In this week’s edition of Litigation Roundup, the U.S. Securities and Exchange Commission has filed suit against a Texas company it accuses of perpetrating a $155 million Ponzi scheme affecting more than 500 investors, a fracking project funder alleges fraud in a $1.8 million deal, and the Texas Supreme Court clarifies the requirements to bring a Texas Whistleblower Act claim.
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Dallas County District Court
Texas Limited Partnership Alleges Fraud in $1.8M Fracking Deal
Khoil Energy Resources has been accused of fraud and violations of Texas securities laws in a lawsuit alleging it fraudulently induced Houillion Family LP to provide it more than $1.8 million to fund a fracking operation.
Houillion Family was approached by Khoil Energy Resources and John Khoury in 2022 to invest in one of three oil and gas wells Khoil was purchasing in North Dakota, according to the suit. The $1.85 million was to be used to restore the well to its “full potential” through fracking operations. Under the agreement the funds would entitle Houillion to 100 percent of the working interest in the well and Khoil would manage the fracking operation.
Once the well became operational and Houillion recouped its investment, a 40 percent working interest in the well would revert to the defendants, according to the suit. But problems began as soon as the deal was inked, Houillion alleges, accusing Khoil of failing to complete the fracking operation on budget and attempting to shift its funding and operational obligations onto Houillion.
“Defendants’ representations to Houillion were material and false,” the suit alleges. “Defendants failed to complete the fracking operation and requested additional funds beyond the $1.85 million. Further, Khoury had little to no experience in the oil and gas industry.”
The lawsuit was filed May 1 and seeks more than $1 million in damages, including unspecified exemplary damages.
The case has been assigned to Dallas County District Judge Emily G. Tobolowsky.
Houillion is represented by Geoffrey H. Bracken, Vi T. Tran and Paula Toro of Foley & Lardner.
The defendants had not retained counsel as of Monday, according to court records.
The case number is DC-23-05776.
Jefferson County District Court
Dredging Co. Sued Over Fatal Machete Attack
Houston-based dredging company Magellan Dredging has been hit with a lawsuit seeking millions in damages over its alleged failure to stop the machete attack that killed its employee Michael Counce while he was on the job.
Counce was employed by Magellan and had told supervisors the day before his death in September 2021 he was concerned about employees of Colombia Dredging — which is also a defendant in this lawsuit — who were working on a nearby vessel, calling them a “rough bunch,” according to the lawsuit.
He asked his supervisor for permission to bring his gun to work because of his safety concerns but was denied the request, the lawsuit alleges.
Juan Carlos Vasquez-Rojas attacked Counce with a machete on the morning of Sept. 28, 2021, and killed him before fleeing the scene. Vasquez-Rojas was later arrested by the Chamber County Sheriff’s Office
The lawsuit, filed May 1, is seeking in excess of $1 million in damages and includes claims for Jones Act violations, premises liability, wrongful death, negligence and gross negligence.
The case has been assigned to Jefferson County District Judge Baylor Wortham.
Counce is represented by Lena B. Laurenzo of Abraham Watkins Nichols Agosto Aziz & Stogner and William P. Kennedy, Joan E. Ballard and Sophia Sanchez of Bill Kennedy Law.
Counsel information for the defendants was not available Monday.
The case number is 23DCCV00344.
Western District of Texas
SEC Alleges $155M Ponzi Scheme Against Texas Energy Tech Co.
A company that specializes in developing and commercializing environmentally sustainable technologies for oil and gas development has been sued by the U.S. Securities and Exchange Commission under accusations of perpetrating a Ponzi scheme that netted it $155 million from more than 500 investors since December 2019.
The defendants in the lawsuit are Clean Energy Technology Association; the attorney and founder of CETA, Roy W. Hill, 75, of Fairfield, Texas; Eric N. Shelly, 59, a dentist who resides in Ocala, Florida; and a business Shelly founded and serves as CEO, Freedom Impact Consulting.
