Category Archives: Business Services

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

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.

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.

Lodhi indictment


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.


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


Takeover of Houston company falls through after 18 months

The takeover of Houston-based Stewart Information Services by Fidelity National has fallen through after the Federal Trade Commission sought to block the proposed merger.

The FTC said that the acquisition would substantially reduce competition in state markets for title insurance underwriting for large commercial transactions, and in several local markets for title information services. It would reduce ‘The Big 4’ to 3 competitors.

Fidelity had agreed to buy Stewart in March 2018 for cash and stock worth $50.20. That valued the company at $1.2 billion at the time. Stewart’s shares are currently trading at $34.50 (market cap $800 million).

Fidelity has agreed to pay a $50 million termination fee to Stewart.

Stewart also announced that current director Frederick Eppinger will become CEO. However, current CEO Matthew Morris, who has been CEO since 2011, will remain with the company. He will assume the role of President.

CFO David Hisey was appointed to his position in September 2017. Interestingly Mr Hisey has some unique clauses in his employment contract. If Mr Hisey’s employment is terminated without cause within one year of naming a new CEO,  he will get additional compensation above and beyond what he would normally get. According to the latest annual proxy, his severance package would be valued at $2.5 million versus $1.8 million normally.

If Mr Hisey were to voluntarily terminate his employment for ‘Good Reason’ within 180 days of the company naming a new CEO, he would get a severance package worth $1.3 million.

How long before he resigns?

Houston attorney convicted of offshore tax evasion scheme

[Update 08-06-20 : Pursley sentenced to 24 months in prison.]

Jack Stephen Pursley, a.k.a Steve Pursley has been convicted in an offshore tax evasion scheme. After a four day trial, he was convicted of one count of conspiracy to defraud the US and three counts of tax evasion.

Mr Pursley was friends with Shaun Mooney from college at Texas Christian University. Mr Mooney ran a company that, until 2009, provided personnel services to clients who owned offshore oil rigs, primarily in the Middle East.  However, Mr Mooney had a problem. He had $18 million held in an offshore bank account in the Isle of Man. He wanted to remit it back to the US without paying tax on it.

Mooney and Pursley created a company in which Mooney owned 76% and Pursley 24%. Mr Pursley used that company to transfer the money back to the US. He disguised the transfers as stock purchases in US corporations that they owned. Mr Pursley evaded taxes by claiming the withdrawal of funds were non-taxable loans and returns of capital.

At trial, the government proved that Mr Pursley received more than $4.8 million and didn’t pay taxes on this income between 2007 and 2010. Instead he used the money to buy two houses in Houston and a vacation home in Vail, Colorado.

Court documents suggested that Mooney provoked the federal investigation when he disclosed the tax scheme to the authorities in 2013 under the Offshore Voluntary Disclosure Program.

Sentencing will occur in December. He faces a maximum of five years in prison for the conspiracy count and five years for each count of tax evasion. He also faces a period of supervised release, monetary penalties and restitution.

Houston woman pleads guilty to defrauding Dr Pepper Snapple

Anna Maria Sites, aged 42, from Friendswood, has pleaded guilty to committing fraud against beverage company Dr Pepper Snapple Group (DPSG).

Ms Sites was originally indicted in October 2018. She handled human resources and accounting for a company called FulFill Plus. It is based in northwest Houston and managed various rebate advertising campaigns for DPSG across the US.

The rebates included returned bottle caps or for switching to DPSG brand drinks in restaurant/convenience store soda dispensers. DPSG, based in Plano, Texas, paid FulFill to administer those campaigns.

Ms Sites was indicted along with Joseph Isaac, the operator of FulFill. He is still awaiting trial in the case [UPDATE 09-11-19 Mr Isaac has now pleaded guilty as well]. As an aside, for a while, Ms Sites and Mr Isaac also owned a couple of restaurants together. They were based in the Montrose area of Houston (Bibi’s Kitbar and Eleven XI).

The fraud was not sophisticated at all. In 2014 and 2015 Ms Sites told DPSG to issue rebate checks to FulFill to reimburse the company for rebate claims that she had processed. In fact she hadn’t made the payments to the claimants. Of course, the restaurants kept pushing for their $75 rebate check. Eventually, after multiple complaints, Ms Sites would issue the rebate check.

The original indictment alleged that the fraud started as far back as 2010 and that some of the misappropriated funds were used for the personal use of the defendants. Funds was also allegedly used to cover general expenses of FulFill. The indictment didn’t quantify the extend of the alleged fraud.

The plea deal only refers to a specific rebate campaign in 2014 and 2015 and makes no mention of any personal gain by Ms Sites.  She will be sentenced in December 2019 and faces up to five years in prison and a possible $250,000 maximum fine.

