Former Hot Springs Resident Accused of Securities Violations in Gas Well Deals

by Gwen Moritz  on Wednesday, Dec. 13, 2006 11:44 am  

Jeffrey S. Rand of Houston, who formerly lived and conducted business in Hot Springs, was the subject of a lengthy and complex cease-and-desist order issued Tuesday by Arkansas Securities Commissioner Michael Johnson.
Johnson's order, which Rand has the right to appeal, accuses him and his company, Wave Energy Corp., of numerous violations of state securities law in the sale of interests in four Texas natural gas wells between 2000 and 2004. The order concludes that Rand repeatedly misled investors, failed to transfer ownership rights to investors as promised, oversold interests and demanded additional payments from investors for expenses that weren't incurred.
Rand is a son of former North Little Rock movie theater operator W.A. "Tony" Rand, who served a federal prison sentence for fraud and money laundering after the collapse of his fast-growing chain of theaters in 1990.
"At most times referred to herein" Wave was operating in Hot Springs, according to the order. The company is incorporated in Delaware and operated in Irvine, Calif., before relocating to Hot Springs in 2001 and later to Houston.
Arkansas Business published first word of the securities investigation in June.
Promises Not Kept
The order describes in detail the promises made to an unknown number of investors in Arkansas and other states through private placement memorandums for the various wells. In 2003, according to the order, Rand raised close to $2 million from investors who thought they were buying an ownership interest in a well in Hidalgo County, Texas.
"Approximately $675,000 of it went to pay for Rand's acquisition of a duck hunting club, and the rest went to pay for Rand's horse racing and breeding operation, Wave's business expenses and other miscellaneous Rand personal expenses," Johnson's order says.
In early 2004, Wave claimed to be selling 56 interests — at $115,000 each — for a "redrill" of an existing well called Rancho Blanco No. 1 in Jim Hogg County, Texas.
"Actually, although Wave owned some working interests in the RB1, Wave was not the operator of the RB1 and had no drilling rights in the 40 acre unit on which the RB1 sits. Wave had no right to propose or begin drilling another well to replace RB1. In fact no 'redrill' of the RB1 has ever been started, and the RB1 is still producing natural gas as of this date," the order states.
The complete order is available here. Rand's personal voice mail at Wave Energy was full on Wednesday morning, and a message left with his assistant had not been returned.
Family Ties
The cease-and-desist order describes complicated agreements between Rand, investors and other gas well operators — particularly one called Aspen Exploration of Plano, Texas. According to the Louisiana Department of Natural Resources, Aspen's CEO is Jeff Rand's brother, Gregory K. Rand, and the company seems to employ other members of the Rand family as well: Mark Rand is chairman and Bill Rand is president.
A message left for Greg Rand at Aspen's Plano office was not returned Wednesday morning.
None of the other Rands is named in the Arkansas order, nor is Aspen Exploration accused of any wrongdoing. In fact, the order suggests that Jeff Rand stiffed his brother after agreeing that Wave and Aspen would split the cost of drilling and testing a well called Rancho Blanco No. 2, also in Jim Hogg County.
"Wave failed to pay its fair share of the costs, saddling Aspen with well over half the cost of drilling and testing the RB2," Johnson's order says.
'Frac Job'
In 2004, Rand allegedly sent what amounts to a capital call to investors in the RB2 well demanding that they pony up the several hundred thousands of dollars needed for "fracturing" the rock around the well in order to increase gas production. The "frac job" was supposedly scheduled for Oct. 29, 2004.
"Actually, the only frac jobs that were performed on RB2 took place in March, 2004, and March, 2005. There were no frac jobs scheduled, performed or anticipated in October, 2004," according to the securities department's findings.
Some investors complied with the demand and some didn't. Those who didn't were later charged a 300 percent penalty out of the royalties they were due, and some of the investors who had paid were similarly penalized.
"Because Wave was not the operator of the well, Wave could not charge any investor a 300 percent penalty for failing to pay its share of an operating expense for an operation performed after completion and during production. Only the operator, Aspen, could charge an investor a 300 percent penalty," the order concludes.
Jeff Rand and Wave Energy were the subjects of a cease-and-desist order issued by Pennsylvania securities regulators in January. It involved a solicitation for investment in a gas well in Mississippi.



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