four defendants indicted in $7.2 million securities fraud conspiracy
scheme targeted thousands of investors nationwide
KANSAS CITY, Mo. – Beth Phillips, United States Attorney for the Western District of Missouri, announced that four defendants were indicted by a federal grand jury today for their roles in a $7.2 million securities fraud conspiracy that victimized thousands of investors across the United States who bought shares in Petro America Corporation, which was purported to be a profitable oil trading company.
Isreal Owen Hawkins, 55, of Kansas City, Kan., Teresa Brown, 52 of Bandera, Texas, Johnny Heurung, 56, of Saint Paul, Minn., and Clarence Moore, 62, of Atlanta, Ga., were charged in an 14-count indictment returned by a federal grand jury in Kansas City, Mo. Today’s indictment replaces a federal criminal complaint that was filed against Hawkins on Oct. 26, 2010, and includes additional defendants and charges.
Today’s indictment alleges that, since Sept. 1, 2008, Hawkins, Brown, Heurung and Moore have participated in a conspiracy to commit securities fraud and wire fraud. Hawkins, Brown and Heurung were among those who promoted Petro America and sold shares to investors. Moore did accounting work, including tax preparation, for Petro America.
According to the indictment, Hawkins and Brown – who have never been licensed to sell securities – began an unregistered offering of shares of Petro America to investors in August 2008. In the first four months, the indictment says, Petro America raised about $1 million by selling stock through its Web site and presentations to church congregations, and continued raising money afterwards.
According to an affidavit filed in support of the original criminal complaint, more than 9,000 victims have invested in excess of $7.2 million since August 2008.
The defendants used religious language in their pitches and often recruited through churches, the indictment says. They allegedly gave payments to church figures, who recruited members of their congregations to invest.
Alleged False Claims
The federal indictment alleges that the sale of Petro America stock was accomplished by making fraudulent material misrepresentations and omissions to investors. For example, the indictment says, defendants falsely claimed that Petro America was worth $284 billion and Petro America stock was worth $24 per share in order to induce people to invest. There was no basis for those numbers, the indictment says.
Hawkins allegedly approved a series of press releases that were materially misleading and failed to disclose material facts related to investing in Petro America.
Heurung and Brown allegedly sent e-mails to investors in June 2009, falsely claiming that Petro America had gone public and its stockholders had become millionaires. In reality, the indictment says, Petro America had not been publicly listed on any exchange, nor had it merged with any company that was publicly traded.
The indictment alleges that defendants fraudulently attempted to create the appearance that Petro America had tangible assets. This was allegedly done by swapping stocks for interests in gold mines, for example, and by claiming that Petro America had conducted “reverse mergers” with two other companies.
The indictment also cites false and misleading statements made by Heurung during a series of conference calls in which he stated, “this stock is forecasted to do better than Microsoft ... right now we’re larger than Coca-Cola ... I am looking at a room of more millionaires in one place than I’ve been in a long time ... there’s gonna be some major billionaires in here.”
Alleged Personal Expenditures
From September 2008 through April 2010, Hawkins received nearly $2 million from Petro investors into accounts he controlled. Very little of these funds were reinvested into the company. Instead, Hawkins used investor money to purchase such items as a Chrysler 300, a Hummer H3, a 2004 Mercedes S430, 16 designer suits totaling $8,709 that were purchased on eBay and a $5,700 fur coat. In October 2009, Hawkins attempted to purchase a lakefront house in Kansas City, Kan. The purchase fell through, but Hawkins continued to make monthly rental payments of $3,025, which totaled at least $42,815. In addition, Hawkins paid himself a salary of $595,000 and had a contract that provided a guaranteed bonus of $175,000, a company car and a dining card.
Hawkins allegedly distributed at least $303,200 of investor money to at least 36 friends and shareholders of his choosing; in addition, Hawkins allegedly made cash payment totaling $217,859 to 21 “vendors and consultants.”
From June 2009 through April 2010, Brown spent at least $542,197 of Petro America investor proceeds on personal expenditures, including a boat, an SUV, travel to Switzerland, Cape Cod, Europe, Panama and elsewhere, several expensive handbags, designer luggage, home design items, more than $81,000 worth of jewelry and the mortgage on a timeshare in Virginia Beach.
In addition to the criminal conspiracy, Hawkins is charged with one count of money laundering, two counts of wire fraud and one count of structuring financial transactions in order to evade federal reporting requirements. Hawkins and Brown are charged together in one count of securities fraud. Brown is also charged with six counts of wire fraud. Heurung is also charged with two counts of wire fraud.
Today’s indictment also contains a forfeiture allegation, which would require Hawkins, Brown and Heurung to forfeit to the government any property derived from the proceeds of the alleged offenses.
Web Site Support For Fraud Victims
Two Web sites have been established to collect information from the victims of the alleged securities fraud scheme and to provide updated information about the status of the case. Investors of Petro America are encouraged to provide information via an online form at www.postalinspectorsurvey.com/PetroAmerica. Due to the volume of expected responses, this process has been automated and placed online; all communication from potential victims regarding the case should be made via this Web site. Updates about the status of the case will be posted at www.justice.gov/usao/mow/petro.html
Phillips cautioned that the charges contained in this indictment are simply accusations, and not evidence of guilt. Evidence supporting the charges must be presented to a federal trial jury, whose duty is to determine guilt or innocence.
This case is being prosecuted by Assistant U.S. Attorney Daniel M. Nelson. It was investigated by IRS-Criminal Investigation, the U.S. Postal Inspection Service and the Office of the Missouri Securities Commissioner.