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Two plead guilty to federal fraud

Thursday, July 17, 2008 10:42 PM CDT

The Southern

Two Southern Illinoisans peddling a "very low-risk" oil deal featuring new technology were really running an old-school scam, federal prosecutors said Thursday.

Carl E. Royse of Fairfield and his daughter, Jeanette Riley of Olney, pleaded guilty in U.S. District Court in Benton to charges they conspired to engage in interstate fraud and sell unregistered securities.

Each faces up to five years' imprisonment, a fine of up to $8 million, mandatory restitution of $4 million and supervised release of up to three years, U.S. Attorney Courtney Cox said in a news release.

Their company, Hughes Energy Inc., also pleaded guilty. It faces a fine of up to $8 million, mandatory restitution and five years probation.

Sentencing is set for Oct. 20.

The two admitted running a "Ponzi scheme," or using income from new investors to pay off those who had bought in early, prosecutors said.

From July 2003 to June of 2007, the two sold interests in well projects to people from throughout the country. They falsely claimed to have new methods of secondary recovery that would produce oil and gas from proven properties, prosecutors said.

They also misrepresented Royse's background, did not they disclose they had been the subjects of past Securities Exchange Commission actions, nor mention they had been forbidden by a federal court from engaging in such sales.

The case stems from a joint state and federal investigation.

Anyone who believes he or she might be the victim of securities fraud may call the Illinois Securities Department at (800) 628-7937.