Two Houston men charged with $317 million mask fraud

Two Houston men have been charged with trying to fraudulently sell 50 million masks for $317 million to a foreign government. Paschal Eleanya, 46 and Arael Doolittle, 55 are now in custody.

Last month, in a separate case, Doolittle was charged with defrauding investors out of $1.2 million by pretending to have deals with Chevron.

Pascal Eleanya is a supply chain and operations executive who has worked for DuPont, Baker Hughes and Huntsman Corporation.

Both are charged for their role in a scheme to sell 50 million 3M model 1860 N95 respirator masks they did not actually possess to a foreign government. They negotiated a sales price of $317 million. This was five times the public list price that 3M had set.

Based on their representations, the foreign government allegedly wired the funds to complete the purchase. However, authorities disrupted the transaction before it could be completed.

If convicted, both Doolittle and Eleanya face up to five years in prison for conspiracy and up to 20 years in prison for each of the two counts of wire fraud. Each of these charges also carry a possible $250,000 maximum fine.

The Secret Service conducted the investigation.

https://www.justice.gov/usao-sdtx/pr/two-houston-men-charged-attempting-fraudulently-sell-50-million-masks

 

Six Houston-area men charged in $16 million PPP loan fraud

Six Houston-area men have been charged with fraudulently obtaining more than $16 million in Paycheck Protection Program (PPP) Loans. A seventh individual from Illinois was also charged.

The indictment alleges that the defendants filed at least 80 fraudulent PPP applications, seeking nearly $30 million in PPP loan funds. Ultimately about $16 million was funded.



Amir Aqeel, 52 was the ringleader. He would create the loan applications for shelf or inactive companies, working with the other defendants who owned many of them. Other companies were owned by unnamed and not charged individuals.  For some of the loans, Aqeel would keep 33%, with the business owner getting the rest.

Unlike other PPP fraudsters, the defendants went further by writing purported paychecks to fake employees. Many of these were the defendants or their relatives. Aqeel’s 86-year-old mother (not charged) received checks from at least six different companies that received fraudulent PPP loans.

Over 1,100 fake paychecks, totaling over $3 million, were cashed at Almeda Discount Store in SE Houston, owned by one of the defendants.

With some of the proceeds, it is alleged that Aqeel bought a 2013 Lamborghini Gallardo Spyder and a 6,000 sq ft, $1 million house in Champion Forest.

https://www.justice.gov/opa/pr/seven-charged-connection-covid-relief-fraud-scheme-involving-more-80-fraudulent-loan

Food distributor appoints new CFO

Sysco Corporation has appointed Aaron Alt as its new CFO. He replaces Joel Grade, who moves to Executive Vice President, Business Development.

Sysco, which has its head office in west Houston, has sales of $52 billion and 57,000 employees. Its market capitalization is $38 billion.



Mr Alt joins from Sally Beauty Holdings in Dallas, where he had been CFO since October 2018. Prior to that he spent six years in various roles at Target and eight years at Sara Lee Corporation. Mr Alt will receive a base salary of $775,000 and a one time cash sign-on bonus of $365,000.

Mr Grade, who joined the company in 1996 and had been the CFO for five years, will continue to receive a base salary of $690,000 in his new role. The BD role will be primarily focused on mergers and acquisitions.

Sysco has been making a number of changes since former CEO, Thomas Bené was jettisoned after two years in the role, in January 2020, with a $6 million cash severance. At the time, the Board, which includes activist investor Nelson Peltz, announced that the company needed to ‘accelerate performance, fully capitalize on scale advantages and drive meaningful operating improvements’.

  • New CEO Kevin Hourican joined from CVS Health. He got over $16 million in cash and equity awards to compensate for forfeited equity from CVS.
  • Last month, the company announced that Michael Foster, the Chief Information and Technology Officer, who only joined the company in December 2019, will leave at the end of the year. He will get a $1.3 million severance (2x base salary).
  • At the same time, Judy Sansone joined from CVS Health as Chief Commercial Officer.
  • Tim Ørting joined in September as President of the International Operations.
  • Marie Robinson joined in March 2020 as Chief Supply Chain Officer.

Understandably, top line sales have dropped dramatically due to the pandemic. In the April-June quarter, sales dropped 42%. In the most recent quarter it was a 23% decline.

SEC filing – Sysco CFO

Energy CEO rehired after 5-year SEC ban

Houston American Energy has rehired John Terwilliger as its new CEO. In April 2015, Mr Terwilliger was banned from serving as an officer or director of a public company for five years as part of a settlement with the Securities and Exchange Commission (SEC).



