5 convicted in Kansas City stock fraud case
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Posted On: 06/30/2013 6:24:37 PM
5 convicted in Kansas City stock fraud case
May 15, 2013 04:51 PM EST | Associated Press
KANSAS CITY, Mo. — A jury on Wednesday convicted the founder of a Kansas City company and four associates of cheating investors by selling them millions of dollars of worthless stock and spending the money on themselves.
Petro America Corp. founder Isreal Owen Hawkins and his associates were accused of illegally selling unregistered stock in Petro America from 2008 through 2010, much of it to poor investors. Prosecutors said investors were told the company had $284 billion in assets and that they'd be rich once it went public.
Hawkins was convicted of conspiracy, securities fraud, aggravated currency structuring, money laundering and two counts of wire fraud. He could be sentenced to up to 20 years in prison for the most serious charge, wire fraud.
Hawkins, who had been out of jail on bond, was taken into custody immediately after the hearing and the government moved to have his bond revoked. The court set a bond hearing for next week to rule on the government's motion.
Hawkins' co-defendants – Teresa Brown, Johnny Heurung, William Miller and Martin Roper – each were convicted of conspiracy to commit fraud, which carries a maximum sentence of five years in prison. All were released pending sentencing.
The five were accused of selling $7.2 million worth of unregistered stock and targeting poor investors who weren't qualified to purchase shares. Under federal securities law, a person must have a net worth of at least $1 million or an annual income of $200,000 for the last two years to qualify as an accredited investor and be allowed to take part in high risk investments such as Petro America.
Hawkins called Petro America "The People's Company," and told investors his goal was to win a Nobel Prize for creating massive wealth.
Hawkins, who represented himself at the trial, told jurors the company was legitimate and had real assets, and the only reason it didn't go public was because the federal government wanted to destroy it.
Attorneys for some of his co-defendants expressed disappointment Wednesday in the verdicts and vowed to appeal the decision to the 8th Circuit U.S. Court of Appeals.
"We have strong issues for an appeal to the 8th Circuit, but at this time it's really not about Miss Brown and the results," one of Brown's attorneys, Willie Epps Jr., told The Associated Press. "It's about the thousands of Petro America victims who lost significant resources. For that, Miss Brown is sorry and we hope in time she will be seen as another Petro America victim and not a Petro America leader."
Lance Sandage, who represented Heurung, said his client also plans to appeal.
"We're disappointed in the jury's verdict, but we respect the process," Sandage said.
Attorneys for Miller and Roper didn't immediately return calls for comment.
Attorneys for all of the co-defendants told jurors Hawkins had duped their clients. They said the four didn't know that the stock sale was a scam because they said Hawkins was the primary source of information about the company. With no real corporate structure, the co-defendants said they relied on what they were told by Hawkins – including that the Missouri cease and desist order had been resolved – when promoting and selling the stock.
Prosecutors, however, said all five defendants knew that Kansas and Missouri regulators had sent cease-and-desist orders barring the sale of Petro America stock, but that they chose to ignore them.
On Wednesday, Brown also was convicted of securities fraud and six counts of wire fraud, Miller was convicted of money laundering and wire fraud, and Heurung was convicted of one count of wire fraud. Nine others who were charged in the case pleaded guilty to conspiracy and are awaiting sentencing.
NEWS RELEASE
OFFICE OF THE UNITED STATES ATTORNEY
WESTERN DISTRICT OF MISSOURI
BETH PHILLIPS
Contact Don Ledford, Public Affairs ? (816) 426-4220 ? 400 East Ninth Street, Room 5510 ? Kansas City, MO 64106
www.justice.gov/usao/mow/index.html
OCTOBER 27, 2010
FOR IMMEDIATE RELEASE
KCK MAN CHARGED IN $7.2 MILLION FRAUD SCHEME THAT TARGETED THOUSANDS OF INVESTORS NATIONWIDE
KANSAS CITY, Mo. – Beth Phillips, United States Attorney for the Western District of Missouri, announced today that a Kansas City, Kan., man has been charged in federal court for his role in a $7.2 million securities fraud scheme that victimized thousands of investors across the United States.
“A federal criminal complaint alleges that Petro America was an empty facade of a business run by deception and false promises,” Phillips said. “Petro’s founder is charged with defrauding unwary investors by selling them worthless stock in order to support his lavish lifestyle.”
Isreal Owen Hawkins, 55, of Kansas City, Kan., was charged in a two-count criminal complaint filed in the U.S. District Court in Kansas City, Mo. Hawkins is the president and CEO of Petro America Corporation. A related civil forfeiture was filed against Petro America on Friday, Oct. 22, 2010.
The criminal complaint charges Hawkins with securities fraud and with structuring financial transactions in order to evade federal reporting requirements. Hawkins founded Petro America, which bills itself as a holding company for crude oil and gold mines (among other claimed assets) in 2007.
