Bosses of broker-breaker Provident Royalties get prison time

Just a week before securities regulators will lift the ban on the marketing of private placements to the general public, the masterminds of one of the most notorious private-placement frauds of the past decade were sentenced to jail.
On July 3, U.S. District Judge Marcia A. Crone sentenced four former executives of Provident Royalties Inc., a $500 million oil and gas Ponzi scheme sold through a network of independent broker-dealers. Many of those B-Ds were ultimately put out of business by the costs of contesting lawsuits from investors who bought the phony preferred shares of Provident.
Brendan Coughlin, 46, and Henry Harrison, 47, were sentenced to 21 months in federal prison. They founded and controlled Provident along with Joseph Blimline, 35, who already has been sentenced to 12 years in prison.
Another founder, Paul Melbye, 47, received a sentence of 18 months in prison.
W. Mark Miller, 59, Provident’s chief financial officer and later president, also was sentenced to six months in federal prison and six months in home confinement.
The four executives sentenced this month also were ordered to pay $2.3 million in restitution. Each had earlier pleaded guilty to conspiracy to commit mail fraud.
The Provident executives entered into what was essentially a coverup, according to the Justice Department.
Investors’ money was lost due to Mr. Blimline’s “manipulation of investor capital prior to his departure in late 2008,” according to a statement from the Justice Department. “From Jan. 1, 2009, to Feb. 3, 2009, even after discovering what [Mr.] Blimline had done, [Mr.] Coughlin, [Mr.] Harrison, and [Mr.] Melbye failed to disclose the dire state of the company to investors in order to take in an additional $2.3 million, while [Mr.] Miller, who knew that the crime had occurred, authorized lulling payments to investors to conceal the crime from discovery.”
On Wednesday, the Securities and Exchange Commission approved a rule that would allow advertising for private-placement offerings such as the one for Provident Royalties. The decision lifted an 80-year prohibition on the practice.

After the vote, commissioner Luis A. Aguilar warned that the SEC was moving ‘recklessly.” And he warned that the regulator’s backing of private-placement advertising would allow fraudsters “to cast a wider net.”