KANSAS CITY, Mo. – Tammy Dickinson, United States Attorney for the Western District of Missouri, announced that five defendants were convicted in federal court today for their roles in a $10.2 million securities fraud and wire 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.
“Petro America was a sham company from the beginning, a get-rich-quick scheme that preyed on its investors,” Dickinson said. “Despite the wildly exaggerated claims made by these defendants, Petro stock was worth about as much as a handful of used Kleenex.”
More than 12,000 victims invested in excess of $10.2 million in Petro America. Contrary to the fraudulent representations the defendants made to victim-investors, Petro America had no oil, no realistic prospects for obtaining, transporting or storing large amounts of oil, no significant assets, no revenue and no employees other than the CEO.
Isreal Owen Hawkins, 57, and Martin Roper, 47, both of Kansas City, Kan.; William Miller, 42, of Independence, Mo.; Johnny Heurung, 59, of Saint Paul, Minn.; and Teresa Brown, 55 of Bandera, Texas were found guilty of all 15 counts contained in a June 15, 2011 federal indictment. Hawkins was taken into custody immediately after the verdicts were returned, pending a bond hearing next week when the court will rule on the government’s motion to revoke his bond. The other co-defendants were continued on bond until the sentencing hearing, which has not yet been scheduled.
In addition to the five co-defendants convicted at trial, nine co-defendants have pleaded guilty to their roles in the scheme.
Evidence introduced during the trial indicated that the defendants participated in a conspiracy to commit securities fraud and wire fraud that began Sept. 1, 2008. They promoted Petro America and sold shares to investors, although none of them had ever been licensed to sell securities and despite cease and desist orders from both Missouri and Kansas.
In an attempt to enable Petro to continue selling its stock after the Missouri cease and desist order was issued on Nov. 12, 2008, and to enable the conspirators to continue to profit, Hawkins gifted billions of shares to co-defendants. These secondary sellers agreed to sell the stock and they often returned some of the proceeds as kick-back payments to Hawkins and others. The secondary sellers often represented that they were merely investors selling their own shares; they did not disclose that cease and desist orders had been issued, nor did they disclose that most or all of the shares had been gifted to them. Almost no investor proceeds were being reinvested by Petro; instead, conspirators were spending investor proceeds on personal expenditures.
The defendants used religious language in their pitches and often recruited through churches. Hawkins cultivated relationships with numerous ministers, whom he dubbed 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. He gave them white fedora hats and millions of Petro shares, which he encouraged them to sell secretly, accepting kick-backs from the proceeds. Members of the Ministers Alliance sold Petro shares to their congregants and others. The Ministers Alliance frequently met at restaurants and participated in weekly conference calls with hundreds of investors in dozens of states.
Roper, a member of the Ministers Alliance, was involved with Petro from its inception. Hawkins gifted a large amount of shares to Roper, who was named in the Missouri cease and desist order; other persons sold shares for Roper and split the proceeds with him. He also continued to sell shares himself. Roper spent $111,296 from his bank account and gave some of the proceeds to Hawkins. In April 2007, Roper bought a Hummer H2 for $20,970 and put on a vanity license plate APETRO2.@
Miller, who was also involved from the beginning, sold Petro stock to at least 43 investors from Aug. 18, 2009, to Nov. 8, 2010, receiving at least $104,375 in proceeds. Miller accepted 50 million shares from Hawkins for bringing his multi-level marketing contacts to Petro.
The sale of Petro America stock was accomplished by making innumerable false misrepresentations and omissions to investors. For example, 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.
Hawkins 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 sent e-mails to investors in June 2009, falsely claiming that Petro America had gone public and its stockholders had become millionaires. In reality, Petro America had not been publicly listed on any exchange, nor had it merged with any company that was publicly traded.
Defendants fraudulently attempted to create the appearance that Petro America had tangible assets. This was done by swapping stocks for speculative, unvested, future interests in mining claims (which they called mines), non-producing oil fields, and other so-called assets, in order to falsely claim that Petro presently had tangible assets.
From September 2008 through April 2010, Hawkins received nearly $2 million from Petro investors into accounts he controlled. Hawkins made large withdrawals of investor proceeds for personal expenses whenever he wished. 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, 19 designer suits totaling $10,303 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.
