Category Archives: Technology

Industrial blank check company files for IPO

Industrial Tech Acquisitions has filed for a $60 million Initial Public Offering (IPO). The company is a SPAC (Special Purpose Acquisition Company), otherwise known as a blank check company. In other words, it doesn’t have any commercial operations.



The company has its head office in the Galleria area and its CEO is Scott Crist. He has founded, run and exited a number of businesses in the technology, telecommunications and industrial sectors.

Mr Crist is currently the CEO of Osprey, a company that provides remote surveillance and analysis to the energy sector. Rather unusually, in September 2019, he swapped CEO jobs with Mark Slaughter, the CEO of INET , a telecommunications and networking company. The companies were not affiliated with each other and didn’t have common investors. They did, however, share office space in Houston.

The CFO is Greg Smith. He was the founder, CEO and CFO of ERF Wireless. It is a company that provides high-speed broadband for mission-critical applications in energy, banking and hospitals. He also served as CFO for Industrial Networks, between 2017 and 2020, where he worked with Mr Crist

Not surprisingly, Industrial Tech Acquisitions is seeking to buy a technology business operating in the industrial or energy area. This includes software, mobile and IoT (Internet of Things) applications, cloud communications and ultra-high bandwidth services. Targets would have am enterprise value of between $250 million and $500 million.

The company has 21 months from the closing of the IPO to finalize an acquisition, though that could be extended by a maximum of 9 months, if they are close to a deal.

Maxim Group LLC is the sole bookrunner on the deal.

SEC Filing – S-1 Industrial Tech Acquisitions

 

E-commerce provider files for bankruptcy after hacking breach

Austin-based Volusion LLC has filed for Chapter 11 bankruptcy in the Southern District of Texas. Volusion is a provider of cloud-hosted online stores for small and medium-sized businesses. However, in late 2019, hackers compromised the Google cloud infrastructure of the company and stole 239,000 credit card records. The hackers sold the stolen credit cards for at least $1.6 million.



Volusion was founded by Kevin Sproles in 1999 when he was 16 years old. He returned to the company in 2015 as CEO, though he stepped down from that role in August 2019, shortly before the breach took place.

Mr Sproles still owns 88% of the equity. Main Street Capital, a Houston-based public company, owns 8% of the equity, which they valued at $12.95 million in their most recent annual report. Main Street also has a further $19.2 million in secured debt and $0.3 million in unsecured debt invested in the company.  The other 4% of the equity is owned by another Houston company, HMS Equity Holdings, which also has secured debt outstanding.

According to a research report by Gemini, the hackers inserted malicious JavaScript code onto the company’s servers. This was then loaded onto at least 6,589 online stores of customers of Volusion. The malicious code recorded payment card details as it was being entered onto checkout forms. The breach occurred on September 7, 2019 and was discovered on October 8. The stolen card data was put up for sale on the dark web in November.

Tim Stallkamp of Conway MacKenzie has been appointed Chief Restructuring Officer of the company.

Volusion llc Chapter 11

 

 

Indian ringleader pleads guilty in Houston to call center scam

Hitesh Patel, aka Hitesh Hinglaj of Ahmedabad, India pleaded guilty in a Houston federal court to conspiracy to commit wire fraud, identification fraud and money laundering (among other charges).



The Scheme

Patel ran call centers in India that impersonated officials from the IRS and US Citizen and Immigration Services. US victims were threatened with arrest, imprisonment, fines or deportation if they did not pay alleged monies to the government.

If the victim agreed to pay, the call centers would turn to a US-based network of ‘runners’ who would purchase blank prepaid debit cards, forward them to the call center for registering and then purchase money orders using balances loaded by the call centers from the fraud proceeds.

21 sentenced in July 2018

The scheme also targeted citizens in Canada and Australia and ran from 2013 to 2016. Back in July 2018 I wrote about 21 US-based defendants who were sentenced in Houston. Patel was arrested in Singapore in September 2018 and extradited to the US in April 2019.

A co-defendant described Patel as “the top person in India and the boss for whom most of the other defendants worked.” Another co-defendant claimed Patel was arrested in India in 2016, but paid a bribe and was released.

$65 million losses

At the time of the original indictment, the US government stated there were over 15,000 known victims with $300 million attributable to scam calls. These numbers are for estimated 140 scammers operating this type of scheme. In his plea deal, Patel admitted he was accountable for approximately $25-65 million of the losses.

