Former Wells Fargo employee admits $63k embezzlement

Natasha Hudgeons, a 33-year old Brenham resident and a former Wells Fargo employee has pleaded guilty to a $63k embezzlement.

From December 2014 through March 2019, she embezzled $63,500 while employed as a teller. She took the money in $500 to $1,000 increments. She concealed the theft by putting falsified entries into the bank’s books and records and “selling” back and forth between the cashbox and coin machine cash lines. Both were considered “single control” cash lines, meaning tellers could conduct transactions on that account line without a second person.

She was arrested in September and waived her right to be indicted. She will be sentenced on January 9, 2020. Ms Hudgeons faces up to 30 years in federal prison and a possible $1 million maximum fine.

https://www.justice.gov/usao-sdtx/pr/former-employee-admits-guilt-63k-bank-embezzlement-scheme

Two nurses charged in $2.1 million medicare fraud

Another week, another Medicare fraud indictment in Houston. Joseph Nwankwo of Houston and Stacey Ajaja of Richmond have been arrested. They appeared in court in the Southern District of Texas last Friday.



According to the indictment, Mr Nwankwo and Ms Ajaja owned Hefty Healthcare Services from 2009 through 2017. The company was based off the Westpark Tollway in Mission Bend. From July 2013 through November 2016, the company billed Medicare $1.6 million for home health services that were never provided and not medically necessary. The pair obtained patient referrals by paying marketers and patients. They bribed physicians to authorize medically unnecessary home health services. Medicare paid out $2.1 million on these claims.

Nwankwo and Ajaja are both charged with one count of conspiracy to commit health care fraud, five counts of health care fraud and one count of conspiracy to pay and receive health care kickbacks.

If convicted, they face up to 10 years in prison for the fraud charge and up to 5 years for the kickback charge. They also face fines of $250,000 and $25,000 for the charges.

Earlier this month, a Houston doctor was convicted in a $16 million fraud scheme.

https://www.justice.gov/usao-sdtx/pr/two-nurses-charged-health-care-fraud-and-illegal-kickback-scheme

 

Petrochemical giant hires new CFO

LyondellBasell (market cap $29 billion) has hired Michael McMurray as its new CFO. He replaces Thomas Aebischer, who announced in May 2019 that he planned to retire at the end of the year.

Mr McMurray joins from Owens Corning (market cap $7 billion) where he had worked for the last eleven years, the past seven of which have been as CFO.



Owens Corning is based in Toledo, Ohio. However Mr McMurray is no stranger to Houston or petrochemicals. Prior to joining Owens Corning, he spent 21 years at Shell, holding such roles as VP of Shell Capital, global treasurer for Shell Chemicals and Americas Finance Manager for the Lubricants business. Mr McMurray is also a non-executive director of Flowserve, a Dallas-based pumps and valve manufacturer.

Mr McMurray will receive a base salary of $800,000 and a sign-on bonus of $750,000, payable on January 1, 2020. He also received an equity grant of $3.75 million that will vest over three years.

The base salary for Mr Murray will be the fourth highest among Houston-area public company CFOs. You can see the complete list here. Check out who is also fourth highest, the answer will surprise you.

Mr McMurray had a base salary of $645,000 at Owens Corning.

https://www.prnewswire.com/news-releases/lyondellbasell-names-michael-mcmurray-executive-vice-president-and-chief-financial-officer-300937556.html

 

Houston publicly-traded shell company makes large acquisition

Synthesis Energy Systems, essentially a publicly-traded shell company based in the Galleria area, has agreed to buy Australian Future Energy. The acquisition is an all-stock stock deal that values AFE at $36 million. SES currently owns 36% of AFE.



SES owns proprietary technology that produces synthesis gas from the burning of low-grade coal and using that gas as an input in the production of chemicals such as methanol or ammonia. In the current environment of relatively low oil prices and abundant natural gas, the technology is not able to compete economically.  In its last published quarterly results, the company had zero revenue and shareholders’ equity of $1.3 million.

AFE plans to acquire Australian energy resources such as coal and biomass so that it can produce synthesis gas.

To pay for the acquisition, the company is issuing 3.875 million shares at $6 each. It’s not clear how SES values AFE at $36 million. In its last quarterly results for the three months ending March 31, 2019, SES carried its 36% investment at zero. It also stated that AFE had a net loss of $245,000 for the nine months ending March 31, 2019 and that AFE had total equity of $542,000.

Prior to the announcement of the deal, the share of SES were trading at $1.80. Post market-close on Friday they were trading at $7.50. That would give the company a market capitalization of $10 million.

Earlier this year, SES had agreed to sell its gasification technology to AFE for $5.8 million in cash and 1 million shares in AFE. SES would have kept ownership rights for the technology in China. However the deal collapsed in September.

