Tag Archives: Fraud

Two Houston men charged with $317 million mask fraud

Two Houston men have been charged with trying to fraudulently sell 50 million masks for $317 million to a foreign government. Paschal Eleanya, 46 and Arael Doolittle, 55 are now in custody.

Last month, in a separate case, Doolittle was charged with defrauding investors out of $1.2 million by pretending to have deals with Chevron.



Pascal Eleanya is a supply chain and operations executive who has worked for DuPont, Baker Hughes and Huntsman Corporation.

Both are charged for their role in a scheme to sell 50 million 3M model 1860 N95 respirator masks they did not actually possess to a foreign government. They negotiated a sales price of $317 million. This was five times the public list price that 3M had set.

Based on their representations, the foreign government allegedly wired the funds to complete the purchase. However, authorities disrupted the transaction before it could be completed.

If convicted, both Doolittle and Eleanya face up to five years in prison for conspiracy and up to 20 years in prison for each of the two counts of wire fraud. Each of these charges also carry a possible $250,000 maximum fine.

The Secret Service conducted the investigation.

https://www.justice.gov/usao-sdtx/pr/two-houston-men-charged-attempting-fraudulently-sell-50-million-masks

 

Six Houston-area men charged in $16 million PPP loan fraud

Six Houston-area men have been charged with fraudulently obtaining more than $16 million in Paycheck Protection Program (PPP) Loans. A seventh individual from Illinois was also charged.

The indictment alleges that the defendants filed at least 80 fraudulent PPP applications, seeking nearly $30 million in PPP loan funds. Ultimately about $16 million was funded.



Amir Aqeel, 52 was the ringleader. He would create the loan applications for shelf or inactive companies, working with the other defendants who owned many of them. Other companies were owned by unnamed and not charged individuals.  For some of the loans, Aqeel would keep 33%, with the business owner getting the rest.

Unlike other PPP fraudsters, the defendants went further by writing purported paychecks to fake employees. Many of these were the defendants or their relatives. Aqeel’s 86-year-old mother (not charged) received checks from at least six different companies that received fraudulent PPP loans.

Over 1,100 fake paychecks, totaling over $3 million, were cashed at Almeda Discount Store in SE Houston, owned by one of the defendants.

With some of the proceeds, it is alleged that Aqeel bought a 2013 Lamborghini Gallardo Spyder and a 6,000 sq ft, $1 million house in Champion Forest.

https://www.justice.gov/opa/pr/seven-charged-connection-covid-relief-fraud-scheme-involving-more-80-fraudulent-loan

Houston charged with defrauding investors in oil and gas deals

Arael Doolittle has been charged with taking $1.2 million from 21 investors through fake oil and gas deals. A federal grand jury returned a 12-count indictment.

Mr Doolittle operated Sariel Petroleum and Sariel Enterprises. He had an associate, a Houston realtor, pose as a distillates trader working for Chevron. The associate established a bank account in the name of Chevron USA Products, without permission from Chevron.



In 2017 Doolittle persuaded Dominion Resources Trading (‘DRT’), a small outfit in Las Vegas to work with him to find investors for oil and gas transactions he was working on. DRT ultimately forwarded on $1.25 million from 21 investors to Sariel Petroleum. Doolittle provided falsified records to DRT that appeared to show $1,209,600 of the funds has been used to buy product from Citgo.

Doolittle created letterhead and emails that appeared to come from Chevron. He also persuaded an attorney and a banker to provide attestation letters and assurances to potential customers and investors.

In a separate case in the Southern District of Texas, Chevron sued Sariel Petroleum in January 2018 for trademark infringement. After a jury trial, Chevron was awarded a $15.6 million judgement against Sariel in April 2020.

Doolittle is charged with eight counts of wire fraud and four counts of engaging in monetary transactions in criminally derived funds. Wire fraud carries a potential 20-year-maximum sentence and a possible $250,000 maximum fine. If convicted of any of the other four counts, he faces the same fines and up to 10 years imprisonment.

https://www.justice.gov/usao-sdtx/pr/houston-man-charged-defrauding-investors-oil-and-gas-deals

Doolittle indictment

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

Katy man pleads guilty to stealing $2 million from employer

Andy Bishop, 45, of Katy, has pleaded guilty to stealing more than $2 million from his employer, Independent Professional Management (IPM), a staffing and asset management company, based in west Houston.



