Tag Archives: Fraud

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

Woodlands Physician group pays $1.2 million to resolve false billing claims

Millennium Physicians Association has paid the US $1,248,964 to resolve claims that they falsely billed the Medicare program for sleep studies.

Millennium is based in The Woodlands and owns and operates two sleep centers in the Houston area doing business as Millennium Respiratory & Sleep Disorder Specialists.

The investigation began following the Jan. 4, 2018, filing of a whistleblower lawsuit. Millennium employed the whistleblower who alleged the company conducted sleep studies without the presence of properly credentialed technicians.

Medicare rules and guidelines require that properly-trained and certified sleep technicians administer sleep studies. However, the investigation revealed that from Jan. 8, 2015, through March 13, 2019, Millennium improperly billed and received payment for sleep tests when they did not have the required personnel present.

Medicare rules and guidelines also require facilities to be accredited or certified by the America Academy of Sleep Medicine, Joint Commission or Accreditation Commission for Health Care Inc. Millennium self-reported that from 2011 through 2019, two of its sleep test facilities did not have such accreditation or certification.

The whistleblower will receive $187,000 as a result of the settlement.

The settlement resolved the claims without a determination of liability.

https://www.justice.gov/usao-sdtx/pr/physicians-group-pays-over-1m-resolve-false-billing-claims

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 Pharmacist guilty of $21 million fraud

George Tompkins, 75, of Houston, has been found guilty of charges related to health care fraud, wire fraud and money laundering. After a six-day trial, the jury took less than two hours to convict him of all charges (14 counts in all).



Tompkins owned Piney Point Pharmacy on Fondren Road in west Houston. According to evidence presented a trial, Tompkins billed the Federal Employees’ Compensation (FECA) program approximately $21.8 million for medically unnecessary compound gels and creams that were predicated on illegal kickback payments, which were disguised as legitimate marketing expenses.

The scheme began around September 2009 and continued through approximately September 2016. Of the $21.8 million billed, the Department of Labor paid out $11.7 million.  Tompkins referred to himself as the “Compound King”.

His wife, Marlene, was the Secretary and Treasurer of the business. She pleaded guilty in January 2020 and is awaiting sentencing. Anoop Chaturvedi, a legal permanent resident from India, was also charged. He is a fugitive and there is a warrant for his arrest.

Sentencing for Tompkins is set for May 27. He faces up to 20 years for the money laundering charges and 10 years for the other counts.

https://www.justice.gov/opa/pr/compound-king-convicted-21-million-health-care-fraud-scheme

 

Chinese national imprisoned for stealing trade secrets from energy company

Hongjin Tan, a Chinese national, has been sent to prison for 24 months for stealing trade secrets from Phillips 66. The company has its head office in Houston, though Mr Tan worked in Bartlesville, Oklahoma.

Mr Tan was initially arrested in December 2018 and pleaded guilty in November 2019.

Mr Tan joined Phillips in April 2017 as a research engineer in the battery development group. Prior to that, he had spent over 10 years working and studying in California.

On December 12, 2018, Mr Tan announced he was resigning and returning to China to be with his aging parents. The company conducted a systems access review and determined that Mr Tan had downloaded files onto a personal USB flash drive. The company then called in the FBI. The FBI found an offer letter (in Chinese) dated 17 October, 2018 on Mr Tan’s laptop from a company based in Xiamen, China. As well as the usual job offer details, the letter stated that Mr Tan would be compensated 400,000 RMB (approx $58,000) for information already provided. Mr Tan had visited China that September.

Phillips has advised the FBI that the company has earned $1.4 billion to $1.8 billion from the sale of the product in question.

Mr Tan was also ordered to pay $150,000 in restitution to Phillips.

https://www.justice.gov/opa/pr/chinese-national-sentenced-stealing-trade-secrets-worth-1-billion

Criminal complaint against Tan

Katy man sentenced to 70 months in Venezuela bribery case

Alfonso Gravina of Katy, TX was sentenced to 70 months in prison for his role in a Venezuela bribery scheme and obstruction of justice. He was also ordered to pay restitution to the IRS of $214,949. He had previously paid restitution of $590,446.



Mr Gravina was employed as a purchasing manager at Petroleos de Venezuela S.A (PDVSA) in Houston. In December 2015, he pleaded guilty to accepting $590,000 in bribes between 2007 and 2014 from Abraham Shiera and Roberto Rincon in order to steer contracts to their companies.

Rincon lived in The Woodlands. He pleaded guilty in 2016. At the time of his arrest, the government alleged he controlled 108 bank accounts including three Swiss accounts that had over $100 million in deposits. He had been awarded $750 million in contracts from PDVSA between 2010 and 2013. Shiera lived in Florida. Both Shiera and Rincon await sentencing.

After his plea in 2015, Gravina met periodically with agents from Homeland Security Investigations. Gravina admitted that, during interviews with the government, he concealed facts about bribe payments to officials at Citgo Petroleum Corporation (a Houston-based subsidiary of PDVSA). At the same time, he provided details about the government’s investigation to a co-conspirator, including about the topics discussed during Gravina’s meetings with the government. This passing of information led to the destruction of evidence and to the co-conspirator’s attempt to flee the United States in July 2018.

