kCK, texas ministers plead guilty to securities fraud conspiracy
petro america scheme targeted thousands of investors nationwide
KANSAS CITY, Mo. – Beth Phillips, United States Attorney for the Western District of Missouri, announced that a Kansas City, Kan., minister and a Waco, Texas minister pleaded guilty in federal court today to their roles in a $7.2 million securities fraud conspiracy that victimized thousands of investors across the United States and Canada who bought shares in Petro America Corporation, which was purported to be a profitable company with $284 billion in assets.
The Rev. Edward D. Halliburton, 56, of Kansas City, Kan., and Joseph Harrell, 49, of Waco, Texas, who acted as the CFO of Petro America, each waived his right to a grand jury and pleaded guilty in separate appearances before U.S. Magistrate Judge John T. Maughmer to conspiracy to commit securities fraud and wire fraud. Halliburton and Harrell admitted that they conspired with others to obtain money through the fraudulent sale of Petro America stock by making misrepresentations and omissions to investors. They each received nearly $400,000 from the sale of Petro stock.
Halliburton, who has been a pastor for more than 20 years, was the president of the Ministers Alliance. The Ministers Alliance was a group of about 15 ministers (most of whom resided in the Kansas City area) who supported and promoted Petro America. Harrell, a minister, was also associated with the Ministers Alliance.
Members of the Ministers Alliance sold Petro shares to their congregants and others. The Ministers Alliance frequently held meetings, including a weekly meeting at a Denny’s restaurant, and participated in regular Thursday night conference calls with hundreds of investors in dozens of states.
Each of the ministers received a white fedora hat as a gift and began calling themselves the White Hat Guys. Following the Thursday night conference calls, on about 25 occasions, the White Hat Guys went to Brio Tuscan Grille on the Plaza and, afterward, many also went to the Epicurean Night Club.
Although they knew that both Missouri and Kansas had issued cease and desist orders that barred the sale of unregistered Petro stock, Halliburton and Harrell sold millions of shares to investors. They represented that they were selling their own shares, when in reality most of the shares had been gifted to them for that purpose as an attempt to work around the cease and desist orders. Both Halliburton and Harrell failed to disclose to investors that they were not licensed to sell stock.
US v. Halliburton
From October 2009 to October 2010, Halliburton sold at least $369,605 in Petro America stock to more than 100 investors in the United States and Canada. Halliburton paid approximately $50,000 in kick-backs to co-conspirators from the proceeds of those sales.
Halliburton became involved with Petro America in September 2008 through another minister. Initially, he paid for his shares of Petro stock. Halliburton purchased 200,000 shares of stock for $200, then made additional purchases every two weeks of 100,000 shares for $100.
In late 2009 Halliburton began selling shares of Petro stock that were owned by another minister, Charles Hooker. Halliburton and Hooker split the proceeds of those sales evenly with each other. Halliburton told people at his church about Petro, and he mentioned it at other churches he visited. Halliburton did not disclose that he was selling somebody else’s shares. Although Halliburton knew that the stock was unregistered, he did not disclose that to buyers, nor did he tell them about the cease and desist orders.
Halliburton painted a rosy picture about Petro’s chances for success, including describing the many assets that Petro supposedly had, and how the company’s value would greatly increase when the company soon went public. Halliburton falsely told investors that Petro America would soon be a publicly listed company and that the company was worth $284 billion. Halliburton sold about 50 million shares of Hooker’s Petro stock for about $50,000; he stopped selling Hooker’s stock in April 2010.
Halliburton was gifted 100 million shares of Petro stock in April 2010, when he became president of the Ministers Alliance. Halliburton was told that any shares he sold would be replaced, so that his total shares would not fall below 100 million. Halliburton told buyers that the shares were his; he did not disclose that he had not paid for them. Halliburton stepped away from Petro in October 2010 after speaking with a criminal defense attorney.
Halliburton used the proceeds from the sale of Petro stock to purchase a 2004 S500 Mercedes for $20,000, to satisfy the mortgage on his home and to purchase a rental property. He also bought a lot of clothes and a tennis bracelet for his wife. Halliburton spent about $10,000 on travel, and he spent approximately $17,000 remodeling his residence. He also purchased a doctorate degree from Tabernacle Bible College for $1,794, for which he did no actual course work.
Under the terms of today’s plea agreement, Halliburton must forfeit to the government any property obtained from the proceeds of the offense, including the Mercedes and the value of his residential and rental properties.
US v. Harrell
Harrell admitted that he became aware that the company was fraudulent, but nevertheless agreed to sell stock in order to make money for himself. Harrell knew that co-conspirators were providing false and misleading information about Petro America during the weekly shareholder meetings in Kansas City and the weekly conference calls.
Harrell sold stock to at least 90 investors, depositing $385,460 into his bank account. He couched many of his sales pitches in religious language, stating that Petro was a blessing from God. Harrell admitted that he knew the information he was providing to investors was incomplete and misleading.
Harrell tried to protect his newly-acquired assets by placing them in LLCs. He drove nice cars and was living significantly better than prior to his involvement in Petro. He bought World Series tickets, for example, and rented cars for $423 per week. He frequently used Petro money to pay for meals at expensive restaurants for himself and others. During this time, Harrell was receiving an income-dependant Social Security disability benefit. Until at least May 2010, Harrell was receiving food stamp benefits.
Acting as CFO of Petro, Harrell wrote checks for purported Petro expenditures that he knew were not legitimate business expenses.
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 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/divisions/petro.html
Under federal statutes, Halliburton and Harrell are each subject to a sentence of up to five years in federal prison without parole, plus a fine up to $250,000 and an order of restitution. Sentencing hearings will be scheduled after the completion of presentence investigations by the United States Probation Office.
These cases are being prosecuted by Assistant U.S. Attorney Daniel M. Nelson. They were investigated by IRS-Criminal Investigation, the U.S. Postal Inspection Service and the Office of the Missouri Securities Commissioner.