To our bad guys, 2019 was a year flush with hope and opportunity; it ended with recidivism, more misery from Venezuela, a charlatan, an Okie who pulled a multi-million dollar fast-one on Chesapeake and, as in years past, a peek into the darker side of the human condition.
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Perp: Justin Lane Foust.
Crime: Wire fraud, aggravated identity theft and money laundering.
How he did it: Defrauded Chesapeake Energy. Employed by a subsidiary of Chesapeake until 2011. He formed Platinum Express and became an approved vendor. From 2011 until 2014 Chesapeake contracted with Platinum to transport wastewater to disposal facilities in western Oklahoma.
Generated fraudulent invoices, each for less than $5,000, which he knew from his prior work at Chesapeake required a lower level of approval for processing and payment. He forged the signature and employee ID number of a Chesapeake employee.
Once cornered, he panicked: He obstructed justice by using civil lawsuits as a diversionary tactic to implicate others in his wrongdoing, destroyed evidence, staged a fake break-in of his office, and provided false information to law enforcement.
Sentence: 121 months in prison, restitution of $2.6 million and forfeiture of $4.345 million.
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Perp: Robert J. Magniafico, Jr.
Crime: Would have been Reg D violations. The Texas State Securities Board got him before he could actually steal.
Checkered past: Convicted of six felony violations in separate transactions. Served four years of a 40-year prison sentence for stealing $655,000 from elderly widows in the Dallas area by selling fake annuities.
How he almost did it: Sought investors to buy stakes in Oklahoma oil and gas wells, promising returns of 25 to 52 percent. The securities were not registered in Texas. He formed Premier Resources LLC right after being paroled from prison in December 2017.
Sentence: Emergency cease and desist order.
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Perp: Christopher Daniel Walsh.
Crime: Fraud, money laundering and felony theft of $492,000 from victims who thought they were oil investors but were really investing in Mr. Walsh’s lifestyle.
How he did it: Used Western Capital Inc. to steal from 12 Investors in oil wells to be drilled in the High Island section of eastern Galveston County, Texas. He used turnkey projects, a financing arrangement in which investors pay a set amount to the promoter, who assumes financial responsibility for cost overruns. These usually involve an astronomical turnkey price that is virtually guaranteed to net the promoter lots of money and the investors none. The promoter wins even if the well is a duster.
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Perp: Paul Gilman.
Crime: Securities fraud under the federal Exchange Act and Securities Act. He misappropriated stole investor funds.
Checkered past: In a previous incarnation, claiming to be a music visionary he launched a series of unsuccessful businesses that used soundwave technology to optimize sound systems in sports stadiums.
How he did it: When those businesses failed, with absolutely no experience in the oil business, he was going to use his purported soundwave technology to lower the viscosity of oil in enhanced water separation and purification processes. Claimed that viscosity is the “holy grail” of the oil industry and he “captured it”. There was no evidence that he ever spent the money on testing or developing the soundwave technology.
Raised $3.3 million from 40 investors in several states, guaranteeing that their investments would result in substantial profits. Victims included a minister from Tennessee, a psychology professor from Texas and a nurse from Dallas. He put substantially all the money into traditional fraudster uses: luxury Las Vegas hotels, restaurants, designer clothing, and home furniture.
Sentence: None yet
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Perp: Mark Johnson.
Crime: Wire fraud and conspiracy to commit wire fraud by materially false and fraudulent pretenses to the “Victim Company” (Cairn Energy, a large European E&P company) that was engaged in a multi-billion dollar Europe-to-India transaction. The prosecution featured theft of the Victim Company’s confidential information.
How he did it: A foreign exchange trader who supervised HSBC Bank’s foreign exchange business, Johnson manipulated foreign-exchange rates as the transaction was about to close by trading Sterling, Euros and Dollars, from which he generated significant profits. He did not disclose his own “P Book” trades to the Victim Company. When the company inquired, he blamed everything on the “Russians”. See this insightful Baker Botts analysis of the proceeding.
Sentence: 24 months imprisonment, three years of supervised release and a $300,000 fine.
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Perps: Rafael E. Pinto-Franceschi and Franz Herman Müller-Huber, president and sales rep of a Miami-based company.
Crime: Violation of the Foreign Corrupt Practices Act, wire fraud, conspiracy to launder money.
How they did it: Bribed three officials of Venezuela’s national oil company PDVSA and took kickbacks $985,000 and $258,000. Talk about feeding at all the troughs, three percent of each kickback payment would go to a Swiss bank account (one would think for the bribees).
As of now, 21 individuals have been charged in this far-reaching victimization of the citizens of this once-proud and prosperous country and 15 have pled guilty.
Sentence: None yet.
A musical interlude in honor of our 2019 perps.