After the deal closes in 2020, Mr Kerry Packer, current CEO of AFE, will become CEO of SES, and Ron Higson, current COO of AFE, will become COO of SES. David Hiscocks, the Corporate Controller, will stay on but a new CFO will be appointed.

SEC filing – Synthesis Energy Systems

Houston skincare company sells for $845 million

Drunk Elephant has been bought by Shiseido, a Japanese beauty products company, for $845 million.

Tiffany Masterson, a mother of four who lives in the West University area of Houston, founded the company in 2012. She wanted to develop a line of non-toxic skincare products. In her first year of operation, her brother-in-law invested $300,000. The following year, her brother also invested and became President of the company.



Most of the company’s employees and back office functions are based in Newport Beach, California

The brand is now one of the top selling at retailer Sephora. San Francisco PE firm VMG Partners then invested in the business in 2017 and helped grow the brand internationally.

The company has projected revenues of $125 million for 2019. Forbes estimates that Ms Masterson will make $120 million when the deal closes at the end of the year.  She will stay on after the close as the Chief Creative Officer.

https://www.forbes.com/sites/chloesorvino/2019/10/08/hot-skincare-brand-drunk-elephant-sells-for-845-million-minting-founder-a-fortune/#29f315105140

 

 

 

 

Houston doctor convicted in $16 million medicare fraud scheme

Yolanda Hamilton, M.D., has been found guilty of participating in a $16 million Medicare fraud scheme. After a six-day trial, she was convicted of

  • one count of conspiracy to commit health care fraud,
  • one count of conspiracy to solicit and receive health care kickbacks and,
  • two counts of false statements relating to health care matters.



Dr Hamilton was the owner and operator of HMS Health and Wellness Center, based in SW Houston. Between January 2012 and August 2016, Hamilton signed false and fraudulent plans of care and other medical documents to make it appear that patients of Hamilton and her co-conspirators qualified and received home-health services under Medicare. In fact, Hamilton paid patients to sign up and charged home-health agencies an illegal kickback in the form of a $60 patient ‘fee’ for certifying patients for home-health services.

The scheme resulted in approximately $16 million in false and fraudulent claims.

Hamilton will be sentenced at a later date.

This is not the first time Dr Hamilton has been in trouble. Back in August 2013, the Texas Medical Board and Hamilton entered into an Agreed Order requiring Dr Hamilton to refrain from treating chronic pain patients. Another physician was also required to monitor her practice. The Board found that Dr Hamilton failed to maintain adequate medical records. In addition, in some instances, she lacked full justification for the continued prescriptions of opiates and muscle relaxers.

https://www.justice.gov/opa/pr/texas-physician-convicted-16-million-medicare-fraud-scheme

Husband and wife charged with $3.5 million tax evasion

Asim Lodhi and wife Naila Lodhi have been charged with tax evasion of $3.5 million of diverted corporate income.

The Lodhis owned and operated US Loss Prevention Inc and Vanguard Detective & Security Agency. The companies provided contract security services for commercial clients in the Houston and Dallas/Fort Worth metropolitan areas. The principal office was in SW Houston.



The indictment alleges that, between 2008 and 2011, the couple diverted and cashed approximately $3.5 million in customer checks through two checking cashing services. One was located in a Chevron gas station in Spring, the other was in a Valero gas station in Cypress!

However, the couple only deposited $2 million into the company bank accounts during that time. Furthermore the couple told an unnamed Cypress CPA who prepared the books and tax returns that the deposits were for non-taxable shareholder loans rather than taxable sales.

When the couple found out that they were under IRS investigation, they hired another CPA firm to prepare amended tax returns that showed the $2 million as taxable sales. These amended returns were presented to the IRS in July 2013. They didn’t disclose the missing $1.5 million.

The couple have been charged with seven counts of tax evasion. If convicted, Asim and Naila Lodhi face a maximum of five years in federal prison on each count. They also face a possible $250,000 maximum fine.

https://www.justice.gov/usao-sdtx/pr/husband-and-wife-charged-tax-evasion

Lodhi indictment

 

Houston company delisted after reverse takeover snafu

Stabilis Energy has been delisted by Nasdaq as the company didn’t meet the initial listing requirements after its reverse takeover of American Electric Technologies Inc (AETI).

The deal was originally announced in January 2019 and completed in July. AETI, based in Bellaire, was a provider of power systems to the Energy sector but had sold off its main businesses. It just had a business in Brazil and a China JV left. Stabilis, based in the Westchase area of Houston, is a small-scale producer and distributor of Liquefied Natural Gas.

Stabilis is owned by Casey Crenshaw, who had also been a director and shareholder of AETI since 2012. The shareholders of Stabilis ended up owning 90% of the combined company.