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 was convicted of one count of money laundering, two counts of wire fraud, one count of securities fraud and one count of structuring financial transactions in order to evade federal reporting requirements. Brown was also convicted of six counts of wire fraud and one count of securities fraud. Heurung was also convicted of one count of wire fraud. Miller was also convicted of one count of wire fraud and one count of money laundering.
Each of the defendants must forfeit to the government any property derived from the proceeds of the offenses, including money seized from various bank accounts, several vehicles, jewelry and a 13-piece set of Louis Vuitton luggage.
Following the presentation of evidence, the jury in the U.S. District Court in Kansas City, Mo., deliberated for about eight hours over two days before returning the guilty verdicts to U.S. District Judge Brian C. Wimes, ending a trial that began April 17, 2013.
Under federal statutes, each of the defendants is subject to a sentence up to five years in federal prison without parole on the conspiracy count, plus sentences for any additional counts. Sentencing hearings will be scheduled after the completion of presentence investigations by the United States Probation Office.
In addition to the five co-defendants who were convicted today, nine co-defendants have pleaded guilty to their roles in the criminal conspiracy.
The Rev. Edward D. Halliburton, 58, of Kansas City, Kan., pleaded guilty to his role in the conspiracy. He 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. He sold millions of shares to investors. He represented that he was selling his own shares, when in reality most of the shares had been gifted to him for that purpose as an attempt to work around the cease and desist orders. He failed to disclose to investors that he was not licensed to sell stock. 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.
Joseph Harrell, 51, of Waco, Texas, who acted as the CFO of Petro America, pleaded guilty to his role in the conspiracy. He received nearly $400,000 from the sale of Petro stock. Harrell, a minister, was also associated with the Ministers Alliance. He sold millions of shares to investors. He represented that he was selling his own shares, when in reality most of the shares had been gifted to him for that purpose as an attempt to work around the cease and desist orders. He failed to disclose to investors that he was not licensed to sell stock. Harrell sold stock to at least 90 investors, depositing $385,460 into his bank account. 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.
Russell Hopkins, 49, of Tuscaloosa, Ala., pleaded guilty to his role in the conspiracy. Hopkins promoted Petro America and sold shares to investors, despite cease and desist orders from both Missouri and Kansas, although he was never licensed to sell securities. From June 2009 through February 2011, Hopkins made at least $673,465 from the sale of Petro stock to at least 61 investors throughout the United States.
Allen Collins, 56, of Raymore, Mo., pleaded guilty to his role in the conspiracy. Collins promoted Petro America and sold shares to investors, despite cease and desist orders from both Missouri and Kansas, although he was never licensed to sell securities. From September 2009 through October 2010, Collins made at least $172,774 from the sale of Petro stock to at least 57 investors throughout the United States, in addition to $13,300 that he received from Petro for consulting fees and other payments. Collins, a retired welder, was part of the Minister’s Alliance.
Teresa Hill, 56, of Kansas City, pleaded guilty to her role in the conspiracy. Hill was a team leader who began recruiting investors for Petro America in 2008, although she has never been licensed to sell securities. Initially, team leaders like Hill would hold their own small meetings with the shareholders they brought in. In September 2008, conspirators began holding weekly meetings for all shareholders.
Charles Hooker, 50, of Kansas City, pleaded guilty to his role in the conspiracy. Hooker was a team leader who recruited investors and sold shares of stock for Petro America. Hooker knew the Petro stock shares were not registered when he started selling them. Hooker has never been licensed to sell securities and did not check with the state of Missouri or with the Securities and Exchange Commission (SEC) to determine whether the company was registered, or whether it was legal for them to sell shares. After Hooker found out about the Missouri cease and desist order, he never contacted state regulators or an attorney to find out if it was legal to sell the shares. Hooker’s friends and family agreed to invest in Petro. Hooker’s plea agreement also refers to an investor in Beverly Hills, Calif., whom he persuaded to invest $150,000 in Petro America. Hooker, a minister, attended meetings of the Minister’s Alliance. Hooker did not purchase shares of Petro, but was gifted 80 to 90 million shares for bringing in investors. Hooker sold those shares for $100 for 100,000 shares. By April 2010, Hooker had sold all his shares and began selling shares that had been gifted to co-defendant Teresa Hill. The proceeds that weren’t spent were kept at the house, not in a bank. Hooker did not use a bank account and dealt mainly in cash.