The company started in 1992 and Bishop joined in 1998. According to the company’s website ‘Andy Bishop joined the team, not knowing he would eventually become the Super Star operations guru that everyone relies on to keep things running on a daily basis.’ His title was VP of Resource Management.

As stated in the criminal charges, Bishop was in charge of preparing the ‘Borrowing Base Report’ to Gulf Coast Bank. This was used to fund the operations of the company. In the example in the charge sheet, Bishop stated that IBM had $3,888,237 in accounts receivables, when in fact the company only had $2,822,065 in receivables. That allowed IPM to borrow more money than the company was truly entitled to.

According to the press release from the US Attorney’s Office, Bishop created fake vendor accounts and diverted the ‘excess’ cash to pay these vendors.  Over a span of six years, Bishop stole approximately $2.1 million. These details are not included in the criminal charges filed.

The owners of the company discovered the fraud in August 2019.

Bishop will face sentencing on Jan 5, 2021. At that time, he faces up to 20 years in federal prison and a possible $250,000 maximum fine.

Last week, in another case involving a trusted, long-standing employee, James Camp was sentenced to four years for stealing $10 million over a 19-year period from Lubrizol in Deer Park.

https://www.justice.gov/usao-sdtx/pr/ex-oil-exec-admits-stealing-more-2-million

Robert Andrew Bishop – charges

[Note that the press release issued by the US Attorney’s Office incorrectly refers to the employer as International Professional Management].

SEC charges four execs from seismic company with $100 million fraud

The Securities and Exchange Commission (SEC) has charged four former executives from SAExploration with falsely inflating revenues by $100 million and stealing millions of dollars.

SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy



The four executives charged are

  • Jeff Hastings. Chairman from 2013 to 2016. CEO from 2016 to August 2019.
  • Brent Whiteley. CFO from 2011 to August 2019.
  • Brian Beatty. Founder and CEO from 2011 to 2016. COO from 2016 to December 2019.
  • Michael Scott. VP of Operations from 2011 to September 2020.

The spouses of Hastings and Whiteley have been charged as relief defendants. In other words, they have not been charged with any wrongdoing, but the SEC will seek to recover ill-gotten gains passed to them.

Hastings lives in Anchorage, Whiteley in Houston, Beatty and Scott reside in Canada.

Last month, Hastings was arrested in Alaska and will face securities fraud charges in a federal court in New York. The other three were unnamed co-conspirators but were not charged at the time.

Company secretly controlled by the Executives

The SEC complaint goes into more detail than the complaint filed in the New York federal court. To recap, the scheme began in February 2015 when the executives discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for them was that the Board of SAEX was against the idea of the company operating its own data library.

Hastings proposed setting up a special purpose vehicle. In April 2015 he enlisted a business acquaintance to be the straw man owner of Alaskan Seismic Ventures. ASV was set up to be a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators.

However, they hid their involvement and control over ASV from the Board and investors.  Whiteley provided administrative and operational support to the owner of ASV. Hastings, Whiteley and Scott located customers to license data from ASV.

SAEX started recognizing revenue from ‘sales’ to ASV, and the sales it recognized began to far exceed the licensing sales made by ASV to E&P operators. By the end of 2015, SAEX had recognized revenue of $83 million but ASV had only made $32 million in licensing sales.

In early 2015, the executives had begun to seek bank financing for ASV. However, in June 2015, Bill Walker, the Governor of Alaska, threatened to enact a line-item veto that would significantly reduce the pool of money available to pay out Alaska Tax Credit claims. That meant that banks were less likely to lend money to ASV.