Count One: Securities Fraud
According to an affidavit filed in support of the criminal complaint, Hawkins began selling shares of unregistered stock to investors in 2008. At the time, the affidavit says, Petro America had no oil, no realistic prospects for obtaining, transporting or storing large amounts of oil, no significant assets, no revenue and no other employees. The government is aware of no evidence that Petro America has seriously pursued any opportunities to acquire oil fields or conducted oil trading operations. Nevertheless, the affidavit says, Hawkins and others have touted excellent prospects for Petro’s rapid growth in the oil industry.
According to the affidavit, more than 9,000 victims have invested in excess of $7.2 million since August 2008, but instead of using that revenue for legitimate business-related purposes, Hawkins and his co-conspirators allegedly withdrew investors’ funds from Petro America’s bank accounts in cash, which they spent on personal expenditures such as a house by the lake, luxury cars, a $5,700 fur coat, a $37,000 boat, a $5,200 piece of Louis Vuitton luggage purchased in Switzerland, expensive jewelry and travel.
Hawkins, the only full-time employee of Petro America, paid himself an annual salary of $595,000 under a contract that also granted him a $175,000 bonus, 500 million shares that are immediately exercisable, a company car, a company apartment in Missouri, and a dining card. Hawkins drew his salary in cash, in random amounts at inconsistent times, and the company did not withhold taxes.
Conspirators often recruited investors through churches and used religious language in their pitches, the affidavit says, including promoting Petro America as a once-in-a-lifetime opportunity to “share the blessing.” Petro America cultivated a relationship with the African American Ministers Alliance Group, the affidavit says, and according to its records made large payments to multiple Kansas City-area pastors, religious leaders and a local civil rights activist.
Investors lost from $100 to $100,000 each. Initially, many of the investors were drawn into the scheme with the promise that $100 would buy 100,000 shares of Petro America stock, the affidavit says, which Hawkins claimed was “book valued” at $2 per share. As the scheme progressed, conspirators raised the price to invest and claimed an ever-higher “book value” for the shares. The affidavit alleges that this allowed conspirators to unload shares to new investors at an increasing profit. To date, the affidavit says, the stock has never been properly registered or listed on any exchange.
Hawkins allegedly promised “meteoric returns” on investments. At the height of the scheme, the affidavit says, up to $700,000 flooded into the company each month.
Hawkins claimed that Petro America would be “the first African-American holding oil company to go public in the United States,” according to the affidavit. Investors were frequently told that they would be rich when the company “goes public.” Going public, the conspirators allegedly have said for over two years, is just weeks away. In reality, the affidavit says, the company has no significant assets or revenue stream (other than investor proceeds).
Alleged False Claims
Today’s affidavit alleges that Hawkins and co-conspirators provided materially false information to investors. For example, Petro America’s Web site includes a prominent photograph of the luxury office building at Two Pershing Square, ostensibly Petro’s “world corporate headquarters.” In reality, the affidavit says, Hawkins contracts with Regus Management Group LLC, a secretarial service that provides such services as telephone answering, fax and mail handling, use of the address and 16 hours of office usage for an initial monthly fee of $225.
According to the affidavit, conspirators have touted Petro America acquisitions in gold and rock mines as valuable holdings worth hundreds of billions of dollars. In reality, the affidavit says, Petro America’s interests in the gold and rock mines are essentially worthless. Petro America allegedly adopts wildly high valuations for the mines, most or all of which are not producing anything. Many or all of the mines are not actually mines at all, but mining claims. A mining claim is merely a plot of government-owned land upon which a person or corporation has filed a claim of rights to a mineral deposit, which may or may not actually exist.
Based on these representations, Hawkins and others claim that Petro’s assets are worth more than $284 billion. According to the affidavit, if this valuation were accurate, Petro America would be the second-largest company in the United States by market capitalization, larger than Wal-Mart, Apple or Microsoft. America’s largest company is Exxon Mobil, which has a market capitalization of $312.28 billion.
Count Two: Structuring Financial Transactions
Under federal law, banks are required to file Currency Transaction Reports for financial transactions that exceed $10,000 in one day. It is illegal to conduct multiple cash withdrawals in amounts less than $10,000 for the purpose of evading that federal reporting requirement.
The affidavit alleges that Hawkins and others made large cash withdrawals from Petro America’s bank accounts, which were structured to avoid bank reporting laws. For example, according to the affidavit, Hawkins and an unidentified co-conspirator visited Mazuma Credit Union several times each week. Sometimes they made big deposits of multiple checks into the company’s bank account; on most visits, the affidavit says, they withdrew $7,500 to $9,800, often on consecutive days. In this manner, Hawkins obtained at least $537,515 in cash from Petro’s account at Mazuma. The affidavit also alleges that Hawkins structured currency withdrawals out of Petro America accounts at U.S. Bank and Bank of America.
