Restaurant chain moves corporate office to Houston area

Muscle Maker has moved its corporate office from the Dallas-Fort Worth area to League City. The company has a market capitalization of $18 million and went public in February 2020. It was founded in New Jersey in 1995 and had its head office in the League City area until 2018.



The company owns and operates Muscle Maker Grill and Healthy Joe restaurants. Muscle Maker concentrates on fresh, made-to-order protein-based meals while Healthy Joe’s has a wider menu selection. As of 30 June, it operated 31 restaurants, located in 15 states and Kuwait. 20 of them are franchise restaurants.

Because of the pandemic, the company is moving to a delivery-only ‘ghost kitchen’  concept. The company intends to expand into non-traditional locations such as universities, military bases and office buildings.

The CEO is Mike Roper. He became the CEO in May 2018. Before that, he was the CEO of Taco Bueno, a Tex-Mex restaurant chain with its head office in the Dallas-Fort Worth area. Ferdinand Groenewald serves as the CFO. He joined the company in October 2017 and became the CFO in September 2019.

I’ve added Muscle Maker to the list of Houston Public Companies, along with Murphy Oil, an E&P company with a market cap of $1.3 billion. The company formally moved its head office from Arkansas to west Houston earlier this summer.

SEC filing – Muscle Maker

 

 

Houston software CEO charged with evading tax on $2 billion of income

Bob Brockman, 79, has been charged with tax evasion, wire fraud, money laundering and other offenses. The scheme ran for 20 years. Prosecutors say it is the largest tax fraud case against an individual in the US.



Mr Brockman has his primary residence in the Memorial Villages area of Houston. He founded Universal Computer Systems in 1970. The business supplies software to assist car dealerships in managing their inventory. In 2006, it took over a publicly-traded rival called Reynolds & Reynolds for $2.8 billion. Mr Brockman remains the CEO of the combined business, still privately-owned and based in Ohio.

Mr Brockman is a former trustee of both Rice University and Baylor College of Medicine.

Robert Smith – Co-operating with the government

At the same time that prosecutors were announcing the charges, they also issued a press release stating that Robert Smith, an Austin-based billionaire had entered into a non-prosecution agreement. Mr Smith agreed to pay $139 million in taxes and penalties . He also agreed to abandon a refund claim of $182 million that he had filed against the IRS, related to charitable contribution deductions. Most damaging, Smith agreed to co-operate with the government investigation against Brockman. The investigation of Mr Smith took four years.

Mr Smith made headlines last year when he pledged to pay off the $34 million of student loan debt for the Morehouse College graduating class.

The Scheme

Smith and Brockman met in 1997 when Mr Smith was a Goldman Sachs. At Brockman’s urging Smith founded Vista Equity Partners, a PE firm, in 2000.  Brockman invested $1 billion in the first fund. When the portfolio companies in that and subsuquent funds were later sold at a profit, Brockman used a series of offshore companies and trusts, that he secretly controlled,  to allegedly avoid paying capital gains tax.

Brockman used a proprietary, encrypted email system to communicate with the trustees and nominees that he controlled.  Each person had a codename. At one point, Brockman emailed the trustee and reminded him that

‘all copy machine/laser printer paper has encoded into it the manufacturer of that paper as well as the year and month of manufacture. For that reason I always set aside some packets of copy paper with dates on them – for potential future use.’

The trustee is also co-operating with the government.

In all, Mr Brockman faces 39 counts. If convicted, he faces a substantial prison term and restitution and criminal forfeiture.

https://www.justice.gov/opa/pr/ceo-multibillion-dollar-software-company-indicted-decades-long-tax-evasion-and-wire-fraud

Brockman indictment

Katy man pleads guilty to stealing $2 million from employer

Andy Bishop, 45, of Katy, has pleaded guilty to stealing more than $2 million from his employer, Independent Professional Management (IPM), a staffing and asset management company, based in west Houston.



The company started in 1992 and Bishop joined in 1998. According to the company’s website ‘Andy Bishop joined the team, not knowing he would eventually become the Super Star operations guru that everyone relies on to keep things running on a daily basis.’ His title was VP of Resource Management.