Immediately after the transaction was completed, the company received a delisting notice from Nasdaq because it neither had 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 Crenshaw owning 77% of the combined company.

On September 10, the company filed a prospectus to sell 2.8 million shares for $17.1 million. Shareholders, other than Crenshaw, are selling. Once completed, this would make Stabilis compliant. Unfortunately, after a hearing, Nasdaq has now determined the company is not currently in compliance and has delisted the shares.

It’s not clear whether or how the delisting will impact the proposed sale of the shares.

The company believes it already meets the listing requirements on other exchanges and plans to regain a listing as soon as this month.

In August the company appointed Andy Puhala as CFO of the combined group. He had been the CFO of Stabilis since November 2018. Ironically he was also the CFO of AETI between January 2013 and September 2015.

SEC filing – Stabilis delisting

Houston energy broker to pay $1.5 million penalty

Matt Webb, the owner of Classic Energy LLC, has agreed to pay a $1.5 million penalty following the settlement of charges brought by the US Commodity Futures Trading Commission (CFTC).  The company is based near downtown Houston and is a broker of trades in energy futures.



According to the order, on 63 occasions between April 2014 and September 2015, Webb misused material, nonpublic block trade order information provided to him by Classic’s customers. Instead of using this information to facilitate trades with other market participants, as customers expected, Webb took the other side of these block trades in his proprietary trading account.

According to the order, Webb further deceived Classic’s customers by creating the false impression that he was acting only as a broker, not as a trading counter-party. Webb charged brokerage commissions. Through this scheme, Webb realized profits over of $400,000.

The order also finds multiple failures of supervision and record keeping.

Penalties

Webb agreed to settle without admitting or denying any of the findings or conclusions of the order. In addition to the $1.5 million penalty, he agreed to pay disgorgement of $413,065. Mr Webb is also banned from trading until January 3, 2022.

Earlier settlement with ICE

Mr Webb executed most of those trades on an electronic trading operated by Ice Futures US (‘ICE’) which is part of a public company that is itself regulated by CFTC. Back in December 2016, Mr Webb settled with ICE over allegations that he entered into 52 fictitious transactions. (I think the 52 is a subset of the 63 trades cited by the CFTC). He agreed to pay disgorgement of $303,627 and a penalty of $503,627. In addition the company agreed to pay a fine of $250,000. An employee of Classic Energy also agreed to pay a fine of $100,000 for entering some fictitious transactions.

The CFTC stated that the $413,065 disgorgement would be reduced by whatever Webb had paid ICE in relation to the $303,627 from the December 2016 settlement.

Settlement with NFA

Mr Webb has also had issues with National Futures Association. In December 2016 he settled with the NFA over inadequate record keeping and misreporting the time of trades ($250,000 penalty). In June 2019 he settled charges of inadequate record keeping ($200,000 penalty).

Commodity Futures Trading Commission – press release

 

Mineral and royalty interests company files for IPO

Fortis Minerals LLC, based in downtown Houston, has filed for an Initial Public Offering (IPO). Although the filing with the SEC states the company plans to raise $100 million, that is likely a placeholder. Renaissance Capital estimates the company could raise $400 million.

Fortis plans to list on the NYSE under the symbol NRI.



The company owns oil and natural gas mineral and royalty interests in the Permian Basin and the Stack play located within the Anadarko Basin of Oklahoma. The company was formed in 2016 with the backing of PE firm, Encap Investments.

For the 12 months ending 30 June 2019, the company had revenues of $138 million and adjusted EBITDA of $113.8 million.

Acquisition Joint Venture

The company also has formed an acquisition Joint Venture with Encap that could cause some conflicts of interests. Encap will own 100% of the capital interests in the JV while Fortis will own a carried interest, entitling the company to a percentage of distributions by the JV.

The JV will only consider acquisition opportunities brought to it by the company. Fortis states that the JV will only buy properties that represent attractive long-term value  but which would not be expected to increase cash flows in the short term following acquisition. However, Fortis may acquire these properties at a later date.  Encap will control the board of the JV.

The company states that they and the JV may jointly pursue an acquisition where the company would predominantly acquire interests in properties expected to be developed in the short term and the JV would predominantly acquire interests in acreage anticipated to be developed on a longer time horizon.

Management team

The CEO of the company is Christopher Transier. He was formerly the CFO of Escondido Resources. The CFO is Brad Wright. He was previously the Managing Director – M&A and Strategic Planning at Plains All American Pipeline.  With the exception of Scott Dole, Chief Accounting Officer, who is 62 years old, the rest of the management team are 36 years old or younger.

Just because the company has filed its registration statement, there is no guarantee that it will complete its IPO. If it does, I will add it to the list of Houston-area public companies. You can find that list here.

SEC filing – Fortis S-1