Category Archives: Business Services

Houston man sentenced to two years for role in email fraud scheme

Joshua Ikejimba has pleaded guilty to conspiring to commit wire fraud. He was sentenced to two years in prison in the Southern District of New York.



Mr Ikejimba, who had many aliases, was part of a wide-ranging, international business email compromise scheme that ran from 2016 to July 2018. He was indicted in May 2019, along with another Houston man, Chinedu Ironuah and two Atlanta men. Mr Ironuah remains at large, while proceeding continue against the other two.

Mr Ikejimba obtained fraudulent passports in false names. He also registered shell companies and opened fake bank accounts at various banks throughout the US. Companies were tricked by fake emails and fraudulent wiring instructions into sending funds to bank accounts controlled by the syndicate. Mr Ikejimba laundered the funds at various check cashing facilities in Houston.

The defendants obtained approximately $8 million in this way. Mr Ikejimba was personally responsible for laundering $1.25 million in fraud proceeds.

Victims listed in the original indictment included

  • Intergovernmental organization in New York ($188,815)
  • Foreign-based healthcare company ($41,495)
  • Foreign-based manufacturing company ($123,895)

In addition to the 24-month prison term, Mr Ikejimba was sentenced to three years of supervised release. He was further ordered to forfeit $1,250,766.03, and to pay restitution to his victims in the amount of $1,238,748.93.

https://www.justice.gov/usao-sdny/pr/texas-man-sentenced-two-years-prison-participation-multimillion-dollar-business-email

 

 

Houston man charged with spending COVID relief funds on Lamborghini

Lee Price III, who lives in NW Houston, has been charged with fraudulently obtaining more than $1.6 million in Paycheck Protection Program (PPP) loans. He allegedly spent the money on having a good time, including $233,337.60 on a 2019 Lamborghini Urus.

In case you are thinking that you read about this case last week, no, that was a Florida man who used his PPP funds to buy a $318,000 Lamborghini Huracan.



According to the criminal complaint, Price has a felony conviction for forgery (2010) and for robbery (2010). He is also currently a defendant in Harris County, where he is charged with the felony offense of tampering with a government record.

Price purported to be an executive of Price Enterprise Holdings, Price Logistics Services and 713 Construction LLC. Although these entities exist, they have never filed with the Texas Workforce Commission. That means they have not hired employees or paid unemployment taxes.

PPP applications

Price made six applications for PPP funds. However only two were funded, namely;

  • $937,500 by Radius Bank, Boston
  • $752,452 by Harvest Small Business Finance in California.

For the loan financed by Harvest, Price filled out the forms using the name of an elderly man who had died a month before. On this application, Price had an unnamed co-conspirator, who received $250,000 of the funds received.

Wine, women and song (…and an office lease)

According to the complaint, the day he received the funds from Radius, Price bought a $14,000 Rolex watch. The day after, he bought the Lamborghini. The following days saw him spent $700 at a liquor store, $2,000 at a strip club and $2,500 at two Houston night clubs. Later Price paid $100,000 as a deposit on a property in north Houston. He also spent $108,000 on a lease of new business office space (!) in Memorial City.

For the funds received from Harvest, the complaint alleges Price bought a 2020 Ford F-350 for $85,000 and leased a luxury apartment in midtown Houston. $85,000 was also withdrawn in cash.

Price is charged with making false statements to a financial institution, wire fraud, bank fraud and engaging in unlawful monetary transactions.

Price becomes the third Houston-area man to be charged with fraud in connection with PPP loans. A Funeral Director was charged in June. A 29-year old man (same age as Price) was charged in July.

https://www.justice.gov/usao-sdtx/pr/houston-entrepreneur-charged-spending-covid-relief-funds-improper-expenses-including

Kirby to restate results after goodwill impairment error

William Alden

Kirby Corporation is restating its first quarter results following an error it made in its goodwill impairment charge. Instead of a pre-tax charge of $260 million, it should have booked a charge of $388 million. After taxes, the net income loss increased by $99 million.



Kirby is the largest domestic tank barge operator, transporting bulk liquid products. It also provides after-market services and parts for engines, transmissions and gears. Just over half of these parts are sold to oilfield service and E&P companies. The company has its head office just west of downtown Houston.

New goodwill impairment test

The goodwill impairment occurred in its distribution and services segment and was a result of the dramatic decline in its share price during the first quarter. The company was tripped up by revisions the Financial Accounting Standards Board (FASB) made in the process of testing for goodwill impairment. These revisions came into effect at the beginning of 2020 for Kirby.

In certain circumstances when performing a goodwill impairment test a company can get into a circular logic loop. If the fair value of a reporting unit is below the carrying value, triggering an impairment, a deferred tax asset (arising from the book/tax differences in the treatment of goodwill) can increase in value, causing an additional impairment. This causes the deferred tax asset to increase, triggering more impairment. To address this, in the new guidance, FASB mandated the use of a simultaneous equation to solve the problem.

