Category Archives: Financial Services

Mother and stepson sent to prison for $7 million bank fraud

Leyla Wydler and her stepson, Carlos Wydler, have been sent to prison following their conviction by a jury in March 2017. The mother was sentenced to 11 years in June, the step-son got 7 years today.

Leyla Wydler was the owner of several Houston-area businesses including Globan Mortgage Company, Casa Milagro and First Milagro. In 2007, Farmers and Merchants Bank of Long Beach, a California Bank, hired Carlos Wydler. He was in charge of the bank’s credit card department.



Leyla would sent credit card applications to the bank, Carlos would approve the requests for high credit lines, but would ‘advance’ the entire credit line to the borrower via wire or check. Leyla would take a fee from the borrowers’ loan proceeds. The scheme ran for about a year.

The mother and stepson were developing a real estate project in Houston and used the proceeds to finance investors in their project.

Leyla Wydler skimmed more than $1.4 million from loan proceeds. Carlos Wydler approved approximately $600,000 more in unauthorized loans to family members. More than half of the Texas borrowers run through the Wydler-family business in Houston defaulted on their loans. The bank sustained a loss of nearly $7 million.

The defendants were convicted of conspiracy, bank fraud, false statements on credit applications, wire fraud and mail fraud. Carlos Wydler was also found guilty on six counts of misapplication of bank funds.

Carlos Wydler was ordered to pay $6.8 million in restitution. Leyla Wydler was ordered to pay $6 million.

https://www.justice.gov/usao-sdtx/pr/former-banker-and-mortgage-broker-sent-prison-defrauding-california-bank

Houston tax preparers indicted for false filing of tax returns

Two Houston-area woman have been indicted on 32 counts related to the false filing of tax returns.

Rita Rogers and Joi Lin Hunt owned Caliente Xpress Tax Service in Sharpstown, Houston. The business started in 2014. At its peak, the business had 12 employees.



According to the indictment, they allegedly prepared returns for customers for the 2013-2016 tax years that included false schedules on 1040 forms. These claimed company losses for customers who did not own any businesses and had no such expenses.

The indictment further alleges Hunt and Rogers did not inform customers that the 1040 forms were being prepared on their behalf. Although the taxpayers would collect the refunds, Caliente Xpress charged fees ranging from $300 to $600 to prepare the return.

During the 2013-2016 tax years, Hunt and Rogers prepared 2,613 tax returns, according to the indictment. 98% received refunds, totaling $13.5 million. For 66% of these, Caliente allegedly claimed fictitious expenses on a Schedule 1040.

It appears that, during 2016, taxpayers started getting letters from the IRS that their 2013 or 2014 tax return was under audit. An undercover IRS Special Agent later visited the business in February 2017, posing as a taxpayer needing a return prepared. Rogers initially prepared a correct tax return that reported a tax due to the IRS. She then, allegedly prepared another return, claiming false expenses and a refund due. Hunt transmitted the return to the IRS.

If convicted, both face up to five years imprisonment and a possible $250,000 maximum fine.

Caliente Xpress indictment

https://www.justice.gov/usao-sdtx/pr/two-houston-area-tax-preparers-indicted

Another Houston man charged with PPP fraud

Joshua Argires, 29, of Houston, has been charged with COVID relief fraud. He allegedly made two fraudulent applications for more than $1.1 million in forgivable loans through the Paycheck Protection Program (PPP).



The complaint alleges that Mr Argires made applications on behalf of two businesses, Texas Barbecue and Houston Landscaping. He allegedly claimed that the two companies had numerous employees and hundreds of thousands of dollars in payroll expenses.

The $956,000 Texas Barbecue loan was funded through PrimeWay Federal Credit Union, while the Houston Landscaping loan was funded by Bank of America.

The funds received on behalf of Texas Barbecue were allegedly invested in a cryptocurrency account. The funds obtained for Houston Landscaping were held in a bank account and slowly depleted via ATM withdrawals.

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

Last month, another Houston man, Jase Gautreaux, was charged with fraudulently seeking over $13 million through PPP loans.

https://www.justice.gov/usao-sdtx/pr/another-houston-man-charged-covid-relief-fraud

Houston man and disgraced lobbyist charged with $5.6m fraud

Marcus Andrade of Missouri City has been charged with conspiracy to commit wire fraud and violating the Lobbying Disclosure Act. Also charged was Jack Abramoff of Maryland.