Including Gravina, Rincon and Shiera, to date, the Justice Department has announced charges against 26 individuals, 20 of whom have pleaded guilty in connection with the investigation.

https://www.justice.gov/opa/pr/texas-businessman-sentenced-70-months-prison-role-venezuela-bribery-scheme-and-obstruction

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

Seismic company states that former management misappropriated nearly $17 million

SAExploration Holdings has restated its annual report for 2018 and selected financial data going back to 2014. As a result, at December 31, 2018, stockholders’ equity swung from equity of $15.4 million, as originally reported, to a deficit of $17.4 million!



Furthermore, the company states that former CEO Jeff Hastings and former CFO Brent Whiteley misappropriated $16.6 million between 2012 and 2019. Not surprisingly, the company stated that the Securities and Exchange Commission and the Department of Justice are conducting parallel investigations.

SAEX is a global provider of seismic data and processing services. It has its head office in west Houston. It currently has a market capitalization of $13 million.

At some point in 2019, the SEC started an investigation in relation to revenue recognition, accounts receivable and tax credits. In August 2019, the Board established a special committee of independent directors to oversee an external investigation with respect to the matter.

Vendor and customer secretly controlled by CEO and CFO

The special committee identified that Global Equipment Solutions, one of the company’s vendors in 2015 and 2016, was actually formed by Brent Whiteley and controlled by Mr Whiteley and/or Mr Hastings. The company paid $12 million to this entity in these two years.  $5.9 million of this ended up being a capital contribution to a company called ASV. The company had originally recorded third party revenue from ASV in 2015 and 2016 of $84 million and $57 million respectively.

In the original 10-k filing, nearly all of that revenue from ASV in 2016 was still outstanding as a receivable in 2018. There was also a convoluted explanation about how the customer – ASV wasn’t named in the 2018 financial statements – was going to pay SAEX using monetization of exploration tax credits from the state of Alaska. That got the attention of the SEC. In the restated financials, this receivable was written off and ASV has been consolidated as a variable interest entity.

Consulting firm secretly controlled by CFO

Furthermore, from 2012 to 2019, payments of $4.1 million were made to a company called RVI Consulting. This was secretly controlled by Mr Whiteley. The payments were originally recorded as legal and professional expenses.

The special committee also identified the misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.

In total, the amount of funds that the company states was misappropriated was $16.6 million ($12+$4.1+$0.5 million).

The company fired Mr Whiteley in August 2019. It suspended Mr Hastings on the same day and terminated him in November 2019.

The aftermath

The company has spent $6.9 million in legal and professional fees in relation to the SEC investigation in the nine months ended September 30, 2019. For good measure, the Alaskan Department of Revenue is also conducting an investigation into the issuance of tax credits and may impose its own sanctions.

The company has been selling off assets to try and improve its financial situation. In November it sold its assets in Australia for $9 million. In January, 2020 it sold certain seismic data assets for $15 million plus a possible earnout of $5 million.

At September 2019, the company had debt of $119 million and negative equity of $31 million.

https://www.sec.gov/Archives/edgar/data/1514732/000156459020003869/0001564590-20-003869-index.htm

Houston accounting firm barred from performing public company audits

LBB Associates and its managing partner and majority partner, Carlos Lopez, have been barred by the Securities and Exchange Commission from performing public company audits. Or in the language of the SEC ‘LBB and Lopez are denied the privilege of appearing or practicing before the Commission as accountants’.



LBB, based in NW Houston, has two partners and approximately eight accountants on staff. It has about 28 public company clients. The stock of these clients is generally not publicly-traded but the clients follow SEC rules and filing requirements.

The case arose out of the collapse of an audit client, Behavioral Recognition Systems in 2015. At the time, that company was owned by Ray Davis. The SEC later filed a complaint against BRS and Davis. It alleged that they engaged in a fraudulent scheme to raise $28 million from BRS investor funds and divert $7.8 million for Davis’s personal use. The SEC alleged that Davis used the funds to purchase ancient jewelry, gold and other artifacts. Davis allegedly tried to cover his tracks by submitting fake consulting invoices to BRS from two related companies that he controlled.

The alleged fraud was discovered shortly after Davis sold the company in July 2015. However, Davis died in July 2018 before the case could be concluded.

The SEC started disciplinary proceedings against LBB in January 2019, alleging professional misconduct. The primary allegation was that Lopez relied on BRS management representations concerning the related party transactions and failed to perform any audit work around them.

Without admitting or denying the findings of the SEC, LBB and Mr Lopez agreed to the sanctions imposed. After two years, Lopez and LBB may apply to the Commission to be reinstated. However such future work would have to be reviewed by an independent audit committee of the public company.

https://www.sec.gov/litigation/admin/2020/34-88140.pdf

Houston man guilty of Hurricane Harvey fraud

Robert Kaitho, 56, has pleaded guilty to money laundering in connection with his scheme to defraud the Small Business Administration (SBA).

Kaitho applied for government assistance in reference to a property in NE Houston. Kaitho stated that the house sustained damage in Hurricane Harvey, when, in fact, it hadn’t. He falsely represented to the SBA that he would use the disbursed funds to rehabilitate the affected property.



SBA disbursed a federally-funded disaster loan to Kaitho for $71,100. He used the money to pay $25,000 to a mortgage company. Kaitho, who grew up in Kenya, also made a $30,633 wire payment to an individual located in Kenya.

Sentencing is set for June 1. At that time, Kaitho faces up to 10 years in federal prison and a $250,000 maximum possible fine.

https://www.justice.gov/usao-sdtx/pr/houstonian-convicted-scheme-linked-hurricane-harvey