Class Certification Denied in $155 Million Carbon Capture Ponzi Scheme: Individualized Reliance Issues Predominate Over Common Questions
A magistrate judge recommended denying class certification for investors who purchased interests in FIC partnerships promoting carbon capture technology, finding that individualized issues would predominate over common questions despite plaintiffs' arguments regarding the Texas Securities Act. The putative class action targets advisory professionals and banks who allegedly facilitated Roy Hill and Eric Shelly's $155 million Ponzi scheme involving non-working carbon capture unit prototypes that raised funds from over 500 investors nationwide.
Background: A Carbon Capture Investment Scheme
This putative class action arises from an alleged Ponzi scheme orchestrated by Roy Hill, Eric Shelly, and their controlled entities—Clean Energy Technology Association, Inc. ("CETA") and Freedom Impact Consulting, LLC ("FIC"). Over three years, Hill and Shelly raised at least $155 million from over 500 investors nationwide by claiming CETA had developed revolutionary technology combining carbon dioxide removal and underground storage with enhanced oil and gas production through carbon capture units. The scheme collapsed when the SEC sued in May 2023, revealing that the carbon capture units did not produce business revenues and CETA sold only non-working prototypes.
FIC allegedly registered new partnerships ("FIC partnerships") around the end of each quarter, raised new funds from investors, and used the funds to pay quarterly returns to investors in earlier-created partnerships in classic Ponzi fashion. Each FIC partnership sent investors a business plan that allegedly contained untrue statements and omissions of material facts.
The Litigation Strategy
In May 2023, the United States Securities and Exchange Commission sued Hill, Shelly, and the entities they controlled in the Western District of Texas. The court enjoined those defendants (collectively, the "Receivership Defendants"), appointed a receiver, and enjoined others from asserting claims against them. As a result, the plaintiffs in this case—Alex Goldovsky, Glynn Frechette, John Krupey, and Kristin Scharf—sued FIC's lawyer, accountant, and their firms (collectively, the "Advisory Team Defendants"), in addition to two banks that allegedly provided the bank accounts and wire transfers that enabled the Ponzi scheme.
The plaintiffs allege that they each invested hundreds of thousands of dollars in the FIC partnerships and moved for class certification under Rule 23(b)(3). The motion sought to certify a class of investors who purchased CETA investment contracts or interests in FIC partnerships.
The Court's Recommendation
Magistrate Judge Derek T. Gilliland recommended denying the motion for class certification after a hearing on February 18, 2025. The Report and Recommendation, submitted to District Judge Alan D. Albright, concluded that the motion should be denied after careful consideration of the briefs, arguments, and applicable law. The court's analysis focused on whether common questions would predominate over individual issues as required under Rule 23(b)(3), a determination that requires a "rigorous analysis" under Fifth Circuit precedent.
Implications for Multi-State Investment Fraud Cases
The recommendation to deny class certification presents significant challenges for investors seeking to pursue claims collectively against professional advisors and financial institutions in complex Ponzi scheme cases. When the primary wrongdoers are placed in receivership and enjoined from litigation, victims often turn to secondary defendants such as lawyers, accountants, and banks. The denial of class certification in such cases may force individual investors to pursue separate actions or accept whatever recovery the receivership provides, potentially leaving many claims economically unviable to pursue individually.