerous unauthorized expenditures, only $38,000 remained as of September 2011, and 3 Eagles never purchased or installed mining equipment or commenced mining operations.

The SEC also accused 3 Eagles of failing to disclose numerous red flags to potential investors, including prior regulatory actions against Harry Proudfoot that included prior cease-and-desist orders issued by regulators in Alaska and Oregon concerning the sale of unregistered securities in violation of state law. Additionally, Harry Proudfoot had previously been issued a cease-and-desist order by Oregon regulators for an unrelated failed gold mining scheme in Canada.

Indeed, a simple Google search for “Harry Proudfoot” yields a link to an Oregon cease-and-desist order detailing a scheme in the early 1990's involving investors “loaning” over $200,000 to Proudfoot with the promise of 15% returns supposedly secured by “bonuses” due to Proudfoot. None of those loans were fully repaid.

A copy of the SEC’s Complaint is here.

A copy of the Oregon cease-and-desist order is here.

Jordan Maglich is an attorney at Wiand Guerra King P.L. in Tampa, Florida whose practice includes white-collar crime and securities and financial litigation. He also covers Ponzi schemes on his blog, PonziTracker. Follow him at @PonziTracker.

http://www.forbes.com/sites/jordanmaglich/2012/07/20/sec-says-company-offering-investors-35000-return-for-investment-in-11-billion-gold-mine-was-a-fraud/?feed=rss_home

http://www.sec.gov/litigation/complaints/2012/comp22416.pdf