* Texas firm accused of misrepresenting how funds spent
* Investors' money allegedly used to pay other investors
* Court freezes assets, appoints receiver
(Adds background on Stanford, Madoff)
WASHINGTON, July 7 Provident Royalties LLC and
three founders were charged with securities fraud for allegedly
bilking thousands of oil and natural gas investors in a $485
million Ponzi scheme, the Securities and Exchange Commission
said on Tuesday.
In a civil case, the SEC alleges that from about September
2006 until January 2009, Texas-based Provident Royalties raised
nearly half a billion dollars from at least 7,700 U.S.
investors by promising annual returns of over 18 percent and
misrepresenting how the funds would be used.
A portion of the proceeds were used for acquisition and
development of oil and gas exploration and development
activities, but other investor funds were used to pay earlier
Provident Royalties investors, the SEC said.
"Investors were told that 86 percent of their funds would
be placed in oil and gas investments. That representation was
false," the SEC's complaint said.
The SEC said a federal court issued an emergency freeze on
assets and appointed a receiver to preserve the assets.
The agency took similar steps after accusing Texas
financier Allen Stanford in February of running a massive fraud
involving certificates of deposit issued by his Antiguan bank.
After filing the charges, which the SEC later characterized
as a Ponzi scheme, a court-appointed receiver seized Stanford's
global empire of businesses, castles, yachts and private jets.
Stanford is the second high-profile fraud case to shake
public confidence in Wall Street and the U.S. financial
regulatory system, after veteran financier Bernard Madoff
pleaded guilty to a massive Ponzi scheme that could have cost
investors as much as $65 billion.
Stanford is now in a Texas jail awaiting trial, now
scheduled to get under way in August.
The Stanford and Madoff cases are part of what the U.S.
Commodity Futures Trading Commission in June called a wave of
"Ponzimonium" that is sweeping the globe.
The three Provident Royalties founders -- Paul Melbye,
Brendan Coughlin and Henry Harrison -- were charged with
orchestrating the scheme. Provident Royalties LLC, broker-
dealer Provident Asset Management LLC, and the 21 entities that
offered and sold securities were also named in the lawsuit.
Calls to lawyers for Provident Asset Management and
Provident Royalties and for Harrison and Coughlin were not
There is no known lawyer for Melbye.
Securities and Exchange Commission v Provident Royalties,
U.S. District Court, Northern District of Texas, 09-1238.
(Reporting by Rachelle Younglai in Washington, Chris
Baltimore in Houston; editing by Phil Berlowitz and Andre