Mr Abramoff was the center of a large corruption scandal in 2005 that led to 21 people pleading or being found guilty. Abramoff and other lobbyists grossly overbilled Native American tribes who were seeking to develop casino gambling on their reservations. Abramoff illegally gave gifts and made campaign donations to legislators in return for votes. As a result he served three and a half years in prison.

Abramoff has filed notice that he intends to plead guilty to the charges. It appears he has agreed to a settlement that will require him to repay the $50,000 in commissions he received. He will also pay $5,500 in interest. He may be subject to civil penalties arising out of a separate suit brought by the SEC against Andrade and Abramoff.

Mr Andrade developed a new cryptocurrency called AML BitCoin that purportedly would prevent money laundering and anonymous use through ‘biometric technologies’. Andrade claimed this would allow AML to comply with anti-money laundering and know-your-customer laws and regulations.

Investors misled

Between July 2017 and December 2018, Andrade raised more than $5.6 million from more than 2,400 investors by selling tokens that could later be converted to AML BitCoin. Allegedly, Andrade and Abramoff misled investors by;

  • engaging in a false ‘rejection campaign’ regarding a television commercial that they falsely stated was going to be aired during the 2018 Super Bowl. They claimed the networks and the NFL deemed the commercial too politically controversial as it involved a Kim Jong-un lookalike.
  • making false statements regarding the state of development of the technology
  • making false statements that they were about to finalize agreements with various government agencies for the use of AML Bitcoin.

Money used for personal expenses

The charging document alleges that Andrade diverted more than $1 million to buy

  • a 5-bedroom house in Sienna Plantation ($747,000)
  • a house for his father ($226,000)
  • a Cadillac Escalade ($69,000)
  • a Ford F250 truck ($60,000)

Andrade claims he is innocent and that Abramoff was working with the government to try and get him to sell the technology.

If convicted, Andrade faces a maximum fine of 20 years and a fine of $500,000 plus restitution. The government has already started legal proceedings to get the house.

https://www.justice.gov/usao-ndca/pr/lobbyist-jack-abramoff-and-ceo-rowland-marcus-andrade-charged-fraud-connection-5

SEC bars Houston investment advisor after guilty plea

The Securities and Exchange Commission has barred Bill Hightower from association with any broker or investment advisor. This follows Mr Hightower’s guilty plea in a federal court in October 2019.

Mr Hightower had been indicted in October 2018 on 13 counts for running a $10 million Ponzi scheme between 2013 and 2018. Mr Hightower, who lives in Bellaire, was the President of Hightower Capital Group, which he founded in 2010. He worked as a broker for UBS Financial Services between 2007 and 2013 and Legacy Asset Securities between 2013 and 2015.



Just before his trial was due to start in October 2019, he pleaded guilty to two counts. One for transferring $900,000 from a trust for an elderly investor and using that money to pay back other investors and fund his personal lifestyle. For the second count, he admitted to selling $800,000 worth of ExxonMobil shares without the investor’s permission. Again he used the money to pay back other investors and fund his personal lifestyle.

As part of the plea agreement, Mr Hightower agreed that investors lost $9.5 million. He also agreed to pay back whatever amount the Court decides as restitution. He is scheduled to be sentenced in July. Mr Hightower could face up to 20 years in prison.

In a separate case, in September 2019, the Financial Industry Regulatory Authority (FINRA) ordered UBS to pay $555,000 to an 90-year old woman who claims she was defrauded by Mr Hightower. At that time, he was a broker for UBS.

https://www.sec.gov/litigation/admin/2020/34-88941.pdf

 

SEC charges former Houston Pastor with fraud

The Securities and Exchange Commission (SEC) has charged Larry Leonard II and his wife, Shuwana Leonard, with defrauding hundreds of retail investors.

Leonard is a businessman and former pastor who lives in Houston. He also owns the Houston Red Storm, a semi-pro team that’s part of the American Basketball Association (ABA).

