Deception and losses – rather than oil and gas profits – flowed to investors through an alleged scheme created by a Woodland Hills resident and brought to light last month through a Securities and Exchange Commission investigation. The commission announced Aug. 27 that it had charged Harrison Schumacher; his wife, Tara; and a former business partner with fraud. Harrison Schumacher was also charged with violating federal law by selling securities as an unregistered broker. The fraud scheme, as alleged in a civil complaint the commission filed in federal court in Los Angeles, was a fairly simple operation going back at least to 2010. Starting in the 1990s, Schumacher and his partner, Paul Mysyk of Chardon, Ohio, formed several limited liability oil and gas companies, including Quaneco, Quantum Energy and Quaneco Energy Holdings. Through five unregistered securities offerings, some of those companies solicited money from investors with the promise to drill for oil. Then Schumacher and Mysyk moved investor money among the companies for personal gain – for example, to cover Schumacher’s $1,135 monthly payments on a Porsche. In one instance, 65 percent of investor money went to management fees rather than the 30 percent the investors were told, according to the complaint. In 2010, Quantum paid Schumacher nearly $316,000, more than twice the amount reported to investors. The companies also allegedly violated federal security laws by telling investors that Quaneco would operate oil and gas wells itself when it really hired contractors to do the work. Quaneco created phony bills and charged Quantum four times what it paid the contractors, keeping the difference. Schumacher, Quantum and Quaneco co-mingled investor money, although they told investors the money would be kept separate, and loaned money between each other. Lastly, Schumacher gave investors a falsified report of potential profits from wells in Colorado that Quantum said it was exploring, according to the complaint. As a result, investors in the five penny stock programs that the commission investigated lost either all or 99 percent of their money, according to the compliant. While some wells were drilled, no oil or gas ever was produced. The federal agency alleges that Schumacher, his companies and, to an extent, Mysyk, defrauded 300-plus investors from across the country out of $12.3 million. The court, for now, has barred Schumacher and the companies from divesting any assets. Schumacher, who is representing himself according to the commission, did not return calls for comment. “Schumacher claimed he used investment funds to finance oil and gas projects when he was really using the funds to finance his own lavish lifestyle,” said Gerald Hodgkins, associate director of enforcement for the commission. “Schumacher and Quaneco’s promises of oil and gas explorations were built on a web of lies, and the commission’s emergency action reflects that we will act swiftly to protect investors and hold accountable individuals who line their pockets at the expense of investors.” Mysyk was part of three of the investment programs, according to the complaint, but the commission settled with him separately and he is helping the investigation. Because Mysyk sold his ownership in the companies to Schumacher in 2012, most of the fraud money went to Schumacher’s salary and his expenses. The commission is seeking to bar Schumacher permanently from selling penny stock securities and wants the court to require the parties to pay investors back for their losses with interest and penalties.