Round-tripping

According to the SEC, that’s when the executives came up with a plan to round-trip funds to ASV and back to SAEX. They created a sham company that purported to rent seismic survey equipment from SAEX. $12 million was transferred from SAEX in this way. Two more sham companies were set up, one ‘owned’ by a close friend of Hastings, the other by a neighbor of Whiteley’s. After a series of transactions funneled through these companies, $5.8 million was returned to SAEX as payment of outstanding receivables.

Of the remaining $6 million, $1.8 million was transferred to a TD Ameritrade brokerage account owned by Hastings and his wife. Whiteley transferred $2.6 million to himself. A later transaction resulted in Hastings and Whiteley getting a further $313,082 each. Beatty and Scott got $219,940 each.

CFO creates fake vendor

The SEC also alleges that CFO Whiteley misappropriated an additional $4 million between 2011 and 2019. He created fake invoices for legal and consulting services performed by fictitious entities that he created. Whiteley approved the payments of these invoices to a bank account in the name of his spouse. He also directed payments owed to legitimate vendors to himself.

The SEC is seeking civil penalties and disgorgement of allegedly ill-gotten gains. It is also seeking reimbursement of incentive-based compensation paid to the executives pursuant to section 304(a) of the Sarbanes-Oxley Act.

https://www.sec.gov/news/press-release/2020-251

Former Deer Park chemist sentenced for $10 million fraud

James Camp, 66, of New Braunfels has been sentenced to four years in prison after admitting to stealing nearly $10 million from his former employer, Lubrizol. The fraud occurred over an 19-year period.

Lubrizol was a public company until its takeover by Berkshire Hathaway in 2011 for $9 billion.



Camp began working for Lubrizol in Deer Park in 1976. Part of his job involved managing the testing of samples of the wastewater treatment unit at the facility. Camp was also responsible for managing various laboratory tests requested by Lubrizol production or waste management personnel. In addition, he was responsible for selecting the labs and approving the payments to those labs.

Beginning in April 1998, Camp set up two sham companies as vendors in the Lubrizol ERP system. He then fabricated invoices and set up the electronic payment requests, which were sent to the corporate office in Ohio.

The scheme continued until Camp retired from the company in November 2017.  In total, the company paid almost $9.3 million to the sham companies. In addition, Camp used a company credit card to make $385,000 in purchases from one of the sham companies.

Camp was arrested in September 2019 and pleaded guilty in June. His sentence will be followed by three years of supervised release. Camp was also ordered to pay restitution in the amount of $11,256,712.54.

https://www.justice.gov/usao-sdtx/pr/chemist-sent-prison-embezzling-millions

Houston oil trader indicted over Ecuador bribery scheme

Javier Aguilar, a Mexican citizen living in Houston, has been indicted on charges of conspiracy to violate the Foreign Corrupt Practices Act (FCPA) and conspiracy to commit money laundering. He faces charges in the Eastern District of New York.

Mr Aguilar was an Oil Trader for Vitol, which has its head office in Geneva. According to the press release released by the Justice Dept, between mid-2015 and 2020, Aguilar paid two intermediaries $1.4 million for their efforts to bribe government officials in Ecuador. In turn, the intermediaries paid out $870,000 to the officials.



In exchange for bribes, Vitol secured contracts to purchase approximately $300 million in fuel oil.

Press Release and Indictment details don’t match

What’s interesting is that the details quoted in the press release don’t match the details in the indictment.  The indictment has two counts. Count One is the conspiracy to violate the FCPA. This count has all the detail. Count Two is the conspiracy to commit money laundering and the indictment has no specific details on this.

The Scheme

Regarding count One, the indictment states that Aguilar sent an email in September 2016 to one of the intermediaries directing that individual to send a letter from a state-owned entity in Oman to Ecuadorian official #1.

One of the intermediaries created 39 sham invoices and sent them to a shell company in Curaçao. Vitol wired approximately $750,000 from a UK bank account to the shell company. It’s not clear in the indictment which invoices this payment covered. However, as payment for 13 of the 39 invoices, the shell company wired approximately $250,000. The money was sent to bank accounts in the Cayman Islands and Curaçao controlled by the intermediaries. In turn, they sent $225,000 (via a correspondence bank in New York) to an account in Portugal controlled by the Ecuadorian official.