As stated in the criminal charges, Bishop was in charge of preparing the ‘Borrowing Base Report’ to Gulf Coast Bank. This was used to fund the operations of the company. In the example in the charge sheet, Bishop stated that IBM had $3,888,237 in accounts receivables, when in fact the company only had $2,822,065 in receivables. That allowed IPM to borrow more money than the company was truly entitled to.

According to the press release from the US Attorney’s Office, Bishop created fake vendor accounts and diverted the ‘excess’ cash to pay these vendors.  Over a span of six years, Bishop stole approximately $2.1 million. These details are not included in the criminal charges filed.

The owners of the company discovered the fraud in August 2019.

Bishop will face sentencing on Jan 5, 2021. At that time, he faces up to 20 years in federal prison and a possible $250,000 maximum fine.

Last week, in another case involving a trusted, long-standing employee, James Camp was sentenced to four years for stealing $10 million over a 19-year period from Lubrizol in Deer Park.

https://www.justice.gov/usao-sdtx/pr/ex-oil-exec-admits-stealing-more-2-million

Robert Andrew Bishop – charges

[Note that the press release issued by the US Attorney’s Office incorrectly refers to the employer as International Professional Management].

SEC charges four execs from seismic company with $100 million fraud

The Securities and Exchange Commission (SEC) has charged four former executives from SAExploration with falsely inflating revenues by $100 million and stealing millions of dollars.

SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy



The four executives charged are

  • Jeff Hastings. Chairman from 2013 to 2016. CEO from 2016 to August 2019.
  • Brent Whiteley. CFO from 2011 to August 2019.
  • Brian Beatty. Founder and CEO from 2011 to 2016. COO from 2016 to December 2019.
  • Michael Scott. VP of Operations from 2011 to September 2020.

The spouses of Hastings and Whiteley have been charged as relief defendants. In other words, they have not been charged with any wrongdoing, but the SEC will seek to recover ill-gotten gains passed to them.

Hastings lives in Anchorage, Whiteley in Houston, Beatty and Scott reside in Canada.

Last month, Hastings was arrested in Alaska and will face securities fraud charges in a federal court in New York. The other three were unnamed co-conspirators but were not charged at the time.

Company secretly controlled by the Executives

The SEC complaint goes into more detail than the complaint filed in the New York federal court. To recap, the scheme began in February 2015 when the executives discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for them was that the Board of SAEX was against the idea of the company operating its own data library.

Hastings proposed setting up a special purpose vehicle. In April 2015 he enlisted a business acquaintance to be the straw man owner of Alaskan Seismic Ventures. ASV was set up to be a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators.

However, they hid their involvement and control over ASV from the Board and investors.  Whiteley provided administrative and operational support to the owner of ASV. Hastings, Whiteley and Scott located customers to license data from ASV.

SAEX started recognizing revenue from ‘sales’ to ASV, and the sales it recognized began to far exceed the licensing sales made by ASV to E&P operators. By the end of 2015, SAEX had recognized revenue of $83 million but ASV had only made $32 million in licensing sales.

In early 2015, the executives had begun to seek bank financing for ASV. However, in June 2015, Bill Walker, the Governor of Alaska, threatened to enact a line-item veto that would significantly reduce the pool of money available to pay out Alaska Tax Credit claims. That meant that banks were less likely to lend money to ASV.

Round-tripping

According to the SEC, that’s when the executives came up with a plan to round-trip funds to ASV and back to SAEX. They created a sham company that purported to rent seismic survey equipment from SAEX. $12 million was transferred from SAEX in this way. Two more sham companies were set up, one ‘owned’ by a close friend of Hastings, the other by a neighbor of Whiteley’s. After a series of transactions funneled through these companies, $5.8 million was returned to SAEX as payment of outstanding receivables.

Of the remaining $6 million, $1.8 million was transferred to a TD Ameritrade brokerage account owned by Hastings and his wife. Whiteley transferred $2.6 million to himself. A later transaction resulted in Hastings and Whiteley getting a further $313,082 each. Beatty and Scott got $219,940 each.

