From Wikipedia, the free encyclopedia. “A cease & desist is an order or request to halt an activity (cease) and not to take it up again later (desist); or else face legal action. The recipient of the cease-and-desist may be an individual or an organization”. “These orders usually specify a period of time for the recipient of the order to request a hearing. If a hearing is not requested by the recipient in the given time, the cease-and-desist order becomes final and the agency has the ability to enforce its order in a court of law”. So, to put it simply; “A cease-and-desist letter is a letter demanding that the recipient refrain from a certain behavior or face legal actions”. It is not a legal action or decision handed down by a court of law.

The proper and correct course of action for someone who receives a cease & desist is to make those changes required by the order or suffer possible prosecution by a state agency having authority to do so. Let’s clear-up some confusion about why an individual, investment company, broker, or promotional company receives a notice of a ‘cease & desist’, or ‘cease & refrain’ by a state government agency. Typically an action is taken against someone as a result of technical error in an offering memorandum, or complaint of a selling practice which may violate current practices acceptable to the individual state agency in question. Each state has its own interpretation of what may cross the line relative to marketing or selling attempts, and advertizing, or what’s being said to potential investors to induce, or motivate investors to invest in a program being offered by a salesman, or representative of a private company involved with oil & gas sales, and investments for example.

Under the current federal laws, the 506 Reg-D exemption is available to allow private companies who are exempt from certain reporting requirements to the S.E.C. to do business with private citizens who want to invest with private companies and not be subject to the extensive reporting requirements, and expensive procedures review required for a public offering, and publicly traded companies. Private investments in oil & gas offer unparalleled tax advantages not available in publicly traded stocks. When companies and individuals are informed by a state agency or a department of securities office tasked with oversight of private offerings involving investments they could be violating a rule, they can be issued a cease & desist. What’s a bit curious to me is lawyers typically write private placement memorandums, or prospectuses, and even though they may represent companies and individuals engaged in raising funds for their private deals, this doesn’t protect the companies or individuals from errors of omission, or for comments or statements made to prospective investors. Of course anything you can and say, or do may be construed by the state agencies as crossing the line of making unacceptable representations about an investment according to them. There have been over 10,000 changes in the securities laws during the past few years, and these changing laws are often difficult to interpret. States can and regularly do issue cease-and-desist orders, and if you work in the private sector, you will have to respond, and change your memorandum, or practices…in other words the securities attorney you hire isn’t automatically going to keep you from making a mistake. Ignorance is of course no excuse before the law…however, the truth is an absolute defense. Criticism of the practice of issuing cease-and-desist actions center around the concern for how easy or without due process they can be served. “Letters may be used by wealthy individuals and organizations to silence opponents who are unable or unwilling to engage in an expensive lawsuits, and thus may feel compelled to comply with a cease-and-desist letter even if it is unjustified”.

Competitors, and unscrupulous, or dishonorable, and unprincipled individuals frequently use the scam sites to ostensibly report untrue or unsubstantiated, and un-proven negative information to injure or interfere with a company they fear, or an individual they want to unfairly discredit. These people typically use a alias, and not their real names, and do not provide their correct addresses or phone numbers, which is a dead giveaway and points to their ‘low born, gutter snipe characters’. Your best approach is to read all disclosures provided in legitimate private offering memorandums, and make your own ‘due diligence’ determination as to whether any outstanding issues, such as cease-and-desist actions, or other legal actions are being taken care-of or have been complied with and resolved. Each investor has this responsibility, and if an investor isn’t accredited, sophisticated, and qualified, he should hire a ‘purchaser’s representative’, such as a lawyer to help him evaluate any investment being considered.

Responding and correcting the mistakes, and legal errors for which cease-and-desist orders are issued is the honorable and appropriate policy and is what the honest companies do. Getting individuals and companies who might have made some mistakes, and legal errors to correct them, is the stated intent of cease-and-desist orders issued by state authorities charged with this oversight and responsibility. A positive result of correcting any unintentional errors made by individuals, and companies offering private investments is to learn from the mistakes, and then make sure to carefully monitor, and not continue to repeat actions which automatically alert and trigger actions by authorities .

There is however another possible motivation by the state agencies who monitor and issue orders such as a cease-and-desist. Private investment deals take money away from the public investment houses, who have mandated, or extensive and costly reporting requirements. There is a lot of income generated from big fines charged to larger bigger public companies selling public securities. Two billion per year is generated in fines by the NASD assessed against it’s own member firms engaged in selling public securities. This is a pretty good business by anyone’s yardstick. Unfortunately, the two billion ultimately comes out of the public’s pocket book, and so are the costs investors must pay to private companies who pay their legal and other expenses as a result of cease-and-desist actions. One might just conclude the government will get its money one way of another.

P.S. The free enterprise system can only continue to survive when the best and brightest, and those creative souls who never quit, and are always willing to take risk, simply keep trying to succeed in spite of all obstacles they face. I believe the number of people who want to be in business is dwindling, and the seeds of our decline will be related to this trend…Dennis

Everyone has heard the expression we have to get back to the basics…football comes to mind, block, tackle, throw the ball, catch the ball, and score touchdowns…and do so while you keep your opponent from scoring…simple, right? Why don’t we do this all of the time in business? A good friend of mind, and a Scotsman with an IQ of 186 tells me, “You don’t want to be too smart by half.” We’ve also heard the one, “If it ain’t broke, don’t fix it”. More appropriately in the oil & gas business would be the saying, if you are digging a hole, and not finding anything, Stop Digging!

So, how does this relate to the title of this update? Simple, what’s our biggest problem in the US today? Most would say the economy. We borrow & spend more than we make! Our government spends more than it can tax, borrow, or and bring-in, and soon more than our printing presses can print paper money to pay an increasing national debt.

In a ‘successful’ private company oil business it has become necessary, and mandatory to go back to basics. We’re operating on a ‘cash basis’ and not betting on ‘future earnings’ like public companies when valuing their price earning ratios (PE’s). We must drastically cut our overhead, while developing leases, get required work done with fewer employees, use our own equipment, service our own wells, and maintain our own leases to save money. We have to do this while we lower the break-even point, and lifting costs, and production costs, so we can make profits for our investors. Prices are high for oil, and likely going higher…but so are rates for work, and costs for vendors, and sub-contractors.

Using new technology can be great, but if it is too complex, and unproven, you can spend a lot of money while you test to find-out it if it works. Sometimes, the old pumps, and older methods of operating leases can be much cheaper, and still get the job done at a fraction of the cost needed for high tech applications…so, a step by step and more cautious, or conservative approach while looking for oil can work better in the long term. The economics of some types of drilling, fracing, and development require big money, and acceptable returns are directly tied to getting a return of capital quickly. This can take many years though if the costs are too high going-in to a deal. Besides, the reserves can appreciate while the price of oil continues to increase…and this buys time to discover and use the best plan to be successful in the oil fields you select.

Dennis