Producing oil and gas by hydraulic fracturing, or fracking, takes lots of water. One Houston company claims to have a new technology that requires none of it. If it sounds too good to be true, the Securities and Exchange Commission thinks so, too - they have sued the company for fraud.
What’s alleged is called "pump and dump," in a very risky investment space known as the over-the-counter market. Two years ago, Maryland retiree Darleen Allwein invested in an oil and gas company called Chimera. The firm advertised a water-free fracking innovation.
“I had a friend who gave me the tip on this stock and it was gonna do well,” Allwein says. “And I had read some other stuff about this, what is it, fracking, or something?”
Allwein invested $10,000 in Chimera, during what the SEC considers the "pump" stage: the company issued 30 press releases, loaded with key Google search terms. It advertised on the websites of Marketwatch and the Wall Street Journal.
The problem: petroleum engineers know waterless fracking is not a proven technology.
“Companies can fracture using oil and other petroleum substances,” says law professor Hannah Wiseman of Florida State University. “But as you might expect, they’re also not necessarily environmentally popular.”
Investment professionals were wary of Chimera’s claims as well. Still, the over-the-counter stock market attracts lots of non-experts. Enough of them bid up the Chimera stock, at which point company creators executed their “dump.”
According to the SEC, they sold shares and pocketed $4.5 million in profits. Then the stock cratered, and Darlene Allwein lost everything.
To the feds, Chimera was simply a shell, a good story in the midst of a fracking boom.
“It’s sort of like a modern-day California gold rush,” says attorney John Hanger, a former Pennsylvania environment and utility regulator. “So it’s created a tremendous psychology of money to be made, that may make some people vulnerable.”
The SEC wants a jury trial, though the firm could settle.
We tried to call Chimera, but no one answered.