CFO creates fake vendor

The SEC also alleges that CFO Whiteley misappropriated an additional $4 million between 2011 and 2019. He created fake invoices for legal and consulting services performed by fictitious entities that he created. Whiteley approved the payments of these invoices to a bank account in the name of his spouse. He also directed payments owed to legitimate vendors to himself.

The SEC is seeking civil penalties and disgorgement of allegedly ill-gotten gains. It is also seeking reimbursement of incentive-based compensation paid to the executives pursuant to section 304(a) of the Sarbanes-Oxley Act.

https://www.sec.gov/news/press-release/2020-251

Former Deer Park chemist sentenced for $10 million fraud

James Camp, 66, of New Braunfels has been sentenced to four years in prison after admitting to stealing nearly $10 million from his former employer, Lubrizol. The fraud occurred over an 19-year period.

Lubrizol was a public company until its takeover by Berkshire Hathaway in 2011 for $9 billion.



Camp began working for Lubrizol in Deer Park in 1976. Part of his job involved managing the testing of samples of the wastewater treatment unit at the facility. Camp was also responsible for managing various laboratory tests requested by Lubrizol production or waste management personnel. In addition, he was responsible for selecting the labs and approving the payments to those labs.

Beginning in April 1998, Camp set up two sham companies as vendors in the Lubrizol ERP system. He then fabricated invoices and set up the electronic payment requests, which were sent to the corporate office in Ohio.

The scheme continued until Camp retired from the company in November 2017.  In total, the company paid almost $9.3 million to the sham companies. In addition, Camp used a company credit card to make $385,000 in purchases from one of the sham companies.

Camp was arrested in September 2019 and pleaded guilty in June. His sentence will be followed by three years of supervised release. Camp was also ordered to pay restitution in the amount of $11,256,712.54.

https://www.justice.gov/usao-sdtx/pr/chemist-sent-prison-embezzling-millions

Noble Energy delisted after acquisition by Chevron

Chevron has completed its all-stock acquisition of Noble Energy, whose shares have now been delisted from the NYSE. The stock was acquired for $5 billion. Including debt, the enterprise value of the transaction was $13 billion.



Noble’s primary assets are in the Eastern Mediterranean sea (Israel and Cyprus).  These will fit well with Chevron’s assets in Egypt. Noble also has 92,000 contiguous net acres in the Permian which are next to Chevron’s acreage. Noble also has 336,000 of net acres in the DJ Basin in Colorado. This would be a new onshore basin for Chevron.

Board sought to reduce debt in 2019

The deal was first announced in July 2020. Chevron also acquired Noble’s 63% stake in publicly-traded Noble Midstream Partners.

In July 2019. the Board of Noble decided to explore a sale of its interest in Noble Midstream in order to reduce leverage and explore potential transactions to reduce the company’s concentration risk in the Eastern Mediterranean.

In the fall of 2019, the company received offers from a strategic midstream operator and a private-equity-backed entity to purchase Noble Midstream. However, both offers were not acceptable.

At an industry event in October 2019, Kevin Haggard, Noble’s Treasurer met Frank Mount, General Manager of M&A for Chevron. Mr Mount requested a meeting with Noble regarding the Mediterranean assets. Discussions moved slowly over the next few months.

Pandemic spurred sale of company

After the pandemic hit, the Noble Board hired J.P Morgan to review strategic alternatives and the discussions with Chevron morphed into an outright purchase. Noble contacted 9 other E&P operators to see if they were interested in acquiring the company. Nobody was interested in getting into a bidding war, either for strategic reasons or because of Noble’s high debt levels.

Golden Parachutes

Under the terms of the merger agreement, David Stover, the CEO of Noble is in line to receive $25.2 million in severance and vested equity. COO Brent Smolik will get $14.1 million, while CFO Ken Fisher will get $8.6 million. These payments will be triggered if their employment is terminated within two years following a change in control.

In connection with the merger, Mr Smolil has resigned as CEO of Noble Midstream, He will be replaced by COO Robin Fielder. She joined the company in January 2020, having previously worked at Anadarko.