Together with his wife, it is alleged that, between March 2017 and December 2018, the Leonards targeted investors in the African-American community with three separate fraudulent offerings. They raised $487,000 from over 500 investors.

The first offering sold bogus stock certificates in a company that bottled and sold alkaline water. The second offering was to sell a valueless cryptocurrency, that Leonard falsely claimed was backed by the water products. The last offering raised funds for a non-existent bitcoin mining investment.

Leonard told investors that the funds raised from the stock sales would be used to improve the water products and to take the company public. Instead, most of the funds raised were used to pay personal expenses of the Leonard family.

The SEC seeks permanent injunctions and disgorgement of the allegedly ill-gotten gains. It also seeks civil penalties.

https://www.sec.gov/litigation/litreleases/2020/lr24787.htm

Famous Houston pastor pleads guilty to $3.5 million fraud

Kirbyjon Caldwell, a famous Houston pastor, has pleaded guilty to defrauding investors of approximately $3.5 million.



Mr Caldwell built up Windsor Village United Methodist Church in SW Houston into a 14,000 member mega church and was a spiritual advisor to President George W Bush. He offered the benediction at both his inaugurations and officiated at the wedding of President Bush’s daughter, Jenna.

Former Investment Banker

Caldwell is a former director at Continental Airlines (until 2011) and NRG Energy (he left the board one month after he was indicted in 2018).  He is also a minority owner in the Houston Texans. Prior to becoming a pastor he was an investment banker on Wall Street and worked for a bond firm in Houston.

The fraud scheme

Caldwell was charged along with Gregory Smith, a Shreveport-based investment advisor. Smith pleaded guilty in July 2019.

Between April 2013 and August 2014, Caldwell and Smith raised $3,488,500 from 29 investors through a fraudulent offer and sale of various pre-1949 Chinese bonds. Caldwell and Smith falsely represented to these investors that the bonds were safe, risk-free, worth tens, if not hundreds of millions of dollars and could be sold to third parties. In reality, the bonds have no investment value.

The Chinese government doesn’t recognize the validity of bonds issued prior to the communist takeover of 1949. It has never paid out on any of these bonds, except once in 1987. As part of the negotiations over Hong Kong, the Brits received 36 cents on the dollar. The US courts have generally said that the People’s Republic of China can assert sovereign immunity in not paying these debts.

Caldwell kept approximately $0.9 million and used it to pay down personal loans, mortgages and credit cards. Smith received $1.1 million of the total monies raised.

Sentencing

Caldwell could get seven years in prison. He also faces a fine up to $250,000 and up to three years of supervised release. Sentencing is set for July 22, 2020.

https://www.justice.gov/usao-wdla/pr/houston-texas-pastor-pleads-guilty-his-role-multimillion-dollar-investment-scheme

Houston tax preparer found guilty of fraud

Winfred Fields, a west Houston tax preparer, has been found guilty of 15 counts of fraud and tax violations. This follows a two-week jury trial.



Fields operated tax and book-keeping businesses from an office on Richmond Avenue in the Westchase area of Houston. They operated under the business names of Fields Enterprises, Your Tax Professionals and The Tax Boss.

Fields falsely claimed that offshore oil workers from the UK, Spain and New Zealand, who were working on vessels on the Outer Continental Shelf of the USA, were exempt from US tax. He charged a fee of $2,500 for each crew member’s first return and a $1,000 fee for each return thereafter. Fields required direct receipt of the funds so that he could negotiate the checks and take his fee off the top.

Fields agreed to provide the remainder of the refund proceeds to the foreign clients. He did that for a while, but ultimately stopped forwarding any money to the workers.

The jury heard that Fields fraudulently obtained $3.1 million in tax refunds from the IRS. He kept approximately $1.3 million for himself.

Up to 20 years in prison

Sentencing is set for May 2020. At that time, Fields faces up to 20 years for one count of conspiracy to commit mail and one count of wire fraud. For the other 13 tax fraud convictions, he also faces up to three years in federal prison. He may also be ordered to pay restitution to his victims and up to $250,000 in fines.

