(WHAS11) - Prosecutors say a local businessman misled hundreds of investors nationwide to invest millions of dollars in his oil and gas ventures.
The SEC says these companies all have ties to David Rose, who pleaded guilty to federal investment fraud and tax evasion in July after an eight-year F.B.I. investigation.
Rose could have received 425-years in prison, but he managed to get a deal that will likely land him behind bars for only four-and-a-half years.
Even as David Rose awaits sentencing, we discovered that money keeps rolling in to his businesses.
It's hard to keep up with all the names of all of the different oil and gas companies operating in the same two buildings in southern Indiana.
We discovered there have been at least six in the last five years.
But as one investor told us, by whatever name you call the companies, "a Rose, is a Rose".
There are no signs on the buildings, but plenty of people work there.
An undercover surveillance video shows dozens of employees coming and going daily from 1229 E. Spring Street in New Albany, IN and 700 Missouri Avenue in Jeffersonville, IN.
Former workers say what's going on inside is almost like a Hollywood movie.
“We were bringing in probably a million a month,” said a former employee we’ll call “Jack”.
He used to work for "Lux Petroleum", which Jack says is one of Rose's ventures.
The company lists this building in Dallas as its headquarters, but it's actually a virtual office with rental conference rooms and mail-forwarding service.
Jack describes the local offices.
“They have a big open floor with a lot of cubicles. A lot of phones and they're just gonna be pounding away on the phone making those 300 to 500 calls a day,” he said.
The salespeople are recruited from classified ads.
They use scripts like ones WHAS11 News obtained from former employees.
Each time an account rep makes a call, a dot is colored in his daily log. If he hits a receptive investor, usually about one call in 200, a sales packet is rushed out.
WHAS11 obtained one employee’s notes to use on "money calls".
They say the company is "teamed up with a major oil and gas company traded on the New York Stock Exchange."
They also refer to 50% to 60%annual returns.
Both statements are false.
According to federal regulators, making them is a violation of federal securities regulations.
But Jack says such claims were encouraged.
“We hit the mother lode. You're gonna make your money back every two weeks. How much money you want to put in? If you made your money back every two weeks?” Jack recalls saying.
Rick Wimp and his father Richard run an auto repair shop in Corydon, Indiana.
Rick's dad, who's too embarrassed to talk, invested $300,000 with enTerra and lost almost all of it.
“It was all just, in my opinion, a scam. Every bit of it,” said Rick Wimp.
An enTerra employee approached Richard after he won $600,000 from a Las Vegas slot machine.
Wimp was told his luck was about to get even better.
“There were some gas wells in Kentucky they were gonna sell to Marathon. Marathon was gonna buy them out. It was a great deal.
Put a bunch of sugar on it and made it sound super good,” Wimp said.
Similar pitches were made all over the country. WHAS11 talked to investors who said they lost all or most of their money from California, Virginia, Wisconsin, Louisiana, Texas and New Jersey.
“I haven't seen any possibility of making any returns,” said Jack.
“The well's been shut down for water. This was a dry hole. Always one excuse after another. And the same excuses all the time,” Rick said he heard from enTerra employees.
Rick Wimp tried to talk to enTerra about his dad's losses, so he visited the Spring Street office.
“They took me upstairs to a bunch of cubicles but there wasn't nothing to do with enTerra energy. It had already changed its name to Lux Petroleum. They were sending out fliers on Lux Petroleum,” Wimp said.
“They’re just different corporations; different names. Conducting business the same way. The same people,” Jack said.
The companies we have learned have been associated with David Rose and his sons Brian and Jason in recent years include enTerra, Lux Petroleum, Berkshire Resources, Earth Energy Exploration Incorporated and United Coastal Exploration.
The newer companies don't list David Rose as an officer.
Several states have filed cease and desist orders against him, including Kentucky.
But the SEC says he is very much involved in the operation of his companies.
WHAS11 News obtained invoices that show Rose received $10,000 a week for eleven weeks in-a-row in early 2008 for general administrative services.
Earth Energy Exploration was one of the companies paying him, even though the company's prospectus says it doesn't pay up-front fees and commissions.
“Sometimes you could get up to as high as 25% commissions,” Jack said.
A statement from Lux Petroleum shows that salespeople bought in nearly $600,000 from investors in just two weeks.
Jack says a good salesman makes at least $100,000 a year, so most continue to dial for dollars, even after learning that investors always lose.
“I had a mortgage, a car payment, a family,” said Jack.
“They're after your money and they’ll do almost anything to get it,” said Wimp.