The press release refers to Ecuadorian officials, however, the indictment only refers to one in count One.

If convicted, Aguilar faces a maximum sentence of 20 years in prison

https://www.justice.gov/opa/pr/oil-trader-indicted-international-bribery-and-money-laundering-conspiracy-involving-corrupt

Former CEO of Houston public company arrested for securities fraud

Jeff Hastings, the former CEO of SAExploration, has been arrested in Anchorage, Alaska on charges of wire fraud and securities fraud. He will face charges in the Southern District of New York.



SAEX is a seismic company that had significant operations in Alaska. It is based in west Houston and recently filed for Chapter 11 bankruptcy Back in February, the company restated its financial results, going back to 2014. It alleged that Hastings and former CFO Brent Whiteley misappropriated nearly $17 million between 2012 and 2019.

Whiteley hasn’t been charged with any crimes. In the FBI complaint, he is named as ‘Co-conspirator 1″. The FBI states he has ‘agreed to assist law enforcement, in part, in hopes of entering into a cooperation agreement with the Government’.

Two other co-conspirators are mentioned in the complaint, by title, though not by name. Brian Beatty, the founder and COO until December 2019, is ‘CC-2’. Michael Scott, the VP of Operations is ‘CC-3’. He resigned from his position at SAEX on September 14.

The Scheme

The complaint alleges that the scheme began in February 2015 when the CEO and CFO discussed ways for SAEX to take advantage of tax credits offered to seismic companies by the State of Alaska to help offset the costs of exploring for oil and gas in the state. The problem for Hastings and Whiteley was that the Board of SAEX was against the idea of the company operating its own data library.

In May 2015 Hastings and Whiteley set up Alaskan Seismic Ventures (ASV) as a seismic data library company that would buy seismic data from SAEX and lease it to E&P operators. However, they hid their involvement and control over ASV from the Board and investors.  To get the state credits, the company was required to conduct transactions with SAEX on an arm’s length basis.

The CEO and CFO learned that lenders were willing to make loans to ASV, if ASV was able to demonstrate it had substantial capital. $12 million of fake invoices to another company secretly controlled by Hastings allowed SAEX to send $6 million to ASV.

Unfortunately, the lenders decided not to provide funding to ASV. Hastings and Whiteley decided to send $5.8 million back to SAEX as partial payment for the seismic data it acquired.

The remaining $6 million was allegedly misappropriated by Hastings and the co-conspirators for their own personal use.

Other issues raised by the company

When the company restated its results it also said that

  • 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.
  • There was a misappropriation of $0.5 million in 2013 in relation to the reimbursement of the individual tax liability of Mr Hastings.

These two items are not part of the charges brought against Mr Hastings.

HastingsComplaint

Houston woman charged with $1.9 million PPP loan fraud

Lola Shalewa Barbara Kasali, 22, of Houston, has been charged with fraudulently obtaining more than $1.9 million in Paycheck Protection Program (PPP) loans.

The complaint alleges that Kasali submitted at least two fraudulent PPP loan applications. One for an entity called Lola’s Level and the other in the name of Charm Hair Extensions. Kasali allegedly received more than $1.9 million in PPP loan funds following the approval of the Lola’s Level application.



The charges allege that after receiving the funds, Kasali transferred the money into four additional bank accounts. Authorities were later able to seize the funds, according to the charges.

The loan applications allegedly asserted both Charm Hair Extensions and Lola’s Level had numerous employees and significant payroll expenses. According to the charges, however, neither entity has employees nor pays wages consistent with the amounts claimed in the loan applications.

According to the PPP loan database of loans over $150,000 that is published by the Small Business Administration, there is one loan approved for Lola’s Level but none for Charm Hair Extensions.

The bank that approved the Lola’s Level loan was Radius Bank of Boston. That bank was also involved in partially funding the PPP loans of a Houston man now charged with buying a Lamborghini with his funds.

https://www.justice.gov/opa/pr/texas-woman-charged-fraudulently-obtaining-nearly-2-million-covid-relief-funds