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
May 15, 2013 04:51 PM EST | Associated Press
KANSAS CITY, Mo. — A jury on Wednesday convicted the founder of a Kansas City company and four associates of cheating investors by selling them millions of dollars of worthless stock and spending the money on themselves.
Petro America Corp. founder Isreal Owen Hawkins and his associates were accused of illegally selling unregistered stock in Petro America from 2008 through 2010, much of it to poor investors. Prosecutors said investors were told the company had $284 billion in assets and that they'd be rich once it went public.
Hawkins was convicted of conspiracy, securities fraud, aggravated currency structuring, money laundering and two counts of wire fraud. He could be sentenced to up to 20 years in prison for the most serious charge, wire fraud.
Hawkins, who had been out of jail on bond, was taken into custody immediately after the hearing and the government moved to have his bond revoked. The court set a bond hearing for next week to rule on the government's motion.
Hawkins' co-defendants – Teresa Brown, Johnny Heurung, William Miller and Martin Roper – each were convicted of conspiracy to commit fraud, which carries a maximum sentence of five years in prison. All were released pending sentencing.
The five were accused of selling $7.2 million worth of unregistered stock and targeting poor investors who weren't qualified to purchase shares. Under federal securities law, a person must have a net worth of at least $1 million or an annual income of $200,000 for the last two years to qualify as an accredited investor and be allowed to take part in high risk investments such as Petro America.
Hawkins called Petro America "The People's Company," and told investors his goal was to win a Nobel Prize for creating massive wealth.
Hawkins, who represented himself at the trial, told jurors the company was legitimate and had real assets, and the only reason it didn't go public was because the federal government wanted to destroy it.
Attorneys for some of his co-defendants expressed disappointment Wednesday in the verdicts and vowed to appeal the decision to the 8th Circuit U.S. Court of Appeals.
"We have strong issues for an appeal to the 8th Circuit, but at this time it's really not about Miss Brown and the results," one of Brown's attorneys, Willie Epps Jr., told The Associated Press. "It's about the thousands of Petro America victims who lost significant resources. For that, Miss Brown is sorry and we hope in time she will be seen as another Petro America victim and not a Petro America leader."
Lance Sandage, who represented Heurung, said his client also plans to appeal.
"We're disappointed in the jury's verdict, but we respect the process," Sandage said.
Attorneys for Miller and Roper didn't immediately return calls for comment.
Attorneys for all of the co-defendants told jurors Hawkins had duped their clients. They said the four didn't know that the stock sale was a scam because they said Hawkins was the primary source of information about the company. With no real corporate structure, the co-defendants said they relied on what they were told by Hawkins – including that the Missouri cease and desist order had been resolved – when promoting and selling the stock.
Prosecutors, however, said all five defendants knew that Kansas and Missouri regulators had sent cease-and-desist orders barring the sale of Petro America stock, but that they chose to ignore them.
On Wednesday, Brown also was convicted of securities fraud and six counts of wire fraud, Miller was convicted of money laundering and wire fraud, and Heurung was convicted of one count of wire fraud. Nine others who were charged in the case pleaded guilty to conspiracy and are awaiting sentencing.
NEWS RELEASE
OFFICE OF THE UNITED STATES ATTORNEY
WESTERN DISTRICT OF MISSOURI
BETH PHILLIPS
Contact Don Ledford, Public Affairs ? (816) 426-4220 ? 400 East Ninth Street, Room 5510 ? Kansas City, MO 64106
www.justice.gov/usao/mow/index.html
OCTOBER 27, 2010
FOR IMMEDIATE RELEASE
KCK MAN CHARGED IN $7.2 MILLION FRAUD SCHEME THAT TARGETED THOUSANDS OF INVESTORS NATIONWIDE
KANSAS CITY, Mo. – Beth Phillips, United States Attorney for the Western District of Missouri, announced today that a Kansas City, Kan., man has been charged in federal court for his role in a $7.2 million securities fraud scheme that victimized thousands of investors across the United States.
“A federal criminal complaint alleges that Petro America was an empty facade of a business run by deception and false promises,” Phillips said. “Petro’s founder is charged with defrauding unwary investors by selling them worthless stock in order to support his lavish lifestyle.”
Isreal Owen Hawkins, 55, of Kansas City, Kan., was charged in a two-count criminal complaint filed in the U.S. District Court in Kansas City, Mo. Hawkins is the president and CEO of Petro America Corporation. A related civil forfeiture was filed against Petro America on Friday, Oct. 22, 2010.
The criminal complaint charges Hawkins with securities fraud and with structuring financial transactions in order to evade federal reporting requirements. Hawkins founded Petro America, which bills itself as a holding company for crude oil and gold mines (among other claimed assets) in 2007.
