The owner of an oil field acquisition company was charged last week with securities fraud for allegedly bilking more than $7 million from 9,000 investors to fund a lifestyle that included cars, boats, furs, vacations and houses. Several financial institutions, including Mazuma Credit Union, Bank of America, U.S. Bank and at least nine others were used by the firm's founder to conduct transactions, authorities discovered.
According to a federal criminal complaint filed by the Securities Commissioner of the State of Kansas, Isreal Owen Hawkins, the owner and CEO of Petro America Corp., began the sale of the single issuance of company stock in September 2008 at a cost of $100 per 100,000 shares. Hawkins promised investors the book value of the stock would be $2 per share when Petro went public. Also involved were Teresa Brown, a major Petro shareholder and Johnny Heurung, another shareholder, according to the complaint.
Promotion of the share sales was made through Kansas City churches, e-mail solicitations, website promotions and telephone conference calls. Some suspicious investors alerted state authorities. Hawkins told investors Petro was worth $284 million through the acquisition of crude oil field, gold mines and other companies, according to the federal complaint. In November 2008, the Missouri Secretary of State, Division of Securities issued a cease and desist order against Petro, Hawkins and Martin Roeper. Hawkins and Petro were fined nearly $39,000 but never paid, authorities said.
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An IRS affidavit included statements from tellers at Mazuma CU in Kansas City, Mo., who said around Christmas 2009, Hawkins and Marcia Parker, Petro's corporate secretary at the time, handed out $100 and $200 checks written on Petro's account to random people standing in the lobby. The affidavit also said Hawkins made many cash withdrawals under $10,000, saying larger amounts would mean Mazuma and other financial institutions would have to file a currency transaction report.
Rob Givens, president/CEO of the $419 million Mazuma, said the CU had been cooperating with the IRS for the past six months on the Petro investigation. Since 2009, more than $500,000 was parked at Mazuma, Givens said. Neither the CU nor members suffered losses, he added. Givens did respond to those who wondered why the CU did not note anything suspicious about the transactions.
"They did it in small chunks. We don't have the right to intervene and say, 'We think you're crooks,'" Givens explained. "We certainly take people off the streets all the time that do bad checks. With this, there are specific things that need to be done."
According to the complaint, Hawkins was able to give himself a $175,000 bonus, an annual salary of $595,000, 500 million shares of company stock, and the use of a company car and apartment.
In an Oct. 22 article, Hawkins told The Kansas City Star "We committed no fraud. They're over reaching. We created shareholder value." Hawkins, who also denied owing luxury homes and boats, said he was helping Mazuma customers-he did not refer to them as members-who were Petro shareholders when he gave out the checks around Christmas 2009 in the CU's lobby.
On Nov. 1, Hawkins appeared in federal court in Kansas City and was scheduled for a preliminary hearing Nov. 4.
Meanwhile, Givens said CUs are subpoenaed all the time by the FBI and local law enforcement agencies. A complaint from an investor is a typical tip that leads to an investigation, and then to a judge for a subpoena, he added. Credit unions have to walk a fine line when it comes to detecting suspicious activity if they want to build relationships, especially with local small businesses.
"The unwritten rule is customer interaction. We get people that come in and say, 'I need a money order or I need to wire funds.' They might say we need to send it to Nigeria or Ireland. We can ask questions, and we try to do what we can but at some point, we can't determine if they're breaking the law. We're just not empowered to do more."
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