Category Archives: Financial Services

SEC charges Katy investment advisor with $3.7 million fraud

The Securities and Exchange Commission (SEC) has charged Knight Nguyen Investments (KNI) and three individuals with obtaining funds from retail investments in five fraudulent securities offerings.



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Knight Nguyen was based in Katy, Texas. Majority owner Chris Knight Lopez was also charged, along with his brother Jayson (based in Florida) and Forrest Jones.  Chris Lopez formed KNI in 2015, even though he had no experience as a securities professional. Jones was hired in February 2017.

The Scheme

Between March 2016 and September 2018, the SEC alleges that Chris Lopez and Jones raised $3.7 million from approximately 70 clients.  They largely targeted older and unsophisticated individuals who were trying to preserve or grow their retirement savings. Lopez and Jones promised that they would invest in safe and secure investments. Instead they invested the funds in five high-risk investments. Four of them were associated with or controlled by the Lopez brothers. Of course, this was not disclosed to the clients.

The SEC alleges that Chris Lopez and Jones fabricated documents and bank statements to purportedly show that some of the investments had millions of dollars in assets or cash. The SEC also alleges that they registered documents with the SEC that overstated the amount of regulatory assets under management.

Liberian gold and diamonds

A lawsuit filed in Oregon in 2016 appears to have triggered the SEC’s interest. A Portland doctor invested $2.4 million in a scheme to import gold and diamonds from a mine in Liberia. The doctor never got his gold and he lost his money. He sued his investment advisor, based in Salem and also KNI. KNI apparently sold the promissory notes issued by the purported mine.  In the current complaint, the SEC states that KNI stole that money.

Separate investigation into Jones

In June 2020, the SEC opened a separate investigation against Forrest Jones. A customer claimed damages of $350,000, alleging that Jones made unsuitable investment recommendations and misrepresentations.  At the time, in 2018, Jones worked at Fortune Financial Services in Montgomery. The investigation remains open.

https://www.sec.gov/litigation/litreleases/2021/lr25089.htm

CFO of Main Street Capital to depart

Brent Smith, the CFO of Main Street Capital, is leaving the company, effective August 31, 2021. He will be replaced by Jesse Morris, who will also retain his duties of Chief Operating Officer.

Main Street is a publicly-traded private equity company with a market capitalization of $2.8 billion. It has its head office in the Galleria area.



Rather bizarrely, the announcement was made through a SEC filing by MSC Income Fund, which is a closed-end investment company, advised by Main Street. The company itself has not yet issued a press release nor filed an 8-K with the SEC, even though they announced their Q1 results last Thursday.

Mr. Smith has been CFO and Treasurer since November 2014. He was previously the CFO of Cal Dive International. Cal Dive was a publicly-traded oilfield services company that filed for bankruptcy in 2015. Its assets were sold off to multiple buyers and the company was subsequently liquidated through a Chapter 7 filing.

Terms of Mr. Smith’s departure were not disclosed in the MSC filing, though it did refer to a retention agreement. Mr. Smith had a base salary of $361,250. According to the recent proxy filing, in the event of a termination of employment, any unvested shares would vest ($1.3 million at the end of 2020) but Mr. Smith would not receive any other payments.

I will update this post once more details are known

SEC filing – MSC Income Fund

CFO promoted to COO at Galveston insurance company

Tim Walsh, CFO and Treasurer of American National Group (ANAT), has been promoted to Chief Operating Officer. Brody Merrill, who joined the company in November 2020 as Deputy CFO has been promoted to the CFO position.



ANAT is an insurance company that was formed in 1905 in Galveston by William Lewis Moody Jr. and still has its headquarters there. It has a market capitalization of $3 billion. 70% of the stock is owned by the Moody Family or The Moody Foundation.

Mr. Walsh joined the company in 1995 and has been the CFO since 2017. Prior to that, he had been in charge of various divisions within ANAT. In fact, when he became CFO, he also kept his positions as Executive VP of Property and Casualty operations and multiple line agencies. In connection with his promotion, Mr. Walsh’s salary will increase from $575,000 to $650,000.

Prior to joining ANAT, Mr. Merrill spent 8 years at USAA in San Antonio. His last position was VP of Corporate Finance. Mr. Merrill’s salary will increase by $10,000 to $350,000.

SEC filing – American National Group CFO

 

Cadence Bank to merge with BancorpSouth in all-stock deal

Cadence Bancorporation, based in Houston, has agreed to an all-stock merger with BancorpSouth, based in Tupelo, Mississippi. The combined business will have a market capitalization of $6 billion.



The two banks are quite complementary is that Bancorp is a community bank, while Cadence brings commercial banking expertise. Bancorp has 325 full-service branch locations in Alabama, Arkansas, the Florida Panhandle, Louisiana, Mississippi, Missouri, Tennessee and Texas. Cadence has 98 branches in Alabama, Florida (around Tampa), Georgia (where Bancorp South has no presence), Mississippi, Tennessee, and Texas.

