SEC charges Humble man with misleading investors over sports marketing scheme

The SEC has charged Christopher Rabalais of Humble, TX, with misleading investors in the the unregistered offer and sale of securities.

Rabalais set up a fantasy stock market, AllSportsMarket (ASM), for sports teams. Players buy and sell ‘stock’ in teams and get paid dividends when the team wins. His stated goal was for ASM to become a regulated exchange and the platform for the offer of sports trading instruments to the investing public.



Unregistered shares

Between July 2014 and April 2019, Rabalais publicly offered and sold at least 4,800 unregistered share certificates in the holding company of ASM to investors in the US, Canada, Europe and Australia. Rabalais would send solicitation emails that described the shares as ‘gifts issued in exchange for donations of money (usually $250). In practice, the SEC alleges these transactions constituted sales of unregistered securities.

At least $1.4 million raised

Rabalais planned to register the shares with the SEC but never took any steps to do so. Between July 2014 and March 2019, PayPal accounts controlled by Rabalais received $1.3 million. He also received another $122,000 through a US bank account he controlled and $27,000 through a Google Pay account.

Rabalais told investors that their shares could not be transferred until registration with the SEC had occurred.

The SEC is seeking a permanent injunction against Rabalais against selling unregistered securities. It is also seeking disgorgement of all ill-gotten gains.

Past legal troubles

Not mentioned in the SEC complaint is that, back in 2008, Rabalais and ASM were sued by Seth Leon of California who alleged fraud, deceit and false advertising. Leon had invested $31,000 and through a series of trades, eventually accumulated $400,000 in a previous incarnation of ASM. When he attempted to withdraw his funds, he discovered that most of his money was gone.  Leon won a default judgement for $379,026 and the California court stated that ‘on its face, it seems to be a clear Ponzi scheme’.

Rabalais filed for personal bankruptcy in 2011 in Texas and attempted to discharge the default judgement. The 5th Circuit Court of Appeals held that he couldn’t because the money had been obtained by false pretenses. Rabalais tried to take the case to the Supreme Court, but they declined to hear it.

SEC complaint – Rabalais

 

CFO steps up at offshore oilfield services company

Charles Njuguna, CFO of Deep Down, has been appointed CEO, replacing co-founder Ronald Smith, who is stepping down. The press release made no mention of a replacement CFO.



Deep Down focuses on complex deepwater oil and gas production system technologies and support services. It has its head office in Crosby, TX. It trades over-the-counter and has a market capitalization of $8 million.

Deep Down is notable for two things. One, it hasn’t made an operating profit since 2007. Two, it has been run for the benefit of executive management, rather than external shareholders, though this appears to be changing.

Mr Njuguna joined Deep Down in 2012. In 2015, he was appointed Business Manager to oversee all commercial activities and was appointed CFO in 2017. No details of Mr Njuguna’s new compensation were disclosed. As CFO, he has a salary of $250,000.

Smith consulting contract

Mr Smith is resigning, effective September 1, 2019. However, he has entered a consultancy contract that will pay him $41,769.80 a month from September to December 2019. Then from January 2020 through December 2021, he will be paid $15,000 a month.

In addition to his annual salary of $494,000 Mr Smith was also paid $19,291 for vacation not taken in 2018. Deep Down is the only company I’ve seen do this (Mr Njuguna was also paid $14,423 for vacation not taken in 2018).  Mr Smith also received a cash bonus of $13,000 for time spent outside the country on a customer project.

Smith’s wife also has a consulting contract

Mr Smith’s spouse and co-founder of the company, Mary Budrunas, was part of executive management until she retired in December 2016. However she entered into a 3-year agreement that pays her $17,500 per month for up to 60 hours of consulting a month. She remained on the Board of Directors until April 2019.

Two new independent Directors, David Douglas and Neal Goldman were appointed in April 2019, replacing Ms Budrunas and another director who had been on the Board since 2013.

SEC filing – Deep Down

 

 

CFO fired and CEO suspended following accounting irregularities

SAExploration has fired CFO Brent Whiteley and suspended CEO Jeff Hastings following an investigation by the Securities and Exchange Commission (SEC) into accounting irregularities. As a result, the Board of SAE has concluded that the financial statements going back to 2015 contain errors and need be restated.



Alaskan Seismic Ventures

SAE is a seismic services company that has its head office in west Houston. The accounting issues pertain to Alaskan Seismic Ventures (‘ASV’). The Board has now decided that ASV is a variable interest entity and that the company had a controlling interest in ASV that required it to consolidate ASV into its financial statements.

There is no mention of Alaskan Seismic Ventures in the annual report for 2017 and 2018. However in the reports for 2015 and 2016, the company disclosed that ASV was a major customer.