I’ve deleted Noble Energy from the list of Houston-area public companies, but added Academy Sports + Outdoors, following its IPO launch last week. Oasis Petroleum, which filed for bankruptcy last week, is scheduled to be delisted next week. You can see the complete list here

 

SEC filing – Chevron completes Noble acquisition

Houston oilfield service company files for bankruptcy

Superior Energy Services has filed for Chapter 11 bankruptcy. It expects to convert $1.3 billion of debt into equity and may split into two companies.

Superior has its head office in downtown Houston. It was recently delisted from the NYSE because its market capitalization was below $15 million. The company has two main businesses:

  • Remainco : An international business involved in drill pipe rentals, bottom hole assemblies, completion tools and well control services. The business has projected revenues of $550 million.
  • NAM : An onshore US business involved in service rigs coiled tubing, wireless, pressure control and fluid management. This business has projected revenues of $260 million in 2021.



Prepackaged bankruptcy agreement

The company has the support of 69% of the company’s senior unsecured noteholders. The noteholders have the right to decide whether or not to split the company into two. If they do, they would get 98.5% of the equity of Remainco and 95% of the equity of NAM. Existing shareholders will get the rest, though a management incentive plan will be put in place. This will dilute the percentages a little bit.

Back in December 2019, Superior announced the merger of its US completions business with Forbes Energy Services, with the combined entity to be spun off. The deal was called off in May due to deteriorating market conditions.

As part of the bankruptcy proceedings, the Board of Directors has agreed pay $7.3 million in retention bonuses to the six executive officers of the company. CEO David Dunlap gets $3.2 million, while CFO Westy Ballard gets $1.1 million.

Retention Plan

In March, Mr Dunlap got an annual cash bonus of $0.9 million. He also got an additional payout of $1.275 million, in cash, for performance stock units (PSU) for the period 2017-2019. This payout was primarily due to Superior being in the top 17% of total stockholder returns of its peer group, over that three year period.  Mr Ballard got a $346,000 annual bonus and $300,000 for the PSUs.

Complete Production Services

The company’s debt problem stems all the way back to October 2011 when it agreed to buy Complete Production Services for $2.9 billion. It paid $553 million in cash and issued stock for the rest. As part of the deal financing, in December 2011, it issued $800 million of unsecured senior notes, due 2021, to repay $650 million of debt that Complete owed. The other $500 million of notes were also, effectively, issued in 2011, though they were refinanced in 2017.

The $2.9 billion price for Complete Production Services included $2.3 billion in goodwill and intangibles. In 2015, the company wrote goodwill down by $1.3 billion. By 2018, all the goodwill had been written off.

Mr Dunlap became CEO of Superior 18 months before the deal with Complete Production Services.

SEC filing – Superior bankruptcy

 

Three Houston blank check companies file to go public

Three Houston-area blank check companies have filed to go public in the last few days. This is part of a record year for such companies. According to the Wall Street Journal, blank check companies have raised $41 billion so far this year, compared to $14 billion last year.



Landcadia Holdings III

Landcadia Holdings III filed to go public. This is the third blank check company launched by Tilman Fertitta, CEO of Landry’s and Richard Handler, the CEO of Jefferies. They plan to raise $500 million. As before, the company plans to acquire a business in the consumer, dining, hospitality or entertainment sectors.

Landcadia Holdings went public in 2016 and acquired Waitr Holdings, an online food ordering and delivery service, in 2018 for $308 million. The business has had a rough ride since (3 CEO’s and 3 CFO’s), though the pandemic has been good for the business.

Landcadia Holdings II went public in May 2019. It is in the process of buying the Golden Nugget Online Gaming business from Landry’s.

Genesis Park Acquisition

Genesis Park Acquisition Corp has filed for a $200 million IPO. The company is led by chairman David Siegel, who is also Executive Chairman of an ultra-low-cost airline carrier, Sun Country Airlines. Together with CEO Paul Hobby (the Founding Partner of PE firm Genesis Park LP), they are seeking a business in the aviation sector with an enterprise value of between $500 million and $1 billion.  The CFO is Jonathan Baliff, former CFO and CEO at Bristow.