Sentencing is set for April 3. Patel faces up to 20 years in prison for the wire fraud conspiracy and five years for the other charges. Both counts also carry the possibility of a fine of up $250,000 or twice the gross gain or loss from the offense.

Hitesh Patel – superseding_indictment

https://www.justice.gov/usao-sdtx/pr/indian-national-convicted-role-call-center-scam-victimized-thousands-us

Houston men settle with SEC over insider trading allegations

Two Houston-area men, Balajj Sundarraj of Sugar Land and David O’Brien of Houston, have agreed to pay fines and penalties to settle allegations by the SEC of insider trading.

Mr Sundarraj owns and operates a company that supplies directional drilling products. Mr  O’Brien is a purchasing manager in the oil and gas industry.



According to the SEC, Mr Sundarraj’s brother-in-law was an associate lawyer at a law firm engaged by Oracle to perform legal due diligence. The brother-in-law worked from his home in Sugar Land and took steps to make sure his work remained confidential.

In April 2016, the brother-in-law was on a conference call discussing Oracle’s proposed acquisition of Opower. Mr Sundarraj was in an adjacent room and overheard details. He then told Mr O’Brien about the call. So, after researching the company on library computers, they each purchased shares of Opower.

In late April, Mr Sundarraj bought 5,000 shares for $39,359, while Mr O’Brien bought 8,858 shares for $68,729.  On May 2, Oracle announced it would buy Opower. The same day, Sundarraj and O’Brien sold all their shares, realizing gains of $12,050 and $22,900 respectively.

Without admitting or denying the findings, Sundarraj agreed to pay disgorgement of $12,050, interest of $1,650 and a penalty of $34.950. O’Brien agreed to pay disgorgement of $22,900, interest of $3,137 and a penalty of $22,900.

SEC action – Sundarraj and O’Brien

Houston company hires new CFO after 8 months

RigNet (market cap $277 million), based in West Houston, has appointed Lee Ahlstrom as its new CFO after an 8 month search.

Most recently Mr Ahlstrom was at Paragon Offshore. He joined that company in 2014 as the Senior VP of Investor Relations and became the CFO in November 2016. Paragon, an offshore driller, was publicly traded until going into Chapter 11 in February 2016. After exiting bankruptcy in July 2017 as a private company it was sold to Borr Drilling earlier this year.

Mr Ahlstrom will receive a base salary of $350,000. He replaces Chip Schneider who left on December 27 with a large Christmas bonus ($1.3 million in severance compensation).

Tonya McDermott, who had been serving as the interim CFO, reverts back to her previous position of VP of Tax and Treasury.

 

Houston CFO moves – week ending 25 May

The Memorial Hermann Health System announced that Brian Dean, currently CEO of the Memorial Hermann-Texas Medical Center campus, has been appointed CFO.  He joined the organization in 2013.

Mr Dean replaces Carroll Aulbaugh who was CFO between 2001 and 2012 and then again from September 2017 after Dennis Laraway left to become CFO of Banner Health in Phoenix.

Turner Valley Oil & Gas, a small company that is traded over-the-counter and with its head office in River Oaks, appointed Patrick Devereaux as its CFO. According to the company he is known as the Blockchain Accountant of New England! The company is in the process of changing its name to PrimeStar Bitumen and will transform itself into an infrastructure, shipping and blockchain company.

Select Energy Services appointed Brian Szymanski as its Chief Accounting Officer. He was most recently Interim Chief Accounting Officer at Berry Petroleum and prior to that spent many years spent time at Chesapeake and its spin-off Seventy Seven Energy.  The previous week the company announced the appointment of Nick Swyka as its new CFO.

BMC Software considers IPO

According to a report from Reuters, BMC Software is holding conversations with investment banks about an Initial Public Offering (IPO) that could give the company an enterprise value of more than $10 billion.

BMC is based in the Westchase area of Houston and is currently owned by two private equity firms, Bain Capital and Golden Gate Capital who took the company private in 2013 in a $6.9 billion leveraged buyout.

According to Moody’s the business had revenues of $1.8 billion for the year ending 30 September.

BMC hasn’t made any filings with the SEC yet and no timing has yet been determined.

Reuters : BMC explores IPO

Departing Houston CFO gets big Christmas bonus

Rignet (market capitalization $287 million) announced that CFO, Chip Schneider, is leaving the company. No reason was given for his departure and no replacement has yet been named. The press release states that Mr Schneider will leave ‘following a brief transition period’. The 8-K filed by the company states his last day is 27 December.

Rignet provides customized communication services, primarily to oilfield services companies and has its head office in west Houston.

