Petro-Lewis Corp., the Denver company that first mass-marketed oil and gas tax shelters, yesterday agreed not to employ fraudulent practices and to have its public communications approved by its lawyers for a three-year period.
In agreeing to the federal court's terms, Petro-Lewis neither admitted nor denied charges brought by the Securities and Exchange Commission that the company covered up its poor financial condition while continuing to offer limited partnerships. The order covers the period between January 1982 and February 1984.
Petro-Lewis began selling shelters, composed of oil and gas properties it was developing, in the early 1970s. As the price of oil soared, so did the number of Petro-Lewis's investors; in March 1984 they totaled more than 183,000. During the two years in question, the company sold approximately $1.087 billion of partnerships.
Petro-Lewis' purchase of producing properties was based on projections of rising prices, but it was just about that time that petroleum prices began to fall. A Wall Street Journal column in April 1983 said Petro-Lewis was experiencing a cash squeeze because it could not continue paying its historic rate of return of 12 to 24 percent annually. The company denied the story, stating its bank advances were sufficient.
That, according to the SEC complaint, was one of many false or misleading statements put out by Petro-Lewis. In reality, the agency said, the partnerships were overborrowed at the banks; their revenues were insufficient to make cash distributions to investors and pay interest on bank loans, too. Eventually, the banks required repayment and Petro-Lewis decided to combine the old, debt-ridden partnerships with new ones.
In its complaint, the SEC accused Petro-Lewis of making misleading statements and omissions in its prospectuses, quarterly reports and other communications. The company misrepresented the financial status of existing partnerships as well as the prospects for future oil and gas operations, said the SEC. Petro-Lewis said that its partnerships and Petro-Lewis were in "sound financial condition, when in fact they were not."
The SEC ordered Petro-Lewis to have its attorneys -- either in-house or outside counsel -- review all press releases and shareholder communications prior to their issuance for the next three years. The company could be held in contempt if it does not comply.