Kirby did not perform the simultaneous equation in its initial accounting for the impairment loss.

Effect of writedown

Prior to the writedown, the company had goodwill of $954 million and intangible assets of $211 million out of total net assets of $3.4 billion. In addition to the writedown on goodwill, it also impaired the value of intangible assets by $165 million.

Kirby stressed that the impairment was a non-cash item and had no impact on EBITDA. While that is technically true, I often find such explanations disingenuous when companies use them.

Stewart & Stevenson

Kirby didn’t specify which acquisition was the primary cause of the impairment. The likely culprit is the acquisition of Stewart & Stevenson in September 2017. Kirby paid $758 million for the business that included $331 million of goodwill and $155 million of intangible assets. It paid for the business with $378 million in cash and the rest in stock.  It sounds like Kirby has written off all the goodwill and intangible assets from that business. Operating margins in the Distribution and Service segment have fallen from 10% in 2017 to 5% in 2019 and 1.5% in the first quarter of 2020.

In other words, Kirby massively overpaid for Stewart & Stevenson. Ultimately, it’s the shareholders who pay for that profligacy.

SEC filing – Kirby to restate goodwill impairment

 

Houston helicopter companies complete merger

ERA and Bristow, have completed their all-stock merger. The deal was first announced in January 2020.

Both companies have their head office in west Houston and both were publicly traded until Bristow filed for bankruptcy in May 2019. The combined company will keep the Bristow name but will now trade under a new ticker symbol ‘VTOL’.



The combined group

For the year ended March 2020, Bristow had revenues of $1.2 billion and ERA $232 million. Bristow shareholders own 77% of the combined company, ERA shareholders 23 %. Technically, Bristow acquired ERA for a preliminary purchase price of $108 million. The net assets acquired were $175 million, resulted in a gain on bargain purchase of $67 million.

Since 2015, from time to time, the companies held informal discussions about a business combination. However, the bondholders who took control of Bristow in the bankruptcy reorganization really pushed the Bristow management for a merger.

The merger is expected to result in annualized cost savings of at least $35 million through the elimination of duplicate corporate expenses and greater operational efficiencies.

Management team

ERA CEO Chris Bradshaw becomes CEO of the combined group. David Stepanek, who was Senior VP of Business Development at ERA, becomes COO.  Jennifer Whalen, the CFO of ERA becomes the interim CFO. A permanent CFO will be named at a future date.

Don Miller, CEO of legacy Bristow and Brian Allman, CFO of legacy Bristow, were not named in new management team. I presume they have left the company, though that has not been explicitly stated in any SEC filings by the company.

Severance

Mr Miller will receive a cash payment of almost $3 million comprising 2x base salary ($1.4 million), target annual bonus ($0.8 million) and an incentive bonus of $750,000. Mr Allman will receive a cash payment of $1.1 million.

As a reminder, Mr Miller, who was only promoted from CFO to CEO in March 2019, got a $945,000 cash retention bonus in May 2019 and was eligible for cash bonuses (annual target $942,000). For Mr Allman, who was the Chief Accounting Officer before being promoted to CFO, the retention bonus was $400,000.

SEC filing – Bristow ERA merger completed

Largest Houston company to restate financials

Crown Castle, now the largest Houston-area public company by market capitalization ($68 billion) following the recent energy meltdown, has announced that it will restate its financial statements for 2016 through 2018. It may have to file an extension for its 2019 results.



The company is based in the Galleria area and owns, operates and leases more than 40,000 cell towers and more than 75,000 route miles of fiber supporting small cells. It has revenues of $5.8 billion and 5,000 employees.

The restatement is the result of an error in its revenue recognition of tower installation services. In short, the company had been recognizing the entirety of the transaction price when it had completed installation services. However some of the transaction price was consideration for  permanent improvements in the installation. The improvements were recorded as fixed assets, therefore the consideration received for that element should have been recognized over the lease term.

The effect is to reduce adjusted EBITDA for 2019 by $100 million. Profits for previous years have also been reduced. The cumulative effect is increase liabilities and reduce equity by $457 million. It sounds like a big number but it is less than 4% of equity.

The Securities and Exchange Commission (SEC) issued a subpoena in September 2019 requesting certain documents from 2015 through to the present. However, the company states it had previously provided information to the SEC related to the matter. The company also said that the SEC investigation is still ongoing. That sounds like there could be more bad news coming.

The auditors for Crown Castle are PricewaterhouseCoopers. This episode doesn’t reflect well on them.

Unsurprisingly, the company that the restatement indicates the existence of one or more material weaknesses in its internal control over financial reporting.

SEC Filing – Crown Castle restatement

Houston accounting firm barred from performing public company audits

LBB Associates and its managing partner and majority partner, Carlos Lopez, have been barred by the Securities and Exchange Commission from performing public company audits. Or in the language of the SEC ‘LBB and Lopez are denied the privilege of appearing or practicing before the Commission as accountants’.