2 Houston businessmen sent to prison for $5.5 million fraud

John Elsner, formerly of Houston, and Larry Page, of Katy, have been sent to prison for 51 months and 15 months respectively following their convictions to commit wire fraud involving a fraudulent invoice scheme.

Page pleaded guilty in December 2018 and Elsner in January 2019.

Elsner was the General Manager and President of Logistical Solutions International (‘LSI’), which had its head office in the Galleria area. Page was the VP of Finance.  LSI provided corporations with logistical support and training services that facilitated the stay of international visitors on assignment. The company started in 1999 and their first client was ExxonMobil. Their largest market was Iraq and their other big client was Fluor.

The fraud scheme was pretty simple. LSI began factoring invoices with Spinnaker Financial in 2002. Spinnaker would purchase an LSI invoice for 85% when it was issued. It was LSI’s responsibility to bill the customer and collect the monies. The remaining 15% was split between LSI and Spinnaker, depending on how old the invoice was when it was paid. Invoices not paid reverted back to LSI

Beginning in 2011 and continuing through June 2015, Elsner and Page created false invoices that were factored with Spinnaker but never sent to the clients. For a while they were able to cover their tracks by applying payments of newer invoices to the older, outstanding invoices. This practice is known as ‘Teeming and Lading’.

Page, the CFO, kept an Excel spreadsheet that had a tab for an ‘Internal balance sheet’ and one for ‘External balance sheet’ that contained adjustments to account for the fabricated invoices.

In total, Spinnaker was defrauded out of $4 million.

In October 2014, LSI opened an office in Oxford, England and Elsner moved his office there. He hired an outside firm to seek equity investors or individuals interested in buying LSI. Elsner neglected to tell either the outside firm or the potential investors about the false invoices.

Two investors gave loans worth $1.5 million to LSI. They were not repaid.

Elsner was ordered to pay $5.6 million in restitution and will be required to serve three years of supervised release, following his release from prison. Page was also ordered to pay $5.5 million in restitution and was ordered to serve one year of supervised release, after his prison term.

Elsner Page indictment

Bristow Group files for bankruptcy

Bristow Group, which provides helicopter services, has filed for Chapter 11 bankruptcy. This comes less than 24 hours after another Houston company, Weatherford International said it intends to file for bankruptcy.

Bristow said that its US subsidiaries and two of its Cayman Islands subsidiaries are included in the Chapter 11 filings. Its other non-US entities are not included.

Certain senior secured noteholders made a $75 million term loan to the company prior to the filing and provided a commitment for a further $75 million in debtor-in-possession (“DIP”) financing.

Earlier this week, I wrote that 9 senior executives, including the newly-installed CEO and CFO were paid large cash retention bonuses.

The company hasn’t filed a quarterly return since September 2018 as the company found material weaknesses in its internal controls. It had obtained waivers of default but the company elected not to make a $12.5 million interest payment in April on its senior loan notes. This means that waivers expired. In an April 12 filing, the company stated it had $202 million in liquidity.

Bristow has debt of around $1.5 billion. The senior note holders are owed $895 million while the banks and financial institutions are owed $580 million.  The company had assets of $2.86 billion at September 30, 2018.

No details yet on the terms of the restructuring.

Alvarez & Marsal is serving as the company’s restructuring advisor. Houlihan Lokey is serving as the financial advisor to the company.

On Friday, the shares closed at 29 cents (market cap $10 million).

Press release

2 Houston men indicted in Business Email Compromise scheme

The Southern District of New York has indicted four men, including two from Houston for engaging in a fraudulent business email compromise (“BEC”) scheme.

Joshua Ikejimba was arrested in Houston yesterday. Cyril Ashu and Ifeanyi Eke were arrested in Atlanta, Georgia. The fourth defendant, Chinedu Ironuah, of Houston, remains at large.

The scheme allegedly ran from 2016 through July 2018. The defendants registered shell companies. They opened bank accounts in the name of the shell companies and under false identities.

The indictment alleges that they sent fraudulent spoofed emails to companies and entities, purporting to be vendors requesting payments. After funds were wired, the monies were transferred to other accounts controlled by the defendants. Ikejimba and Ironuah allegedly withdrew the cash using check cashing facilities in Houston.

Victims listed in the indictment include

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

The press release mentions that the defendants allegedly stole millions of dollars.

All four are charged with one count of conspiracy to commit wire fraud and one count of wire fraud. These charges each carry a maximum penalty of 20 years in prison. Cyril Ashu is also charged with one count of aggravated identify theft.

Last month, I wrote about a customer of Houston-based Prosperity Bank that lost $2.6 million in a BEC scheme.