Count One: Securities Fraud
According to an affidavit filed in support of the criminal complaint, Hawkins began selling shares of unregistered stock to investors in 2008. At the time, the affidavit says, Petro America had no oil, no realistic prospects for obtaining, transporting or storing large amounts of oil, no significant assets, no revenue and no other employees. The government is aware of no evidence that Petro America has seriously pursued any opportunities to acquire oil fields or conducted oil trading operations. Nevertheless, the affidavit says, Hawkins and others have touted excellent prospects for Petro’s rapid growth in the oil industry.
According to the affidavit, more than 9,000 victims have invested in excess of $7.2 million since August 2008, but instead of using that revenue for legitimate business-related purposes, Hawkins and his co-conspirators allegedly withdrew investors’ funds from Petro America’s bank accounts in cash, which they spent on personal expenditures such as a house by the lake, luxury cars, a $5,700 fur coat, a $37,000 boat, a $5,200 piece of Louis Vuitton luggage purchased in Switzerland, expensive jewelry and travel.
Hawkins, the only full-time employee of Petro America, paid himself an annual salary of $595,000 under a contract that also granted him a $175,000 bonus, 500 million shares that are immediately exercisable, a company car, a company apartment in Missouri, and a dining card. Hawkins drew his salary in cash, in random amounts at inconsistent times, and the company did not withhold taxes.
Conspirators often recruited investors through churches and used religious language in their pitches, the affidavit says, including promoting Petro America as a once-in-a-lifetime opportunity to “share the blessing.” Petro America cultivated a relationship with the African American Ministers Alliance Group, the affidavit says, and according to its records made large payments to multiple Kansas City-area pastors, religious leaders and a local civil rights activist.
Investors lost from $100 to $100,000 each. Initially, many of the investors were drawn into the scheme with the promise that $100 would buy 100,000 shares of Petro America stock, the affidavit says, which Hawkins claimed was “book valued” at $2 per share. As the scheme progressed, conspirators raised the price to invest and claimed an ever-higher “book value” for the shares. The affidavit alleges that this allowed conspirators to unload shares to new investors at an increasing profit. To date, the affidavit says, the stock has never been properly registered or listed on any exchange.
Hawkins allegedly promised “meteoric returns” on investments. At the height of the scheme, the affidavit says, up to $700,000 flooded into the company each month.
Hawkins claimed that Petro America would be “the first African-American holding oil company to go public in the United States,” according to the affidavit. Investors were frequently told that they would be rich when the company “goes public.” Going public, the conspirators allegedly have said for over two years, is just weeks away. In reality, the affidavit says, the company has no significant assets or revenue stream (other than investor proceeds).
Alleged False Claims
Today’s affidavit alleges that Hawkins and co-conspirators provided materially false information to investors. For example, Petro America’s Web site includes a prominent photograph of the luxury office building at Two Pershing Square, ostensibly Petro’s “world corporate headquarters.” In reality, the affidavit says, Hawkins contracts with Regus Management Group LLC, a secretarial service that provides such services as telephone answering, fax and mail handling, use of the address and 16 hours of office usage for an initial monthly fee of $225.
According to the affidavit, conspirators have touted Petro America acquisitions in gold and rock mines as valuable holdings worth hundreds of billions of dollars. In reality, the affidavit says, Petro America’s interests in the gold and rock mines are essentially worthless. Petro America allegedly adopts wildly high valuations for the mines, most or all of which are not producing anything. Many or all of the mines are not actually mines at all, but mining claims. A mining claim is merely a plot of government-owned land upon which a person or corporation has filed a claim of rights to a mineral deposit, which may or may not actually exist.
Based on these representations, Hawkins and others claim that Petro’s assets are worth more than $284 billion. According to the affidavit, if this valuation were accurate, Petro America would be the second-largest company in the United States by market capitalization, larger than Wal-Mart, Apple or Microsoft. America’s largest company is Exxon Mobil, which has a market capitalization of $312.28 billion.
Count Two: Structuring Financial Transactions
Under federal law, banks are required to file Currency Transaction Reports for financial transactions that exceed $10,000 in one day. It is illegal to conduct multiple cash withdrawals in amounts less than $10,000 for the purpose of evading that federal reporting requirement.
The affidavit alleges that Hawkins and others made large cash withdrawals from Petro America’s bank accounts, which were structured to avoid bank reporting laws. For example, according to the affidavit, Hawkins and an unidentified co-conspirator visited Mazuma Credit Union several times each week. Sometimes they made big deposits of multiple checks into the company’s bank account; on most visits, the affidavit says, they withdrew $7,500 to $9,800, often on consecutive days. In this manner, Hawkins obtained at least $537,515 in cash from Petro’s account at Mazuma. The affidavit also alleges that Hawkins structured currency withdrawals out of Petro America accounts at U.S. Bank and Bank of America.
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
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