KC company owner charged with securities fraud
Thursday, October 28, 2010
KANSAS CITY, Mo. (AP) — A Missouri business owner who claimed his company had assets that would make it the second biggest corporation in America has been charged with securities fraud and aggravated currency structuring.
Federal prosecutors said Wednesday that Petro America Corp., owned by Isreal Owen Hawkins, had no income other than investor money, no prospects for fulfilling its promises and only one full-time employee — Hawkins. And instead of being worth more than $284 billion, as Hawkins claimed, Petro America’s interests in gold mines and oil trading operations were worthless, investigators said.
“A federal criminal complaint alleges that Petro America was an empty facade of a business run by deception and false promises,” U.S. Attorney Beth Phillips said Wednesday at a news conference. “Petro’s founder is charged with defrauding unwary investors by selling them worthless stock in order to support his lavish lifestyle.”
The criminal action comes on the heels of a civil complaint filed Friday seeking seizure of bank accounts and luxury items from Hawkins and other “unindicted co-conspirators.”
Phillips didn’t say Wednesday whether anyone else would be charged in the case.
Prosecutors said Hawkins, 55, of Kansas City, Kan., started selling unregistered stock to investors in 2008 at a cost of $100 per 100,000 shares, promising them that “book value” of the stock would be $2 per share when the company went public.
Phillips said that for two years, Hawkins told investors a public offering was only weeks away.
An affidavit released Wednesday claims that more than 9,000 victims invested more than $7.2 million in Petro-America, but instead of using the money for business purposes, Hawkins and co-conspirators withdrew the money and bought a house, luxury cars, a $5,700 fur coat, a $37,000 boat and $5,200 worth of Louis Vuitton luggage among other things.
Investigators said the company recruited investors through churches, promoting Petro as a once-in-a-lifetime opportunity to “share the blessing.” The company formed a relationship with the African American Ministers Alliance Group, and according to 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, and at the height of the scheme the company was bringing in up to $700,000 a month, prosecutors said.
Hawkins paid himself an annual salary of $595,000 under a contract that gave him a $175,000 bonus, 500 million shares of company stock, a company car, a company apartment in Missouri and a dining card, prosecutors said.
On its website, the company showed a photo of a luxury Kansas City office building that was billed as Petro America’s “world corporate headquarters,” when in reality Hawkins had contracted with a secretarial service in the building that allowed Petro to use the address.
If Hawkins’ claims were true that his company had assets of more than $284 billion, prosecutors said, Petro America would be the second-largest company in the U.S., ahead of Wal-Mart, Apple or Microsoft.
In addition to selling stock that hadn’t been registered with the Securities and Exchange Commission, Hawkins and co-conspirators withdrew money from assorted Petro America bank accounts in structured transactions of less than $10,000 specifically to avoid currency transaction report requirements, prosecutors said.
Hawkins appeared in court Wednesday to hear the charges against him. He asked to have a public defender appointed and will have a preliminary hearing after he gets an attorney. He was to be released later Wednesday.