The Producers Success and Oil Wells

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oil well and compliance

In The Producers, Max Bialystock and Leo Bloom realize they can make more money with a flop than a hit. No one audits a flop and the fraudsters are free to flee with their investors’ money. According to the Securities and Exchange Commission, GC Resources, LLC and Brian J. Polito was trying to run a similar scam with oil and gas wells.

Polito was running a legitimate business for years, but then his wells were not producing much. He went out to a site and saw that several nearby wells owned by another company were very successful. Rather than alter his drilling strategy, he “adopted” those wells as his own. According to the SEC complaint, Polito forged documents showing GC Resource’s interests in the wells and began selling interests to investors.

The problem came that investors were expecting to get paid on those wells. Investors could look them up on the regulatory website and see that they were doing well. Polito was hoping for some dry wells so he could stop paying those investors. Just as Max and Leo were hoping that Springtime for Hitler would close on opening night.

To stem the cash outflow, Polito tried switching to quarterly payouts instead of monthly. An investor got angry at the change, sued and the litigation uncovered the deception.

So it seems the perfect fraud is a play that fails on opening night or a dry well. But if they keep producing the fraud will be revealed.

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Author: Doug Cornelius

You can find out more about Doug on the About Doug page

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