Overdue Accounts Receivable

It appears that ASV were receiving state of Alaska exploration tax credits but was unable to pay SAE until it received reimbursement from the state. During 2016, it assigned the credits to the company so that SAE could seek to monetize the tax credits and apply cash received to the overdue accounts receivable.

Because of budget constraints in the state of Alaska, the tax credits will probably not be paid until 2021. The company still has $53 million outstanding from ASV at December 31, 2018. That’s considerably more than the net assets of $15.4 million!

New interim management team

Mr Whiteley joined SAE in March 2010 as CFO & General Counsel. Mr Hastings has been the Chairman since 2013 and CEO since 2016 and has extensive experience in Alaska.

Kevin Hubbard, a partner at Ham, Langston & Brezina (and a former partner at BDO) has been appointed interim CFO,

Michael Faust, current lead independent Director, has been appointed Chairman of the Board, following Mr Hastings’ resignation as Chairman.

SAE’s shares plunged 32% to $2.22 on the news. Its market capitalization is now $14 million.

SEC Filing – SAExploration

 

CFO out at company that went public 5 months ago

Target Hospitality has replaced its CFO, Andy Aberdale, 5 months after going public via a reverse takeover. He has been replaced by Eric Kalamaras who was the CFO at American Midstream in Houston, until it was taken private on July 23, 2019.



Target transaction

The company is based in The Woodlands and was acquired by a Platinum Eagle, a blank check company for $1.3 billion. Target provides rental modular accommodation to the US oilfields but with premium catering and other added-value services. It has 20 facilities, including 14 in the Permian Basin. It is also an approved government vendor, supplying accommodation that houses asylum-seeking families.

There were actually two businesses acquired in the deal, Target Lodging and Signor Holdings, which are being consolidated together under the Target name and management. The Target business was acquired for $820 million, Signor for $491 million.

The business currently has a market cap of $575 million and an enterprise value of $956 million.

Aberdale severance package

Mr Aberdale had been the CFO since October 2010. The press release issued by the company stated that Mr Aberdale has decided to spend more time with his family in Boston, Massachusetts.  The separation agreement doesn’t give any indication that the decision was made by Mr Aberdale.

Mr Aberdale will receive

  • Severance pay of $400,000 (1 year’s salary)
  • 2019 annual bonus ($300,000)
  • Vesting of 25% of the stock options granted on May 21, 2019 (option price is $10.83)
  • Vesting of 25% of the restricted stock units granted on May 21, 2019 (value $33,000)

It should be noted that Mr Aberdale also received an $11 million cash bonus that was paid by the seller of the Target Lodging business for his role in building up and selling the business, so he can certainly afford to spend time with the family. He also owned a 4.8% stake in Target Lodging.

Kalamaras compensation

Mr Kalamaras will receive a base salary of $415,000 and a one-time sign-on bonus of $93,187. He will also receive an equity award worth $500,000. The base salary is a big raise from what he was making at American Midstream.

SEC filing – Target Hospitality CFO

Bankrupt E&P operator hires new CFO

Halcon Resources, which last week filed for Chapter 11 bankruptcy, has hired Ragan Altizer as its new CFO. He replaces Quentin Hicks, who announced his intention to resign on July 9, just four months after being appointed to the role.



On August 9, Mr Hicks was appointed the CFO of Gulfport Energy, an onshore E&P operator with its head office in Oklahoma City. Mr Hicks replaced Keri Crowell. She left with a severance package of one year’s salary ($362,500) and a one-year consultancy contract worth $30,000 a month. Ms Crowell had been the CFO since January 2017.

Mr Altizer was previously the CFO of Ajax Resources, a private E&P operator that sold its assets to Diamondback Energy in October 2018. New Halcon CEO, Richard Little, was previously the CEO at Ajax.

Mr Altizer will receive a base salary of $350,000. He will also receive a guaranteed pro-rata bonus for 2019 of 100% of his base salary. Mr Altizer will also be eligible for equity awards in due course.

SEC filing – Halcon CFO

Onshore US production revised upwards while DUCs fall

The number of wells drilled but not completed (DUCs) fell for the fifth month running. At the end of July, the total number of DUCS was 8,108, down 100 on the revised prior month. This is according to the latest Drilling Productivity Report from the Energy Information Administration (EIA). The report covers key onshore unconventional (shale) plays.



The DUCs for previous months going back to December were revised downwards by about 30 a month.

The peak number of DUCs, which occurred in February, has been revised down by a further 27 from last month (from 8,416 originally reported to 8,313 last month to 8,286 now).

Completions rose by 19 to 1,411.

The EIA is projecting production of 8,683,000 barrels per day (bpd) for August. That’s up 63,000 on July. For September, the projection is 8,768,000.