The two banks have contrasting histories. Bancorp was founded in 1876 in Verona, Mississippi and moved to Tupelo ten years later.  In contrast, Cadence was only formed in 2009 by banking industry veterans who helped grow Amegy Bank before it was sold to Zions Bancorporation in 2005.

The shareholders of Bancorp will get 55% of the combined equity, Cadence 45%. The company will keep the Cadence name. It will have its corporate headquarters in Houston, but its banking headquarters in Tupelo.

Dan Rollins, the CEO of Bancorp will become the Chairman and CEO, while Paul Murphy, CEO of Cadence will become Executive Vice Chairman. Mr. Rollins, before becoming CEO of Bancorp in 2012, spent 18 years in Houston as President and COO of Prosperity Bank.

Chis Bagley, COO of Bancorp will become President of the combined group. He’s also ex-Prosperity, having spent 17 years there. Valerie Toalson, the CFO of Cadence, will become the CFO of the combined group.

The deal is expected to close in the fourth quarter of 2021.

SEC filing – Cadence BanCorp merger

 

Houston woman charged with $3.6 million PPP loan fraud

LaDonna Wiggins, 37, has been charged with bank fraud and money laundering in relation to two Paycheck Protection Program (PPP) loans. She received $3.6 million and allegedly used these funds to buy two houses, multiple vehicles and luxury goods.



She made two loan applications for her businesses Wiggins & Graham Enterprise, dba ‘The Concession Stand and Pink Lady Line. In May 2020, she submitted an application for the first business stating she had 108 employees. The application for the second business was made the following month. She stated that she had 107 employees for that business.

Both loans were funded by Kabbage, Inc, an online funding company for small business owners.

Some of the funds were allegedly spent as follows;

  • $688k for a house in Cypress, Texas
  • $248k for a house in Katy, Texas
  • $79k for a 2020 Range Rover
  • $52k for a 2020 Nissan Murano
  • $63k at Chanel
  • $188k on a new swimming pool
  • $180k on construction work
  • $6k on an aquarium and tropical fish
  • $200k to buy an unnamed business

If convicted, Wiggins faces up to 30 years in federal prison and a possible $1 million maximum fine. The government also intends to seize the remaining cash in her bank accounts (approx. $0.5 million), the two houses and the Range Rover.

Wiggins indictment – pdf

https://www.justice.gov/usao-sdtx/pr/local-woman-charged-fraudulently-receiving-millions-under-cares-act

You can read about the other Houston-area residents charged with PPP fraud;
Six-houston-area-men-charged-in-16-million-ppp-loan-fraud/
Houston-woman-charged-with-1-9-million-ppp-loan-fraud/
Houston-man-charged-with-spending-covid-relief-funds-on-lamborghini/
Houston-funeral-director-charged-with-ppp-fraud/
Another-houston-man-charged-with-ppp-fraud/

Cardtronics accepts higher bid from NCR

NCR has agreed to buy Houston-based Cardtronics for $1.8 billion or $39 a share. Last month, the company had accepted a bid of $35 a share from two private equity firms, Apollo Global Management and Hudson Executive Capital.



Cardtronics is the world’s largest ATM operator with 285,000 ATMs in 10 countries. 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.

NCR, based in Atlanta, makes ATMs as well as point-of-sale systems and self-service kiosks for businesses such as retailers and restaurants. It has revenues of $6.2 billion, over four times the revenue of Cardtronics.

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.

Timeline of the deal

According to the proxy statement filed earlier this month, the company first approached private equity firms in May 2019. Apollo was one of them and they submitted a non-binding indication of interest in June 2019. The Board did not it compelling enough and shelved discussions.

After the company withdrew its 2020 annual guidance in April 2020, Apollo again reached out to the company, expressing interest in the company. In August, Apollo approached Hudson about teaming up on a transaction. The firms subsequently submitted an oral offer of between $30 and $32 a share.

In October, the Board decided to seek alternative partners. Goldman Sachs approached 8 different parties. NCR was not one of the 8. Only one of these parties submitted a non-binding offer of interest and even that party did not want to pursue a deal in the timeline set by the company.

Two days after Cardtronics disclosed on December 9 that it has received a proposal from the PE firms for $31 a share, NCR contacted the company, expressing interest. Three days, NCR submitted a written bid for $36 a share.  On New Year’s Eve, NCR upped the bid to $39 a share.

Fees and Golden Parachutes

Under the terms of the agreement with the PE firms, Cardtronics would have to pay a break-up fee of $32.6 million if the company accepted a higher offer. NCR has confirmed that it has paid this fee to the company.

CEO Ed West is line for a golden parachute payment of at least $26.5 million. The four other members of the senior management team will share at least $22 million.

NCR expects annualized cost savings of $100-$120 million.

Goldman Sachs got a fee of $5 million when the deal with the PE firms was initially announced. A further $20 million will be paid when the acquisition closes.

The deal is expected to close in mid-2021.

SEC filing – NCR acquisition of Cardtronics

 

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