Houston American has a market capitalization of $10 million. It has working interests in four wells in Texas and Louisiana as well as some undeveloped acreage in Columbia. It went public in 2006. Mr Terwilliger is the largest single shareholder, owning 13.6% of the common stock

In August 2014, the SEC announced charges against the company and Mr Terwilliger. The charges alleged that, back in 2009, Mr Terwilliger claimed that a concession in Columbia was worth more than $100 per share. The SEC alleged that the valuation was wildly inflated and not based on any technical evaluation. During this time, the stock price rose from $4 to $20 and the company raised $13 million in a stock offering. The operator eventually drilled three dry wells and the concession produced no oil.

Shortly before a trial was due to start in January 2015, the parties settled. Without admitting or denying liability, the company paid a penalty of $400,000 and Mr Terwilliger agreed to resign as CEO and pay a penalty of $150,000.

Mr Terwilliger founded Houston American in 2001. At the time, he was also the founder and CEO of Moose Oil and Gas. Moose entered Chapter 7 bankruptcy in 2002. The bankruptcy trustee later alleged that Mr Terwilliger diverted funds from Moose to pay for the start-up legal and professional fees of Houston American. This case was also settled without admitting or denying liability.

 

SEC filing – Terwilliger CEO

Houston company removes interim tag off CFO

Houston Wire and Cable has removed the interim tag off Eric Davis. He had been interim CFO since June when Chris Micklas left to join a start-up company.



Houston Wire is a distributor of electrical and mechanical wire and cable with revenues of $340 million. Approximately a third of its revenues come from the energy sector. It has a market capitalization of $46 million. The company has its head office near the 610/I-10 interchange on the east side.

Mr Davis joined the company in 1993 and initially spent 14 years as the Controller of the company. Prior to being appointed CFO, he was the President of the Heavy Lift division.

He will receive a base salary of $265,000.

You can see the complete list of Houston public companies and their CFO’s on my blog here

 

Houston Wire and Cable – Davis appointment

New CFO at Houston E&P company

Ryan Stash has been appointed the new CFO at Evolution Petroleum. He replaces David Joe who has been at the company since 2005 and has been CFO since January 2016.



Evolution is an small E&P company with its head office in west Houston. It has an interest in the Delhi field in Northeast Louisiana, and an interest in the Hamilton Dome field in Wyoming. The company has a market capitalization of $72 million. It has no debt and $20 million of cash on hand.

Mr Stash joins from Harvest Oil & Gas where he had been CFO since October 2018. Prior to that, he spent eleven years in the Energy Investment Banking Group of Wells Fargo Securities. He will receive a base salary of $265,000.

According to the SEC filing, Mr Joe and the Board ‘agreed to the terms of his retirement as the Chief Financial Officer, effective December 31, 2020’. However, those terms were not disclosed in the filing. The annual proxy statement, filed last week, states that there are no employment agreements for executive officers.

SEC filing – Evolution CFO

 

Medical device start-up appoints new CEO

Soliton has appointed Brad Hauser as its new CEO, replacing Dr Chris Capelli, who becomes Chief Science Officer. The company is a medical device start-up that has its head office near Bellaire.



The company uses technology licensed from MD Anderson Cancer Center. Its main device uses rapid pulses of designed acoustic shockwaves to disrupt cellular and subcellular structures. The company believes that the technology can be used for tattoo removal, cellulite reduction and fibrotic scar treatment. As yet, the company has not recorded any revenue.

The company went public in February 2019, raising $11 million at $5 per share.  It subsequently raised another $35 million in June at $8.30 per share.  The current share price is $7.12.

Mr Hauser has been a non-executive director of the company since June 2018. His day job was the Vice President, R&D and General Manager for CoolSculpting, a technology that reduces fat by non-surgical methods. CoolSculpting was developed  by Zeltiq Aesthetics, which was acquired by Allergan for $2.4 billion in 2017.

Mr Hauser will receive a base salary of $475,000. He will also receive a restricted stock grant of 200,000 shares that will vest over four years.

Dr Capelli will maintain his current salary of $450,000 in his new role.

SEC filing – Soliton CEO

 

Another Houston drilling contractor files for bankruptcy

Pacific Drilling has filed for Chapter 11 bankruptcy in the Southern District of Texas. The company is, technically, registered under the laws of Luxembourg, though it has its head office in west Houston. This is the second time in three years that it has filed for bankruptcy.



The company has $1.1 billion in debt, due in 2023 and 2024. Almost 75% of the noteholders have agreed to write off all the debt in exchange for all the equity in the newly-reorganized company and an $80 million exit facility.

The company first filed for bankruptcy in November 2017.  It exited one year later. The company converted $1.85 billion of debt to $500 million of new equity. It also refinanced $1.2 billion of debt with $1 billion of loan notes that are now being written off.

