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.
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.