A Kansas City, Kan., man and four other people continued to sell stock in a Kansas City company for two years after Missouri regulators ordered them to stop, and used ill-gotten proceeds to fund a lavish lifestyle that included luxury cars, furs and boats, federal prosecutors said in opening statements of a trial Thursday.
The Associated Press
Isreal Owen Hawkins, 57, of Kansas City, Kan., founded Petro America Corp. in 2007 in Kansas, and a year later began selling stock that prosecutors allege was worthless. By the time Hawkins was indicted by a grand jury in October 2010, the company had sold $7.2 million in unregistered Petro America stock.
Hawkins is charged with conspiracy, securities fraud, aggravated currency structuring and several other crimes in connection with his company, which maintained a "virtual office" in a high-rise near Crown Center in Kansas City, Mo., as its headquarters.
Four others Teresa Brown, Johnny Heurung, William Miller and Martin Roper also are charged with conspiracy to commit fraud and are on trial with Hawkins. Prosecutors said the co-defendants were top agents in the company who were given millions of shares of Petro stock, which they sold to investors and kept most of the money, other than a portion they gave back to Hawkins.
The government claims all five defendants sold unregistered shares of Petro stock, were not licensed to sell stock, and ignored cease and desist orders issued in Missouri and Kansas. Most of those who invested in Petro stock were not qualified to do so, prosecutors said.
Many of the investors who bought Petro stock were poor, elderly churchgoers who were persuaded by their pastors who belonged to a group called the Minister's Alliance to buy the company's stock, assistant U.S. Attorney Daniel Nelson said Thursday during opening statements. Some of them cashed in retirement funds, at a 10 percent penalty, or took out loans to buy the stock after being promised shares they were purchasing for one-tenth of a cent had a book value of $2 or more apiece.
Nelson said all five defendants were aware of a cease and desist order issued Nov. 28, 2008, in Missouri but continued to sell millions of dollars' worth of shares.
"They played games to try to get around it," Nelson said. "None of them was licensed as a stock broker, so they couldn't sell any stock much less, stock that was under a cease and desist order."
Attorneys for Brown, Heurung, Miller and Roper portrayed their clients as victims who believed what Hawkins told them about Petro America's gold mine and oil assets, which company leaders touted to be $284 billion enough to make Petro the second-biggest company in the U.S., behind only Exxon, after less than three years in existence.
Instead of putting money from investors back into the company, prosecutors said Hawkins and co-conspirators spent the money lavishly on such things as a house, luxury cars, a $5,700 fur coat, a $37,000 boat and $5,200 worth of Louis Vuitton luggage, among other things.
Willie Epps Jr., representing Brown, challenged jurors to keep an open mind despite inflammatory claims by the prosecution. Brown, he said, believed what Petro America's leaders were telling her about the company's assets and the potential to become rich by investing in the company.
"For many investors, they were buying lottery tickets," Epps said. "One hundred dollars for 100,000 shares in a company with oil and gas mining rights. It was big."
Lance Sandage, counsel for Heurung, said his client was recruited into Petro America by Brown and didn't know about the cease and desist order. Prosecutors have called Heurung a pitch man got investors fired up during weekly conference calls.
Miller also had faith that Petro was a real company with real assets and was poised to go public, said his attorney, David Guastello. He was recruited by Roper and helped recruit 50 investors, earning him 5 million shares as a reward, Guastello said, which he took to a financial adviser and wanted to sell as soon as the company went public.
Roper's attorney, Jack West, said his client was a lifelong Kansas City-area resident and career salesman who thought it was OK to sell Petro stock like he sold other things, such as biofuel pills for vehicles.
Hawkins initially gave Roper 50 million shares of Petro stock, then gave him more later, West said. Roper thought he was going to make hundreds of millions of dollars from what he believed to be a legitimate business, but there's no evidence he made up any of the claims about the company or knew some documents were false.
Hawkins, who is representing himself after chiding his public defender for not putting together a team of securities experts, did not present opening statements but he did object to some of the statements made by prosecutors and their first witness, Missouri Department of Revenue tax investigator Tommy Chen.
U.S. District Judge Brian Wimes occasionally showed irritation when Hawkins stood up to object, mainly because he didn't follow formal procedures.
The trial is expected to last three to four weeks, with no sessions on Fridays because federal public defenders are being furloughed on those days as part of the government's sequester that cut federal spending.