The Securities and Exchange Commission has charged two Kansas-based individuals with defrauding investors of over $3.6 million in connection with an oil and gas equipment scheme.
In February 2019 Phillip Hudnall and Todd Esh co-founded BirdDog Oil Equipment to raise funds from investors for the purported purchase and sale of refurbished oil and gas equipment. They convinced 12 investors in 5 states to invest $3.6 million in promissory notes issued by BirdDog.
The promissory note provided for a 30% return to the investor over the nine-month term of the note. The note assured investors that Hudnall had experience of completing transactions of this type. He did not.
Use of funds raised
Instead of using the money to buy and refurbish oilfield equipment, the SEC alleges that Hudnall used $1.7 million of co-mingled funds to buy 79 acres of land in Colorado. He also used $900,000 to make Ponzi-type payments to investors in prior, unrelated investments that Hudnall had orchestrated. Hudnall also used $450,000 of investor funds to buy himself a $99,000 BMW X7 and $24,000 of tickets for local sporting events.
In June 2019 Hudnall allegedly duped a Pittsburgh bank into giving him a $555,000 loan by creating a fake purchase order from a large oilfield services company. He used most of the funds to pay off two investors who were demanding their money back.
Nguyen dupes the fraudsters
Hudnall and Esh only made one attempt to use the investor funds as promised. Between February and June 2019, they transferred $1.2 million to Duc ‘Doug’ Nguyen’, a 56 year-old man living in Houston. Nguyen told Hudnall and Esh that he had procured oilfield equipment from a major oil company and had an end-buyer lined up to buy the equipment once it was refurbished.
Nguyen instead gambled away $615,000 of the money in Las Vegas. He also gave over $85,000 to friends and family. $21,000 was used to buy a new car (presumably not a BMW).
Nguyen has not been charged in this case. Rather he is a ‘relief defendant’. That’s a term for someone who has received ill-gotten funds as a result of the illegal acts of the other named defendants. A relief defendant is typically named because the plaintiff(s) seeks injunctive relief to protect the sought funds or assets and apply them to any eventual recovery in the case.