A six-year court battle between Colorado securities regulators and a Colorado Springs oil and gas company that sold losing investments in its wells appears headed to appeals court — again.
Denver District Judge Michael Martinez ruled Friday that Heartland Energy Development Corp. violated Colorado securities laws and that its investments were sold illegally as unregistered securities, not as joint-venture partnerships, as the company claimed.
With the new ruling, Martinez reversed his own in which he held that Heartland operated lawfully as a partnership, and that its investments were not securities subject to regulation.
The reversal came a year after the Colorado Court of Appeals rejected Martinez’s 2013 ruling.
On Monday, Heartland officials vowed to appeal the latest ruling, which the state said would set the case on course for a new trial.
“HEDC’s partners are business-savvy people,” company attorney Tom Tenenbaum said in a statement. He noted several of its partners included Motorola, Goldman Sachs and CitiBank.
The company also operates as HEI Resources.
“This decision could further hamper an already badly hammered oil and gas industry,” Tenenbaum said. “This is … bad for small business overall.”
The to stop Heartland from selling investments it said had The state claimed the company used pressure tactics to land the investments, and six investors testified that collectively they lost $4 million. One of them, an 85-year-old retired school teacher from Brighton, said she and her sister had just $25,000 left of a $500,000 investment.
The sales in question were made roughly between 2004 and 2007.
The state said there were hundreds of others who lost on the deals. The division claimed the investments were securities improperly marketed under Colorado law but lost at trial and
Colorado Securities Commissioner Gerald Rome heralded Martinez’s latest ruling.
“If you set up a boiler-room operation, hire dozens of salesmen who make hundreds of cold calls a day to unsuspecting investors and pitch to them … then say it’s a partnership, it defies common sense,” Rome said Monday. “When you’re selling interests to 70- and 80-year-old retired school teachers, it’s not a partnership in an oil and gas drilling project.”
Rome said the state is pursuing restitution “in the tens of millions of dollars” and an injunction to force Heartland and HEI to operate lawfully.
The appellate court in November 2014 ruled Martinez had overlooked a critical point in assessing whether those who bought into the company were merely buying interests in a general partnership, as the company claimed, or were actually purchasing securities the state could regulate and require additional disclosures for.
The appeals court said Martinez should have determined whether investors had the requisite knowledge or experience to buy into a partnership with an oil and gas company. The judge, the higher court ruled, never determined whether any of the alleged victims had any knowledge in the specific operations of oil and gas exploration, drilling or production.
The appellate court said unsophisticated investors were more likely to rely on promoters to obtain profits.
David Migoya: 303-954-1506, dmigoya@denverpost.com or @davidmigoya
