Ex-Provident Royalties CEO Admits Guilt in $485 Million Scam

Paul R. Melbye, co-founder and former chief executive officer of Provident Royalties LLC of Dallas, pleaded guilty to conspiring to defraud investors of $485 million in an oil and gas scheme.

Melbye, 47, is the second Provident Royalties principal to plead guilty to a scheme that duped 7,700 U.S. investors through fraudulent private placements and limited partnership interests from 2006 to 2009, according to a statement by U.S. Attorney John M. Bales of Sherman, Texas.

Provident co-founder Joseph Blimline, 35, pleaded guilty in connection with the scheme in 2010 and was sentenced to 20 years in prison in May of this year, according to court records. Melbye, who pleaded guilty yesterday before a U.S. magistrate judge in Sherman, faces as long as five years in federal prison at sentencing, according to the statement. No sentencing date has been set yet for Melbye.

Melbye made “materially false representations and failed to disclose material facts to investors” to dupe them into investing with Provident, according to Bales’s statement. Melbye didn’t tell investors that Blimline had received millions of dollars in unsecured loans, that Blimline had been previously charged with securities fraud in Michigan, and that “funds from investors in later oil and gas projects were used to pay individuals who invested in earlier oil and gas projects,” according to Bales’s statement.

Provident Principals

Two other Provident principals, Brendan Coughlin, 46, and Henry Harrison, 47, were indicted by a U.S. grand jury in July on charges of conspiracy to commit mail fraud and mail fraud, according to court records. Both men entered pleas of not guilty and are awaiting trial, according to court records.

Melbye, Coughlin and Harrison were sued along with Provident by the U.S. Securities and Exchange Commission on allegations of securities fraud in July 2009, according to court records. Final judgments were entered against Coughlin and Harrison in June of this year, in which Coughlin agreed to pay $1.45 million and Harrison agreed to pay $850,000, with neither man admitting or denying the allegations.

“This case will go to trial next year, and the jury will take less than an hour to return a verdict of not guilty against both Coughlin and Harrison,’’ David Finn, Coughlin’s lawyer, said in a phone interview today. ‘‘I’ve been practicing law for 25 years and I’ve never made a prediction like that before. That’s how confident I am.’’

William Ravkind and John Cline, Harrison’s attorneys, didn’t immediately respond to voice or e-mail messages seeking comment on Melbye’s guilty plea or the charges Harrison faces.

Matthew Orwig, Melbye’s attorney, didn’t immediately return a call seeking comment on the plea.

The case is U.S. v Melbye, 4:12-cr-0169, U.S. District Court, Eastern District of Texas (Sherman).

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