Judge: No Ponzi scheme

Denver-based St. Anselm Exploration Co., which had a majority of its roughly 200 investors in New Mexico, has been cleared of civil charges related to running a Ponzi scheme.

“The evidence fails to establish that SAE had any of the true hallmarks of a Ponzi scheme,” says U.S. District Court Judge Robert E. Blackburn in Denver. “SAE conducted legitimate business operations and historically (and contemporaneously) produced profits and earnings.”

Blackburn’s opinion and order, issued last week, grants St. Anselm’s motion for a summary judgment in a civil complaint brought by the Securities and Exchange Commission against the company and its officers in March 2011.

A spokesman for the SEC declined to comment on the ruling, saying it was under review.

The opinion and order vindicates Albuquerque resident Steven Etkind, who as St. Anselm’s vice president of corporate development encouraged more than 100 New Mexicans, as well as others, to invest in the company.

“I’m happy with, but not surprised by, the decision,” Etkind said in a statement released by his lawyer, David Zisser of Denver. “Now that I have been vindicated, I have to try to put my life back together.”

The SEC complaint, later amended, alleged St. Anselm violated federal securities law by misrepresenting its precarious financial condition to investors as well as using money put up by later investors to make payments to earlier ones – the essence of a Ponzi scheme – in 2007-10.

Blackburn found, in essence, that St. Anselm was a company coping with temporary cash-flow problems in a down economy.

“What this court perceives from the evidence presented in this case is not fraud, whether intentional or reckless, or even negligence, but a company that got too far over its skis,” he writes in his opinion.

An oil, gas and geothermal exploration and development company founded in 1989, St. Anselm makes its money by developing energy leases to the point where they can be sold for a profit, according to court documents. The sales provide periodic infusions of cash rather than a steady cash flow.

In August 2010, cash flow dropped to the point where St. Anselm could not make payments owed to its investors, court documents say. The company told investors that it was going to restructure its debt by converting its old notes, which carried high interest rates, into new ones with a fixed rate of 5 percent.

The restructuring occurred at a time of intense publicity about a Ponzi scheme that had been operated in Albuquerque by onetime real estate executive and now convicted felon Doug Vaughan. Complaints from Albuquerque investors alarmed about St. Anselm’s restructuring likely led to the SEC complaint.

Blackburn saw St. Anselm’s restructuring of its notes held by investors as a positive move toward self-preservation rather than, as was the SEC’s apparent view, a ploy to mask from investors that it was a company “teetering on the edge of insolvency.”

“When defendants realized their business model no longer worked in the then-current economy, they moved with appropriate speed to revamp it and save investors’ prinicipal,” the judge writes. “That strategy worked, as SAE is still operating today.”

Ultimately, 196 out of the 198 investors supported the note restructuring, he observes.

The two investors who didn’t, both Albuquerque residents, sued St. Anselm in U.S. District Court in Albuquerque. One settled out of court pretty quickly in 2011. The second lawsuit is ongoing.

Etkind still faces a clawback lawsuit seeking up to $252,025 in the bankruptcy case of Vaughan Company Realtors.
— This article appeared on page B1 of the Albuquerque Journal