This month, the EIA revised previously reported months upwards. March through June were adjusted by an average of 115,000 bpd. That reverses the trend of downward revisions in recent months.

https://www.eia.gov/petroleum/drilling/

Houston woman sentenced to 5 years for defrauding VA

Eudora McDaniel, 76, has been sentenced to 5 years in prison for conspiring to commit fraud against the Veterans Administration (VA). She was originally indicted in June 2018 and pleaded guilty in January 2019.



McDaniel was a former VA employee who conspired with a vendor, Divine Iron Works, to defraud the VA by submitting fake invoices for good and services that never happened. As a prosthetics representative for the VA, McDaniel had the authority to obtain prosthetic goods and services if a physician found it medically necessary. She was also authorized to pay using a government-issued VISA credit card.

Although Divine Iron Works was an authorized vendor, it was effectively defunct from January 2011 to December 2014.

McDaniel created fake purchase orders for Divine Iron Works and paid them using her government credit card. McDaniel and her co-conspirator, Angela Hunter, also of Houston, then split the payments. Hunter pleaded guilty in August 2018 and is scheduled to be sentenced on August 13, 2019.

McDaniel has also be ordered to pay $290,000 in restitution and a $100,000 fine.

https://www.justice.gov/usao-sdtx/pr/former-va-employee-sentenced-max-fake-invoice-scheme

Halcon Resources files for Chapter 11 (again)

Halcon Resources finally files for Chapter 11 (again). It’s a pre-packaged deal in which $750 million of debt will be eliminated. The debt holders will own 91% of the equity after the re-organization.



Note that in Q1, the company paid $11.3 million in severance to the former senior executives who resigned on mass.

SEC Filing – Halcon bankruptcy

CFO Quentin Hicks resigns after 4 months

 

E&P company now based in Houston after merger

Amplify Energy has completed its merger with Midstates Petroluem in an all-stock merger-of-equals.  The deal was announced back in May.

Midstates was publicly-traded and was based in Tulsa, OK. Now that the Amplify management are running the business, it has its head office in downtown Houston. The publicly-traded entity is now called Amplify Energy.



Amplify Energy is the successor reporting company of Memorial Production Partners, which was publicly-traded until entering Chapter 11 bankruptcy in January 2017. Amplify’s production assets are mainly in East Texas/North Louisiana, the Rockies and California.

Midstates also entered Chapter 11 bankruptcy in April 2016, emerging six months later. The business mainly operates in the Mississippian Lime formation in Oklahoma.

Fir Tree Capital Management, a New York investment firm is the single largest shareholder in both companies. It owns 35% of Amplify and 23% of Midstates. Two executives from Fir Tree are on both boards.

Before the deal was announced, shares were trading at $13. They are currently trading at $4.36 giving the business a market capitalization of $186 million and an enterprise value of $409 million.

The CEO of Amplify is Ken Mariani. He joined in May 2018. Prior to that he was the President at Enervest, a Houston energy investment firm. Martyn Willsher is the CFO. He was appointed to that role a year ago and was previously the Treasurer at Memorial Production Partners.

The management team of Midstates have left the company and received golden parachutes. CEO David Sambrooks received $2.9 million in cash and equity that was worth $2.4 million when the deal was announced but less than $1 million now. Chief Accounting Officer Richard McCullough received $0.7 million in cash and equity now worth $0.2 million.

The list of Houston-area companies can be found here

 

CFO reappointed as reverse takeover is completed

Stabilis Energy has completed its reverse takeover of American Electric Technologies (AETI) that was originally announced in January 2019. Andy Puhala, the CFO of Stabilis, becomes the CFO of the combined group. He was formerly the CFO of AETI between January 2013 and September 2015.



AETI, a provider of power delivery systems to the Energy sector, is based in Bellaire. It sold off its main US business in August 2018, leaving it with just an operation in Brazil and a joint venture in China. Stabilis has acquired the business for $10.2 million

Stabilis Energy is a small-scale producer and distributor of Liquefied Natural Gas (LNG). Small scale facilities typically produce 50,000 to 500,000 gallons a day. The product is usually used within 500 miles of the production facility in locations not near a natural gas pipeline. Stabilis has one facility located between San Antonio and Corpus Christi that produces 120,000 gallons a day.

The company has its head office in west Houston. For the year ended December 2018, the proforma business had revenues of $45 million.

Stabilis is owned by Casey Crenshaw, who has also been a director and shareholder of AETI since 2012. The share exchange agreement will leave the former owners of Stabilis owning 89% of the combined company. Existing AETI shareholders will own the remaining 11%.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither has a minimum of 1 million publicly-held shares nor a minimum market value of $15 million for the publicly-held shares. That’s due to Casey Crenshaw owning 88% of the combined company. The company plans a hearing with Nasdaq

The company will now be known as Stabilis Energy Inc and will trade under the ticker symbol ‘SLNG’.