The company was formed in 2006 and went public in 2011. It operates seven ultra deepwater drill ships, capable of operating in 10,000 ft of water. It currently employs 443 people around the world. At its peak in 2013, the market value of its equity was $2.7 billion.

Fleet Status

The current fleet status highlights the sorry state of affairs of the company and the drilling industry generally;

  • Four of the seven ships are smart stacked.
  • One is finishing a contract with Equinor/Total by early November.
  • Due to Covid-19, one is operating on stand-by at 35% of the contractual dayrate, though the customer, Petronas, said the rig would resume January 1, 2021.
  • One drillship is idle in the Gulf of Mexico but has a 450-day contract with Murphy Oil, commencing in the second quarter of 2021.

The declaration in support of the Chapter 11 petitions was filed by CFO James Harris. Back in June, he announced his resignation, with his last day expected to be September 14, 2020.

Other drilling bankruptcies

Other drilling contractors that have filed for bankruptcy include Noble Corporation (July 2020), Diamond Offshore (April 2020) and Valaris (August 2020).  Transocean, the biggest drilling contractor, is evaluating strategic alternatives and may yet be forced into bankruptcy by dissident bondholders.

Pacific Drilling – CFO declaration re Chapter 11

 

Houston charged with defrauding investors in oil and gas deals

Arael Doolittle has been charged with taking $1.2 million from 21 investors through fake oil and gas deals. A federal grand jury returned a 12-count indictment.

Mr Doolittle operated Sariel Petroleum and Sariel Enterprises. He had an associate, a Houston realtor, pose as a distillates trader working for Chevron. The associate established a bank account in the name of Chevron USA Products, without permission from Chevron.



In 2017 Doolittle persuaded Dominion Resources Trading (‘DRT’), a small outfit in Las Vegas to work with him to find investors for oil and gas transactions he was working on. DRT ultimately forwarded on $1.25 million from 21 investors to Sariel Petroleum. Doolittle provided falsified records to DRT that appeared to show $1,209,600 of the funds has been used to buy product from Citgo.

Doolittle created letterhead and emails that appeared to come from Chevron. He also persuaded an attorney and a banker to provide attestation letters and assurances to potential customers and investors.

In a separate case in the Southern District of Texas, Chevron sued Sariel Petroleum in January 2018 for trademark infringement. After a jury trial, Chevron was awarded a $15.6 million judgement against Sariel in April 2020.

Doolittle is charged with eight counts of wire fraud and four counts of engaging in monetary transactions in criminally derived funds. Wire fraud carries a potential 20-year-maximum sentence and a possible $250,000 maximum fine. If convicted of any of the other four counts, he faces the same fines and up to 10 years imprisonment.

https://www.justice.gov/usao-sdtx/pr/houston-man-charged-defrauding-investors-oil-and-gas-deals

Doolittle indictment

Chinese national indicted for theft of coiled tubing trade secrets

Lei Gai, aka Jason Gao, has been indicted for stealing coiled tubing technology from a Houston-area manufacturing company. Also indicted were two corporations, Jason Energy Technologies in Yantai, China and Jason Oil & Gas Equipment LLC (JOG), based in Houston.

Also charged in relation to the case is Robert Erford, Jr of Dayton, Texas. He previously pleaded guilty to conspiracy to commit theft of trade secrets.



Erford was a production mill operator in the Dayton plant owned by a parent company, based in Houston. The plant and the company are not named in the indictment, but I believe them to be Global Tubing LLC, which is owned by Houston-based Forum Energy Technologies.

In April 2019, Erford first contacted JOG in Houston inquiring about managerial positions. It wasn’t until September that Gao responded and they agreed to meet up in Houston the following month.

During their second meeting, Gao suggested that Erford travel to China for a two-week consultancy assignment to assist the Chinese company with its manufacturing problems. Erford was asked to bring a small piece of sample material of advanced coil tubing.

One week assignment

Erford also took 120 photos of the Dayton facility, processes and data. This included unique chemical compositions for the raw material used in the plant. Erford eventually traveled to Beijng and visited the Chinese facility for 5 days over Thanksgiving 2019. In total, Erford was paid $8,500.

The sentencing for Erford is set for March 20121. At that time, he faces a prison term of up to five years and a fine of up to $250,000.

Gao previously resided in Houston but is now believed to be in China. A warrant remains outstanding for his arrest.

Not the first time

This is not the first time a Chinese company has stolen trade secrets from a Houston-area company by targeting production employees. Back in 2017, four employees from a Trelleborg plant in North Houston were indicted, along with a Chinese national.

https://www.justice.gov/usao-sdtx/pr/chinese-energy-company-us-oil-gas-affiliate-and-chinese-national-indicted-theft-trade