Delwinds Insurance

Delwinds Insurance Acquisition has also filed for a $200 million IPO. It is a blank check company formed by The Gray Insurance Company. CEO Andrew Poole is an investment consultant at Gray while CFO Bryce Quin, is a process improvement specialist at Gray. They previously led a blank check company called Tiberius that went public in 2018. It subsequently acquired International General Insurance earlier this year.

Delwinds plans to target businesses in the insurance technology sector or brokers or carriers that use insurance technology (i.e using data analytics or artificial intelligence to better price risk or automate back offices procedures).

Recently gone public

Peridot Acquisition Corp became the latest Houston-area blank check company to go public when it raised $300 million, effective September 23, 2020. The business was formed by Carnelian Energy Capital and is seeking a business with a positive environmental impact.

Industrial Tech Acquisitions raised $75 million in early September. It is searching for industrial and energy technology businesses with an enterprise value of between $250 million and $500 million.

Graf Industrial, which went public in October 2018, is in the process of acquiring Velodyne Lidar, based in San Jose.

 

 

US Physical Therapy hires new CFO

US Physical Therapy has appointed Carey Hendrickson as its new CFO. He replaces Larry McAfee, who is retiring.

The company operates 551 outpatient physical therapy clinics in 39 states as well as managing 32 physical therapy facilities for third parties. It also has a industrial injury prevention division. The company has its head office in west Houston and has a market capitalization of $1 billion.



In March and April, many of its clinics were closed. At the lowest point in mid-April, visits were about 45% of pre-pandemic levels. By August, they were at 85%, The company cut costs aggressively through salary reductions, furloughs and rent deferrals. It increased its EBITDA in Q2 over Q1, despite revenues being down nearly 30%.

Mr Hendrickson joins from Capital Senior Living Corporation, a publicly-traded company based in Dallas (market cap $20 million), where he was CFO. Prior to joining them in 2014, he was the CFO at Belo Corp, the operator of television stations. Mr Hendrickson will receive a base salary of $450,000. He also received a grant of stock worth $400,000 that will vest over four years.

Mr McAfee has been CFO since joining the company in 2003. He originally announced his intention to retire back in January 2020 but later deferred the intended retirement date because of the pandemic. He will stay on until the Annual Meeting in December, at which point he will resign from the Board. Mr McAfee will then enter into a six month consulting agreement where he will be paid an hourly rate, on an as-needed basis.

SEC filing – US Physical Therapy new CFO

Houston oil trader indicted over Ecuador bribery scheme

Javier Aguilar, a Mexican citizen living in Houston, has been indicted on charges of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit money laundering. He faces charges in the Eastern District of New York.

Mr Aguilar was an Oil Trader for Vitol, which has its head office in Geneva. According to the press release released by the Justice Dept, between mid-2015 and 2020, Aguilar paid two intermediaries $1.4 million for their efforts to bribe government officials in Ecuador. In turn, the intermediaries paid out $870,000 to the officials.



In exchange for bribes, Vitol secured contracts to purchase approximately $300 million in fuel oil.

Press Release and Indictment details don’t match

What’s interesting is that the details quoted in the press release don’t match the details in the indictment.  The indictment has two counts. Count One is the conspiracy to violate the FCPA. This count has all the detail. Count Two is the conspiracy to commit money laundering and the indictment has no specific details on this.

The Scheme

Regarding count One, the indictment states that Aguilar sent an email in September 2016 to one of the intermediaries directing that individual to send a letter from a state-owned entity in Oman to Ecuadorian official #1.

One of the intermediaries created 39 sham invoices and sent them to a shell company in Curaçao. Vitol wired approximately $750,000 from a UK bank account to the shell company. It’s not clear in the indictment which invoices this payment covered. However, as payment for 13 of the 39 invoices, the shell company wired approximately $250,000. The money was sent to bank accounts in the Cayman Islands and Curaçao controlled by the intermediaries. In turn, they sent $225,000 (via a correspondence bank in New York) to an account in Portugal controlled by the Ecuadorian official.

The press release refers to Ecuadorian officials, however, the indictment only refers to one in count One.

If convicted, Aguilar faces a maximum sentence of 20 years in prison

https://www.justice.gov/opa/pr/oil-trader-indicted-international-bribery-and-money-laundering-conspiracy-involving-corrupt