LBB, based in NW Houston, has two partners and approximately eight accountants on staff. It has about 28 public company clients. The stock of these clients is generally not publicly-traded but the clients follow SEC rules and filing requirements.

The case arose out of the collapse of an audit client, Behavioral Recognition Systems in 2015. At the time, that company was owned by Ray Davis. The SEC later filed a complaint against BRS and Davis. It alleged that they engaged in a fraudulent scheme to raise $28 million from BRS investor funds and divert $7.8 million for Davis’s personal use. The SEC alleged that Davis used the funds to purchase ancient jewelry, gold and other artifacts. Davis allegedly tried to cover his tracks by submitting fake consulting invoices to BRS from two related companies that he controlled.

The alleged fraud was discovered shortly after Davis sold the company in July 2015. However, Davis died in July 2018 before the case could be concluded.

The SEC started disciplinary proceedings against LBB in January 2019, alleging professional misconduct. The primary allegation was that Lopez relied on BRS management representations concerning the related party transactions and failed to perform any audit work around them.

Without admitting or denying the findings of the SEC, LBB and Mr Lopez agreed to the sanctions imposed. After two years, Lopez and LBB may apply to the Commission to be reinstated. However such future work would have to be reviewed by an independent audit committee of the public company.

https://www.sec.gov/litigation/admin/2020/34-88140.pdf

Workforce accommodation specialist appoints new CFO

Carolyn Stone has been appointed CFO of Civeo Corporation. She replaces Frank Steininger. He is staying on at the company as Executive VP of Strategic Initiatives until he retires in March 2020.



Civeo has its head office in downtown Houston. The company provides workforce accommodation services to the oil and gas and mining industries. It has operations in the US, Canada and Australia. The company has a market capitalization of $151 million, though its current share price is only 81 cents.

Ms Stone joined the company in May 2014 as its Controller and Corporate Secretary. Prior to joining Civeo, she was the CFO at Synagro. At that time Synagro was a Houston-based biosolids company that went in Chapter 11 in April 2013. Before that, Ms Stone spent many years working for Dynergy. She started her career at PricewaterhouseCoopers.

Compensation for Ms Stone was not disclosed.

Ms Stone’s appointment means that 10% of all Houston-area public companies have female CFOs. You can see the list of all the companies here.

https://www.businesswire.com/news/home/20191118005882/en/Civeo-Appoints-Carolyn-Stone-Chief-Financial-Officer

 

Harris County judge charged with fraud

Judge Alexandra Smoots-Thomas has been indicted on allegations of wire fraud. Since 2009, she has served as the presiding judge for the 164th District Court for the State of Texas. She has jurisdiction of Texas civil cases located within Harris County.



Beginning in early 2013, the indictment alleges that Smoots-Thomas used funds donated to her campaign for personal expenses unrelated to the campaign. She then hid her misuse of these funds by filing false campaign finance reports with the Texas Ethics Commission and concealing her activity from her campaign manager.

The indictment lists 7 transactions for a total of $24,890 where Smoots-Thomas allegedly used the campaign account for personal use. $11,809 was used to pay a home mortgage and $9,942 to The Regis School for tuition. An airfare, a Prada handbag and a ring from Zales comprise the other transactions.

Each of the seven counts of wire fraud carries a possible sentence of up to 20 years in federal prison as well as a maximum $250,000 fine.

Smoots-Thomas was the presiding judge over the initial phase of the TechnipFMC – McDermott lawsuit involving COO Sumit Mukherjee. Smoots-Thomas was replaced as the judge on the case just before the parties were set to go to trial as she was diagnosed with breast cancer. She is still receiving treatment for the cancer.

Smoots-Thomas indictment

https://www.justice.gov/usao-sdtx/pr/local-judge-charged-fraud

Freight forwarding company owner pleads guilty to price fixing

Francis Alvarez, owner of a freight forwarding company, has pleaded guilty to an antitrust charge for her role in a multi-year, nationwide conspiracy to fix prices for international freight forwarding services.



The original charges were filed in the Southern District of Florida in Miami. According to the charges Alvarez and her co-conspirators agreed to fix prices, primarily for shipments to Honduras between September 2010 and August 2014. They held meetings where they discussed prices to be charged for freight services, exchanged pricing information and raised prices in accordance with the agreement.

Alvarez has agreed to pay a criminal fine and cooperate with the ongoing investigation. She will be sentenced at a later date. Alvarez owns Servicios Hondurenos which is based just north-east of downtown Houston.

Roberto Dip (who owned Dip Shipping, a freight forwarding company in New Orleans) and Jason Handal (a company manager for Dip) pleaded guilty in November 2018. In June, they were sentenced to 18 months and 15 months prison terms, respectively. The individuals each paid a $20,000 fine while the company paid a $488,250 criminal fine.

The ongoing investigation into price fixing in the international freight forwarding industry is being conducted by the Antitrust Division’s Washington Criminal I Section and the FBI’s New Orleans Field Office.

https://www.justice.gov/opa/pr/third-freight-transportation-executive-pleads-guilty-antitrust-charge

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