Hooker and Hill sold their shares together in concert. A total of $67,258 in cash went into Hill’s accounts in 2007 and 2008. After that period, Hooker received at least $25,000 from the sale of Petro shares in concert with co-defendant Halliburton. The minimum loss attributable to Hooker and Hill’s conduct is $77,000, and the maximum is $144,258.
Brian Langenbach, 44, of Globe, pleaded guilty to his role in the conspiracy. Langenbach was not licensed to sell securities. He was self-employed as a cattle rancher during this time and he has not filed a federal tax return since 2003. Langenbach admitted that he sold Petro America stock to at least 180 investors, receiving at least $400,000 in proceeds, from Aug. 20, 2009, to March 2, 2010.
Curtis White, 57, of Independence, Mo., pleaded guilty to his role in the conspiracy. White was a minister in Grandview, Mo., when he became involved with Petro in September 2008. He was part of the Ministers Alliance. White received free shares of Petro stock and was told he would receive unlimited replacement shares as he sold his shares. From at least April 1, 2010, to Nov. 15, 2010, White sold almost 40 million shares of purported Petro stock to at least 156 investors. Most of these investors were not affluent. He sold his shares for $100 for 100,000 shares. Most paid for the stock in cash, and therefore the total amount of money that White made from Petro America is not clear. But his bank records show that White received at least $75,300 from his involvement in Petro.
Clarence D. Moore, 64, of Atlanta, Ga., pleaded guilty to his role in the conspiracy. Moore admitted that he lied to investors about his credentials as a Certified Public Accountant. Moore does not have a college degree, he has never been a Certified Public Accountant, and he is not a licensed tax preparer. In February 2010, however, Moore began doing accounting work on behalf of Petro America. He signed false documents related to Petro’s supposed assets, and other documents were signed on his behalf. These included investor “lulling letters” and false tax returns, which were designed to make investors believe that Petro’s supposed billions of dollars’ worth of assets had been verified by a professional C.P.A. Moore also signed an additional letter containing false representations about his credentials. In exchange, he received payments of at least $3,500. Moore was supposed to receive an additional $5,000 retainer, but never did.
In January 2010, Moore was asked to help determine a valuation for Petro America’s assets and stock. Over the phone and without examining any documents or conducting any due diligence, Moore agreed on a figure of $24 per share. A letter was then circulated under Moore’s signature that indicated Petro had been valued by Moore, whom the letter falsely represented was a C.P.A., at $284 billion and $24 per share. In an introduction to the letter, on Petro America letterhead, Moore was described as a 1976 graduate of Atlanta College, a licensed C.P.A. in the state of Georgia, and “the first African-American accountant for Gulf Oil and also a former auditor for Exxon.” This letter was used to induce numerous investors to purchase purported stock in Petro America.
In actuality, Moore is not and has never been a C.P.A. Moore dropped out of Clark College after one semester following an incident where he was shot in the back of the head. Moore has had balance and equilibrium problems since that time. Recently, he has been homeless. Moore has spent time in prison or jail in each of the last three decades primarily for criminal forgery and fraud. He worked briefly as an accounting clerk for Gulf Oil in the 1970s. In 1972, he worked for Exxon, where he examined receipts from cash registers at service stations.
In the spring of 2010, Moore drove from Atlanta to Kansas City, Mo., to prepare tax returns for Petro America. Although the filing system was “atrocious” and the returns contained false, incomplete, and misleading information, Moore nevertheless signed the returns and filed them with the IRS. The returns contained unsupported, sky-high valuations for Petro.
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 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/divisions/petro.htm
This case is being prosecuted by Assistant U.S. Attorneys Daniel M. Nelson and Kathleen D. Mahoney. It was investigated by IRS-Criminal Investigation, the U.S. Postal Inspection Service and the Office of the Missouri Securities Commissioner.