The press release from Rignet states that Mr Schneider is entitled to payments outlined in his employment contract. That states that he will receive a severance one-and-a-half times his base salary (1.5 * $325,000 = $489,000) plus the 2017 target bonus (70% * $325,000 = $228,000) for a cash payment of $717,000.

In addition Mr Schneider’s unvested equity awards will all vest as well. According to my calculations, at today’s share price that amounts to around $680,000.

In March 2017, the Board of Directors approved a special cash retention bonus to Mr Schneider of $325,000 payable in two equal installments in March 2018 and March 2019, assuming Mr Schneider’s continued employment with the company on those dates. No mention in the press release whether Mr Schneider will receive the retention bonus on top of the severance package (probably depends on the wording of the bonus agreement).

Mr Schneider was appointed CFO of Rignet in December 2015, following a 7 year spell at KBR in various financial roles. When he joined, he also received a cash sign-on bonus of $125,000.

Mr Schneider replaced Martin Jimmerson  (CFO from 2006-2015) who received a $1 million cash severance payment when he left the company.

https://www.sec.gov/Archives/edgar/data/1162112/000119312517375654/d451501d8k.htm

Houston businessman arrested for $32 million fraud

Ray Davis, a 62-year-old Houston man, has been arrested following the return of a federal indictment charging him for his role in a securities and wire fraud scheme, totaling over $30 million.

A grand jury returned a 21-count indictment on 7 December. According to the indictment, the scheme involving defrauding investors in Behavioral Recognition Systems Inc (BRS) by making false and misleading statements to investors to fraudulently induce them to purchase shares in BRS ($32 million). He also allegedly embezzled more than $11 million from BRS.

BRS was based in the Galleria and made artificial intelligence technology that analyzes video information. Mr Davis founded the company in 2005, raised the money from investors in 2008-2009 and sold the business to a company called Giant Gray in 2015.

According to this February 2017 article in the Houston Chronicle Giant Gray sued Mr Davis and his son, Charles Davis for embezzling money by creating false invoices and charging personal expenses to the company.

There was no mention of the son, Charles Davis, in the federal indictment.

If convicted, Mr Davis faces up to 20 years in prison for the securities fraud charges as well as each of the 20 counts of wire fraud. The charges also carry a possible $250,000 maximum fine.

https://www.justice.gov/usao-sdtx/pr/local-man-arrested-30-million-securities-and-wire-fraud-scheme

Former Executives of Houston-area Tech company settle with the SEC

The Securities and Exchange Commission (SEC) has announced that two former executives of a public company, based in The Woodlands until 2015, have agreed to pay penalties to settle charges that they misled investors about the production status and license agreement relating to its key product.

The company in question is Uni-Pixel which manufactures sensors for touch screens. It was formed in 2007 and started trading on the Nasdaq in 2010. Until December 2013 the CEO of Uni-Pixel was Reed Killion, a resident of Spring, TX . Jeffrey Tomz, a resident of The Woodlands, was the CFO until May 2015. The SEC alleged that, between December 2012 and February 2014, the company issued a series of press releases, supposedly announcing cutting-edge technologies and pivotal business relationships which then failed to achieve commercial quality and generated little or no revenues.

For example, in November 2013, the company issued a press release stating that it had ‘received its first purchase order from their lead PC OEM Partner for its revolutionary InTouch Sensors’. In reality, the OEM Partner (Dell) had ordered 1,000 sensors at $0.01 per unit for a total price of $10!

Between 2007 and 2012, the company had total revenues of $515,000 and cumulative losses of nearly $50 million, yet the market capitalization, at one point, rose to $415 million on the back of the press releases.

Killion purportedly made $770,000 and Tomz $1.2 million from stock sales during the period in question.

Without admitting or denying the SEC’s charges, Killion and Tomz agreed to pay civil penalties of $100,000 and $50,000 respectively. Killion was barred from serving as an officer or director for 4 years, while Tomz agreed not to participate in the financial reporting or audits of public companies for 4 years. In an earlier settlement in 2016, the company paid a penalty of $750,000.

At face value, it seems that the executives got off lightly in terms of penalties paid in relation to gains made. However, since 2016, the executives have been in dispute with the company (now based in Santa Clara) over the amount of legal defense fees that the company is meant to be covering. In August 2017 a court ordered the company to pay $1.4 million to the former executives for unpaid legal fees. Instead, the company filed for Chapter 11 leaving the executives as unsecured creditors, meaning they would have to pay the large legal bills themselves.