I received an email from someone asking about whether there were any updates on the Oilpods investment scheme.

For those who have not been following the story, Oilpods is an investment into working interests in Canadian oil wells, with monthly returns generated from the sale of the oil and gas. Eventually, it was discovered that the scheme was operated as a ponzi, and investors stopped receiving their payouts.

I did some checking for the latest news and found that in April this year, the US Securities and Exchange Commission (SEC) actually filed a suit against Brian Fox for fraud.

This comes almost two and a half years after Powder River Petroleum International was put into receivership.

SEC claims that Fox has misled the investing public by fraudulently inflating the revenue and omitting major liabilities of Powder River in Commission filings and by making other false and misleading public disclosures.

Fox has responded to the charges pleading his innocence, blaming Oilpods and the receiver for the loss of the shareholders.

Whatever the outcome, it doesn’t look like investors with Oilpods will be getting back any of their money, especially when Power River was put into liquidation and not much was recovered from them during the process.

Timeline of events:

• December 2003: Brian Fox becomes chairman, president and CEO of Powder River Petroleum International.
• Late 2004: Powder River begins conveying working oil and gas interests to investors in Asia for more than $43 million.
• Mid-2007: Powder River’s guaranteed payment obligations to investors exceeds actual oil and gas production revenues.
• December 2008: Company files for Chapter 11 protection in U.S. Bankruptcy Court in Oklahoma City.
• November 2010: Chapter 11 case is converted to a Chapter 7 liquidation.

Bruce Day, the appointed receiver for Powder River Petroleum, has released the interim report of his findings. If you are an existing investor with Oilpods and would like to know more about the developments, you can download the report here:

Powder River Receiver’s Report

There’s one part of the report that existing investors of both Oilpods and Powder River will be very concerned about. The cost of the leasehold and the price that it was sold to Asian investors are as follows:

• In 2005, cost of leasehold – $997,794. Price sold to investors – $4,498,820
• In 2006, Cost – $144,637. Price sold – $17,705,262
• In 2007, Cost – unknown. Price sold – $18,764,060

If the numbers reported by Bruce is correct, then I am not very optimistic of the production capacity of the oil wells – certainly not at the projected revenues given by Oilpods/Powder River. Taking 2006 for example, I don’t think a $144,637 well can generate $1.7-3.4 million/year to give a 10-20% return.

Things will be clearer once Lee Keeling and Associates, an independent oil and gas engineering consulting firm, gives their evaluation of the oil and gas properties of Powder River Petroleum in a few weeks’ time.

An agreement was also made by Brian Fox to pay a 9% interest to investors on their investment amount for the initial phase. In 2007, a total of $4,413,406 in interest payments were made to investors. Of this amount, $3,263,004 came from funds received from subsequent investors.

Following the legal lawsuit by Oilpods, Powder River and Brian Fox has now proceeded to file their defence. Details can be found in this document.

A lengthy lawsuit will only mean that it will take a longer time for investors with Oilpods to find out what is going to their investments.

Incidently, this case was also reported in today’s newspaper.

This incident highlights the risks of investing in unregulated alternative investments. You have to be mindful that you might not have a clear exit strategy with your investments should things go wrong.

If you ever plan to invest in such products, make sure it is extra money you can set aside for a long time. Above all, never commit too much of your investment capital into such schemes.

Earlier on, I visited the website of Powder River Petroleum to find out more updates about their lawsuit by Oilpods.

Powder River has already been placed into receivership for a host of charges brought against them – these includes operating a ponzi scheme and cheating thousands of Asian investors.

(Update: Powder River will be contesting those charges.)

The receiver has uploaded at the Powder River website quite a fair bit of information on what is happening .

However, the links don’t seem to be coded correctly. I managed to find the correct links to download the documents. Here they are for easy access:

Petition

Plaintiff’s First Amended Petition

Affidavits of Newsome, Chang, Lim Romine

Order Appointing Receiver

Plaintiffs Motion for Temp Restraining Order and Permanent Injunction

Plaintiffs Motion to Reduce Bond

Temporary Restraining Order

Initial Receivers Report