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SEC Charges Paul Alar and West Mountain, LLC with “Fraudulently Overvaluing” Aeronautics and Petroleum Companies

In a press release dated July 18, 2019, the Securities and Exchange Commission announced that they are charging “Paul Alar of Atlanta, Georgia and his investment adviser firm, West Mountain, LLC, for fraudulently over valuing assets in two funds they managed, allowing them to collect significantly inflated fees.”

The 20-page complaint filed in the case of U.S. Securities and Exchange Commission v. Paul Alar and West Mountain, LLC (Case 1:19-cv-03265-JPB), details how Paul Alar allegedly made false statements to investors in his two companies. “West Mountain directed two funds that it managed, West Mountain Partners, LP (“WMP”) and West Mountain Ltd. (“WM Ltd.”) … to make direct investments into subsidiaries of two privately held companies, one of which was striving to manufacture aircraft (the “Aircraft Company”) and another striving to develop petroleum emulsification products (the “Petroleum Company”).” West Mountain Partners had 60 investors, while West Mountain Ltd. had 41. Alar and West Mountain allegedly led investors to believe that the companies were much more successful than they purportedly actually were.

They relied on an unverified valuation based on “wildly optimistic assumptions,” which led to the company being valued at $18.6 million. The third-party that did the evaluation warned them that it should not be considered an independent valuation, but Paul Alar and West Mountain represented it as such. Even after their auditors warned them that “the valuation methodology used to calculate the unrealized gains was unreasonable and inappropriate,” they never told investors this. On the contrary, they allegedly made misrepresentations. By fraudulently overvaluing these companies, Paul Alar and West Mountain were able to collect $900,000 in additional fees.

Alternative Petroleum Technologies was purportedly trying to develop a petroleum desulfurization process, while Skyworks Global was purportedly trying to build gyrocopters.

According to its website, Alternative Petroleum Technologies’ products include:

  • Diesel Oil Emulsion
  • Emulsified Biodiesel
  • Fuel Oil Emulsion
  • Residual Oil Emulsion
  • Sulfex™ (“produces low sulfur content fuel products”)

According to its website, Skyworks Global’s products include three lines of gyrocopters:

  • Scouthawk
  • Heliplane
  • Hawk5

Alar told investors that commercialization of the Petroleum Company and Aircraft Company’s products was “imminent.” According to the SEC, that was a misrepresentation. In reality, the Petroleum Company “…failed to get the Federal Aviation Administration to certify its gyrocopter design and had ceased selling its home-built aircraft kits and had virtually no revenues, operations, or employees…” according to the complaint. Similarly, “…on July 13, 2017, Alar issued a quarterly update to investors stating that negotiations between the Petroleum Company and Marathon Oil Corporation (Marathon”), a nationally known petroleum and natural gas exploration and production company, were in ‘full swing.’” That was allegedly not true.

While it is easy to get excited by cutting-edge technology and the prospect of substantial investment returns, you should take care to do your due diligence when investing. Research the companies and their products in-depth, and don’t take anything at face value. If an investment opportunity sounds “too good to be true,” it probably is. As an investor, you should be your own advocate, but there may come a time when you need an advocate on your side. An experienced securities attorney may be able to help. If you have questions about your investments, call Fitapelli Kurta at (877) 238-4175 or email info@fkesq.com for your free consultation.