Trial begins in alleged $33 million Kentucky oil and gas drilling scam

jhewlett@herald-leader.comApril 20, 2011 

Three people alleged to have been involved in an oil and gas well drilling scam in which about 500 investors lost more than $33 million went on trial in federal court in Lexington on Tuesday.

Bryan S. Coffman and his wife, Megan Coffman, of Lexington, and Gary Milby of Campbellsville face numerous charges, including mail fraud, wire fraud and money laundering. They, along with Vadim "Victor" Tsatskin of Canada, were indicted in December 2009 on 30 criminal counts pertaining to the alleged scheme.

There's not enough oil in Kentucky to make whole the investors who poured their money into the fraudulent drilling programs with which the defendants were affiliated, Assistant U.S. Attorney Kenneth Taylor told jurors in his opening argument in the case. The promised gushers and thousands of dollars in returns on their money each month didn't materialize, he said. All together, the investors had less than $1 million of their money returned to them, he said.

The defendants used their money for things such as cars, jewelry, yachts, lavish birthday parties and retirement accounts, Taylor said.

"It's really not hard to grasp the concept of what went on here," Taylor said.

Investors were lied to about what it cost to drill and the amount of oil to be produced; how their money would be used; the track records of the companies involved; and legal problems, including sanctions Milby faced in several states, according to Taylor.

Milby, a man who made himself out to be a Texas oil baron, used self-deprecation and feigned humility to win over prospective clients. He dropped names of fake investors, and he would show potential investors around in a helicopter he bought with other investors' money, Taylor said.

Bryan Coffman, a lawyer, crossed the line between being a mere lawyer and being a cohort and co-conspirator, Taylor said. Coffman oversaw the drafting of documents he knew to be false and lied to clients and federal investigators, Taylor said.

The drilling that went on in Adair and Green counties resulted mainly in dry holes, wells that produced less than five barrels a day or big wells that didn't produce as long as promised, he said.

The trial involves two companies, one called Mid-America Energy Inc.; the other, Global Energy Group. The companies operated between 2004 and 2009.

Coffman was the money man in the scheme, handling investors' money through Lexington's Central Bank & Trust Co. Milby was a salesman and trainer of salespeople. Tsatskin, who entered the picture later, was the brains, according to Taylor.

Eventually, Coffman and Tsatskin kicked Milby out of the illicit venture, according to Taylor.

The Securities and Exchange Commission shut down Mid-America in 2008.

After authorities began investigating Global that year, Megan Coffman suddenly took all of the money out of Central Bank and placed it with Wachovia in Charleston, S.C., Taylor said. Global, which investors had been told was operated from the Bahamas, was moved from Lexington to Charleston, he said.

Defense attorney Steve Romines, who represents Bryan Coffman, said that the government has ignored or misrepresented multiple things in the case.

His client, he said, had no criminal record before he was indicted and has done nothing wrong.

He said Bryan Coffman was a lawyer, not an owner, for Mid-America. He did not work in the oil fields, and he didn't write checks to Mid-America investors, Romines said. Tsatskin set up Global Energy Group in the Bahamas, and Coffman had nothing to do with it, he said.

Romines said Coffman has been living a nightmare since 2008, when authorities investigating Global raided his law office.

Romines said many people who invest in oil and gas programs know the risks and invest for income-tax purposes. Ninety percent of losses on oil and gas investments are tax deductible, he said. Investors told Milby they either wanted a gusher or a dry hole that could be deducted, Romines said. Every single investor took that deduction, he said.

Attorneys for the other defendants in the case are slated to give their oral arguments Wednesday morning.

The status of Tsatskin and the charges against him were unclear on Tuesday.

Reach Jennifer Hewlett at (859) 231-3308 or 1-800-950-6397, Ext. 3308.

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