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Petro America criminal stock scam trial starts this week

Updated: 2013-04-15T16:48:12Z

By MARK DAVIS

The Kansas City Star

The long-awaited criminal trial surrounding Kansas City-based Petro America Corp. begins this week with five defendants facing charges they ran a stock scam across the continent and beyond.

Promises of wealth — often paired with a religious appeal — coaxed more than $7 million out of thousands. In addition to many Kansas City area investors, buyers included Peter Lee in Wallasey, England, and a friends-and-family group in the Cambodian community of Long Beach, Calif.

Many had never bought stock before, were of modest means or heard the investment pitch at a church event. For $100, they got 100,000 shares whose value, they were told, would soar as trading began in the stock market.

Backers held weekly telephone conference calls — which federal prosecutors now say they were recording. The tapes, they say, reveal claims that Petro America was “larger than Coca-Cola,” would “do better than Microsoft” and owned gold mines, oil interests and other ventures worth $284 billion.

“We were looking forward to it, like a nest egg,” said Sanford Potiker, a 73-year-old Ohio retiree who bought shares after listening to conference calls. “I really believed the thing would get on the stock market.”

Prosecutors will seek to convince a jury that Petro America never produced “a dime of revenue,” that those mines were “dirt piles” and that millions intended for the company instead bought personal vehicles, furs, jewelry and an $8,400 set of Louis Vuittan luggage, among other things.

Nine individuals from six states, including a few ministers, already have pleaded guilty to various crimes. Some are expected to testify in the trial scheduled to begin Wednesday in U.S District Court in Kansas City.

The trial might last four weeks. That’s longer than usual — thanks to the federal court’s Friday furloughs brought about by spending cuts known as sequestration.

Petro America founder and chief executive Isreal Owen Hawkins Jr. of Kansas City, Kan., started Petro America in April 2007.

Previously, the 57-year-old longtime area resident had dabbled in a few business ventures and unsuccessfully sought election to the Board of Public Utilities and a seat on the Kansas City, Kan., city council.

He was the first to face criminal charges, named in an October 2010 federal complaint.

A grand jury expanded the case a month later to include Teresa Brown, 55 of Texas, who federal authorities say bought the pricey luggage, and Johnny Heurung, 59 of Minnesota, who investors say used only his first name on weekly conference calls.

In June 2011, the list of defendants grew to include Martin Roper, 47 of Kansas City, Kan., who along with Hawkins was a target of early legal action to halt the stock sales; and William Miller, 42 of Independence, who prosecutors say was among several who sold shares they’d been given for free.

All five face counts of conspiracy to commit wire fraud and securities fraud. Individuals also face various other counts of wire and securities fraud and money laundering.

All five defendants have pleaded not guilty to all charges.

Each will rebut the government charges separately, represented by different attorneys. At least some intend to argue they acted in good faith and had no intent to defraud investors.

Teresa Brown “was misled and misinformed by others with respect to Petro America and is innocent of the pending federal fraud charges,” Willie J. Epps Jr., her attorney with Dowd Bennett LLP, said in an email.

Hawkins first disclosed plans to start selling Petro America stock in October 2008, notifying the federal Securities and Exchange Commission that Petro’s shares were exempt from its oversight.

Petro investors in Texas and Oregon, however, already were complaining to Missouri securities regulators.

Within a month of Hawkins’ notice to the SEC, Missouri’s securities division publicly labeled Petro America’s stock sales an illegal scheme and ordered it halted in Missouri.

The state order figures prominently in the criminal case. Prosecutors say all five defendants continued to sell shares to investors and failed to disclose the Missouri order against Petro America, Hawkins and Roper.

An article in The Kansas City Star stirred concerns among many investors, which the newspaper raised with Hawkins in interviews before the federal charges.

“We are real,” he said, responding to their doubts. “We want to be a Kansas City success story.”

Hawkins billed Petro America as “the peoples’ company” and said he hoped to receive the Nobel Peace Prize for the wealth it would bring to ordinary folks.

He found support from a local group called the Ministers Alliance. Faithful investors and other supporters attended Hawkins’ early court hearings in the criminal case.

They set up a website and a Facebook page to organize a fundraiser and a protest at Kansas City’s federal courthouse.

Prosecutors say they will show that investors’ money transformed Hawkins from a man who touched friends for help to pay his phone bill into a customer of Halls on the Country Club Plaza, where he bought custom-ordered Armani suits and always paid cash.

Prosecutors say bank officials will testify Hawkins repeatedly made multiple large cash withdrawals of less than $10,000. It’s an illegal practice called “smurfing” or “structuring” that skirts a rule that requires banks to report large cash transactions to regulators.

Prosecutors also have listed six financial and accounting experts as witnesses ready to testify variously that Petro America’s financial records were “a bunch of junk,” involved values that could “in no way” be accurate or led them to walk away from the job of reconstructing the company’s books.

Aggrieved investors are ready to testify as well. According to prosecutors, they include:

• A 79-year-old California man who still hasn’t told his wife about investing in Petro for fear it would worsen her already serious health problems.

• A Louisiana lawyer who grilled Hawkins in Petro’s rented Kansas City office on behalf of a Petro investor and then had to chip in $20 for gas money when Hawkins and a secretary gave him a ride back to the airport.

• A legally blind Texas investor whom Hawkins took to fancy Kansas City restaurants, often sticking him with the bill, and who was hit up for bail money when Hawkins was arrested.

Many investors have been looking to the trial as some sort of test whether Petro America is real.

Paul Romano still has his stock certificate but little confidence.

“I took it as a gamble. There was nothing in writing that said you would get anything,” the Illinois resident said. “It’s probably worth nothing.”

To reach Mark Davis, call 816-234-4372 or send email to mdavis@kcstar.com.

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