Category Archives: Technology

Houston software CEO charged with evading tax on $2 billion of income

Bob Brockman, 79, has been charged with tax evasion, wire fraud, money laundering and other offenses. The scheme ran for 20 years. Prosecutors say it is the largest tax fraud case against an individual in the US.



Mr Brockman has his primary residence in the Memorial Villages area of Houston. He founded Universal Computer Systems in 1970. The business supplies software to assist car dealerships in managing their inventory. In 2006, it took over a publicly-traded rival called Reynolds & Reynolds for $2.8 billion. Mr Brockman remains the CEO of the combined business, still privately-owned and based in Ohio.

Mr Brockman is a former trustee of both Rice University and Baylor College of Medicine.

Robert Smith – Co-operating with the government

At the same time that prosecutors were announcing the charges, they also issued a press release stating that Robert Smith, an Austin-based billionaire had entered into a non-prosecution agreement. Mr Smith agreed to pay $139 million in taxes and penalties . He also agreed to abandon a refund claim of $182 million that he had filed against the IRS, related to charitable contribution deductions. Most damaging, Smith agreed to co-operate with the government investigation against Brockman. The investigation of Mr Smith took four years.

Mr Smith made headlines last year when he pledged to pay off the $34 million of student loan debt for the Morehouse College graduating class.

The Scheme

Smith and Brockman met in 1997 when Mr Smith was a Goldman Sachs. At Brockman’s urging Smith founded Vista Equity Partners, a PE firm, in 2000.  Brockman invested $1 billion in the first fund. When the portfolio companies in that and subsuquent funds were later sold at a profit, Brockman used a series of offshore companies and trusts, that he secretly controlled,  to allegedly avoid paying capital gains tax.

Brockman used a proprietary, encrypted email system to communicate with the trustees and nominees that he controlled.  Each person had a codename. At one point, Brockman emailed the trustee and reminded him that

‘all copy machine/laser printer paper has encoded into it the manufacturer of that paper as well as the year and month of manufacture. For that reason I always set aside some packets of copy paper with dates on them – for potential future use.’

The trustee is also co-operating with the government.

In all, Mr Brockman faces 39 counts. If convicted, he faces a substantial prison term and restitution and criminal forfeiture.

https://www.justice.gov/opa/pr/ceo-multibillion-dollar-software-company-indicted-decades-long-tax-evasion-and-wire-fraud

Brockman indictment

Industrial blank check company completes IPO

Industrial Tech Acquisitions has completed its Initial Public Offering (IPO). It raised $75 million by offering 7.5 million units at $10 each.  The company initially filed last month and planned to raise $60 million.



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 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.

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.

Industrial Tech will be listed on the NASDAQ under the ticker symbol ‘ITACU’. The company joins two other Houston blank check companies that are publicly traded (Graf Industries and Landcadia Holdings II).

You can see the complete list of Houston-area public companies here

S-1 Final – Industrial Tech Acquisitions

Environmental blank check company files for IPO

Peridot Acquisition Corp is the latest Houston blank check company to file for an Initial Public Offering (IPO). The company plans to raise $300 million. It has its head office in the River Oaks area.



The company is looking to buy a business that focuses on environmentally sound infrastructure, industrial applications and disruptive technologies that eliminate or mitigate greenhouse gas emissions. The target should have an enterprise value of between $800 million and $2 billion.

Examples given include:

  • Clean fuel transportation, electrification and energy efficiency.
  • Environmental infrastructure (e.g recycling).
  • Carbon capture, utilization and storage.
  • Renewables.

Carnelian, a PE firm based in Houston, is backing the company. It has $1.8 billion in cumulative equity commitments in traditional E&P companies.

Management team

Alan Levande is the CEO of the company.  Most recently, he was the co-CEO of Covey Park Energy, a natural gas company that was sold to Comstock Resources (owned by Jerry Jones of the Dallas Cowboys) for $2.2 billion in June 2019. Prior to that, Mr Levande was a Co-Founder and Senior Managing Director at Tenaska Capital Management LLC, a $4 billion private equity manager focused on investments in the power and energy sectors, from 2003 to 2012.

Markus Specks is the CFO. He was most recently a Managing Director with Värde Partners, a global alternative investment advisor managing approximately $14 billion in assets, where he was employed from July 2008 to June 2020.

UBS Investment Bank and Barclays are the joint bookrunners on the deal.

Houston-area blank check companies

The company joins a stampede of blank check companies that have gone or are planning to go public this year. In Houston;

SEC filing – S-1 Peridot

 

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