Category Archives: Financial Services

Famous Houston pastor gets 6 years for $3.5 million fraud

Kirbyjon Caldwell, a famous Houston pastor, has been sentenced to 6 years in prison for conspiracy to commit wire fraud. Caldwell was ordered to pay restitution in the amount of $3,588,500, as well as a fine of $125,000.



Mr Caldwell built up Windsor Village United Methodist Church in SW Houston into a 18,000 member mega church and was a spiritual advisor to President Bush. He offered the benediction at both his inaugurations and officiated at the wedding of President Bush’s daughter, Jenna. He was also a spiritual advisor to President Obama.

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 was also a minority owner in the Houston Texans until recently. Prior to becoming a pastor he was an investment banker on Wall Street and worked for a bond firm in Houston. He has a master’s degree from Wharton School of Business.

The fraud scheme

Caldwell was charged along with Gregory Smith, a Shreveport-based investment advisor. Smith pleaded guilty in July 2019. Smith was also sentenced to 6 years back in November.

Between April 2013 and August 2014, Caldwell and Smith raised $3,588,500 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.

Caldwell surrendered his clergy credentials before pleading guilty in March 2020.

At the sentencing hearing, Caldwell’s lawyers presented evidence that he has repaid his victims more than $4 million. They also pleaded for him to be confined to his home, rather than going to prison, citing his ongoing treatment for prostate cancer, as well his hypertension and the threat COVID-19 poses for those incarcerated with underlying conditions.

Caldwell was ordered to report to the Bureau of Prisons on June 22, 2021.

https://www.justice.gov/usao-wdla/pr/former-houston-texas-pastor-sentenced-federal-prison-his-role-multimillion-dollar

Insurance blank check company completes IPO

Delwinds Insurance Acquisition has completed its $200 million Initial Public Offering. It becomes the 7th Houston-area blank check company to go public this year. It will be listed on the NYSE.



The company was formed by The Gray Insurance Company and is based in downtown Houston. CEO Andrew Poole is an investment consultant at Gray while CFO Bryce Quin, is a process improvement specialist at Gray. They previously led a blank check company called Tiberius that went public in 2018. It subsequently acquired International General Insurance earlier this year.

Delwinds plans to target businesses in the insurance technology sector or brokers or carriers that use insurance technology (i.e. using data analytics or artificial intelligence to better price risk or automate back offices procedures).

https://www.globenewswire.com/news-release/2020/12/15/2145792/0/en/Delwinds-Insurance-Acquisition-Corp-Announces-Closing-of-201-250-000-Initial-Public-Offering.html

Houston ATM company receives buy-out offer

[UPDATE 15 Dec 2020 – Cardtronics has now agreed to a buy-out offer of $35 per share from the two PE firms].

Cardtronics has received a buy-out offer from two private equity firms. Apollo Global Management and Hudson Executive Capital have jointly offered to buy the stock for $31 per share.



Cardtronics is the world’s largest ATM operator with 285,000 ATMs in 10 countries. It has its head office in the Westchase area of Houston. The company owns about a quarter of the ATMs. For the rest, Cardtronics manages the ATMs for customers such as Walgreens and CVS. Approximately half of its $1.2 billion of revenues comes from the company charging end users a surcharge fee for using its company-owned ATMs.

At the height of the pandemic in March, ATM withdrawals in the US fell about 30% year-on-year. By Q3, volumes were flat year-on-year. The company also has a presence in the UK, where Q3 ATM withdrawals were still 33% down on a year earlier. As a result, the stock price hit a low of $16 in March, having been $47 in January 2020.

After the offer was announced, the share price rose 32% to $34.11. This gives the company a market capitalization of $1.15 billion.

Douglas Braunstein, a non-executive director since June 2018, is the Founder & Managing Partner of Hudson Executive Capital LP. It owns 19.4% of the stock of Cardtronics.

Mr. Braunstein has recused himself from any discussions that the Cardtronics Board of Directors has had regarding any transaction. The other members of the Board of Directors will review and assess the terms of the proposal.

Cardtronics has retained Goldman Sachs & Co. LLC as its financial advisor and Weil, Gotshal & Manges LLP and Ashurst LLP as its legal advisors

https://ir.cardtronics.com/news-releases/news-release-details/cardtronics-confirms-receipt-proposal-apollo-global-management

 

Conroe bank appoints new CFO

Spirit of Texas Bancshares has appointed Allison Johnson as its new CFO. She has been serving as the interim CFO since Jeff Powell died unexpectedly in January.

The company has its head office in Conroe, TX. It operates 38 full-service branches in Texas. It went public in May 2018 and has a market capitalization of $283 million.

Allison Johnson joined the company as its Chief Accounting Officer in 2016. Prior to that, she worked at Florida Community Bank in 2016. She started her career at PricewaterhouseCoopers.

No compensation arrangements for Ms. Johnson were disclosed.

SEC filing – Spirit of Texas CFO appointment

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