Not the first time Fields has been in trouble

This isn’t the first time that Fields has been in trouble with the authorities. Back in 2008, he settled charges with the Securities and Exchange Commission (SEC) over his role in a ‘Pump and Dump’ scheme involving Aimsi Technologies, a Tennessee-based company. Fields was required to pay disgorgement of $350,000 and prejudgment interest of $64,000.

In December 2006, Fields settled with the SEC over his role in a different ‘Pump and Dump’ scheme involving a company called OSF Inc. He was barred from serving as an officer or director of a public company for five years.

 

https://www.justice.gov/usao-sdtx/pr/jury-convicts-tax-preparer-fraud-and-tax-violations

SEC bars two Houston brokers involved in Ponzi scheme

The Securities and Exchange Commission (SEC) has barred Donald Mackenzie and Robert Davis from being associated with any registered financial broker. The case arose out of the collapse, in December 2017, of the Woodbridge Group of Florida in a $1.3 billion Ponzi scheme. Approximately 8,400 retail (mostly elderly) investors lost money.



Mackenzie owned Old Security Financial Group in Spring. Robert ‘Lute’ Davis was a Vice-President at the company. Old Security acted as an unregistered broker by selling securities of Woodbridge.

Mackenzie and Davis are two of 20 brokers around the country charged by the SEC as marketing the investments as ‘safe’ and ‘secure’. In fact, money from new investors was used to repay earlier ones.

The SEC alleges that Mackenzie and Davis sold investors two types of securities;

  • 12 to 18 month promissory notes bearing 5-8% interest that Woodbridge described as First Position Commercial Mortgages
  • 7 different private placement fund offerings with five-year terms.

Ads were placed in Texas Monthly and on KPRC AM 950 in Houston.

$2 million commissions

Between May 2014 and July 2015 Mackenzie and Davis received sales commissions of between 1-4% on the first type and 5% on the second type. However Woodbridge deliberately mischaracterized them as marketing bonuses. Mackenzie and Davis allegedly received $2 million in commissions earned as a result of raising $41 million through the sale of Woodbridge securities.

For now, without admitting or denying the findings of the SEC, Mackenzie and Davis have agreed to be barred from association with any broker, dealer or investment adviser. Also, they cannot participate in any offering of a penny stock.

The case is still ongoing in the District Court for the Central District of California. Mackenzie and Davis, if found guilty, may have to pay back the commissions as well as penalties.

Woodbridge CEO sentenced to 25 years

In October 2019, Robert Shapiro, the former CEO of Woodbridge, was sentenced to 25 years in prison. He pleaded guilty to tax evasion and running a $1.3 billion fraud. He admitted to taking between $25 million and $95 million of investors’ money. Shapiro used it to buy real estate in the Los Angeles area, global travel, jewelry and diamonds.

The SEC has settled with some of the other brokers involved in the scheme.

Run-ins with the regulators

Mackenzie and Old Security has had a number of run-ins over the years with courts and regulators.

  • 2001 – Old Security is sued by the SEC for commissions received for the sale of unregistered securities in Alpha Telecom. He was ordered to pay $79,000 in 2005.
  • 2005 – Sued for receiving commissions received for the sale of unregistered securities in Mobile Billboards. In 2008 a court in Atlanta ordered Mackenzie to pay $153,000.
  • 2012 – Texas Commissioner of Insurance ordered Mackenzie to pay a penalty of $20,000 for selling life insurance without a license.
  • 2016 – Mackenzie and Davis were fined $100,000 by the Texas State Securities Board for selling the Woodbridge securities in Texas even though they were not registered.

SEC Litigation – Mackenzie.pdf

SEC Litigation – Davis.pdf

CFO of Houston-area bank dies unexpectedly

Jeff Powell, the CFO of Spirit of Texas Bancshares, has died unexpectedly. He was 62 years old.

Mr Powell had been the CFO since July 2017 and helped guide the company through its Initial Public Offering in May 2018. The company has its head office in Conroe, TX. It operates 23 full-service branches in the Houston, Dallas/Fort Worth and College Station metropolitan areas and has a market capitalization of $414 million.

Allison Johnson, currently the Chief Accounting Officer, has been appointed the interim CFO. She joined the bank from Florida Community Bank in 2016. She started her career at PricewaterhouseCoopers.

SEC filing – Spirit of Texas – CFO passes away