“Defendants entice investors with the allure of novel and complicated technology and exorbitant investment returns of 10 percent quarterly, but their securities offerings are just a vehicle to steal investors’ money,” the SEC alleges.
CETA lied to investors about its production of carbon capture units, about leasing the equipment to ExxonMobil Corporation and about having patents for the technology, according to the lawsuit.
“And bank records reveal that some investor distributions to date have been sourced from the money received from new or existing investors,” the suit alleges. “Most critically, CETA has not generated revenues from any CCU operations, as represented to investors.”
A notice of status the SEC filed with the court May 4 states that a receiver has taken possession of CETA’s Fairfield, Texas, office and Shelly’s dental office and home in West Chester, Pennsylvania. The receiver also recovered “significant amounts of gold coins and bullion” from Shelly’s homes in Pennsylvania and Florida.
“A quick review of CETA’s books and records confirmed what the bank records already revealed, which is that CETA has virtually no revenue from sales or operations,” the government alleges. “No employee could answer the question of how CETA makes money, other than by investor deposits.”
The lawsuit was filed May 3 and has been assigned to U.S. District Judge Alan D. Albright. Judge Albright issued a temporary restraining order the same day suit was filed, freezing at least $50 million of the defendants’ assets.
The SEC’s Jennifer D. Reece and Jason J. Rose are prosecuting the case for the government.
Counsel for the defendants had not appeared as of Monday.
The case number is 6:23-cv-00321.
Four Sentenced, Ordered to Pay $70M Restitution for Air Force Contract Fraud
Four individuals convicted of perpetrating a contract fraud scheme at Joint Base San Antonio-Randolph were sentenced to prison recently and ordered to pay about $70 million in restitution.
The government alleged that David Joseph Bolduc Jr., 62, of Virginia, owned software engineering company QuantaDyn that worked on flight training simulators at the Air Force base and conspired with three others to pay about $2.3 million in bribes to a civilian employee in exchange for securing lucrative government contracts between 2007 and 2018.
Bolduc was sentenced to 120 months in prison and ordered to pay $37.7 million in restitution and additionally forfeit property and $8.7 million in cash.
John G. Hancock, 61, of Ohio, was sentenced to 40 months in prison and ordered to pay $23.7 million in restitution. Karen K. Paulsen, 59, of Ohio, received five years probation, six months of home confinement, 500 hours of community service and was ordered to pay about $8 million in restitution. Rubens Wilson Fiuza Lima, 73, of Georgia, received a sentence of 27 months in prison and was ordered to pay about $654,000 in restitution.
Hancock and Paulsen aided the civilian employee with manipulating the award amounts of winners of the federal contracts while Lima took a job as a subcontractor on a project and used his business, Impex Import Export, to assist the civilian employee with disguising the bribe money as legitimate purchases, the government alleged.
The Department of Justice announced the sentencings May 4 in a press release where U.S. Attorney Jaime Esparza vowed to “continue to work tirelessly to protect the integrity of our government contracts, ensuring taxpayer dollars are spent wisely.”
“The sentences handed down in this case send a clear message that corrupt behavior will not be tolerated, especially when it involves the safety and security of our nation’s military,” Esparza said.
The case was assigned to U.S. District Judge David A. Ezra.
The case was prosecuted by Assistant U.S. Attorneys William Lewis and Kelly Stephenson and Special Assistant U.S. Attorney Jay Porier.
Bolduc is represented by and Gene R. Besen, Stephen R. Spivack and Gregory G. Marshall of Bradley Arant Boult Cummings.
Hancock is represented by Antony A. Abboud and Nicholas G. Gounaris of Gounaris Abboud.
Paulsen is represented by Albert Lin, Carole S. Rendon and Mary Pat Brogan of BakerHostetler and Harry Jay Hulings of David & Santos.
Lima is represented by federal public defender Angela Saad Lindsey.
The case number is 5:19-cr-00788.
Supreme Court of Texas
Whistleblower Suit Fails Against Texas Health and Human Services Commission
Two former Texas Health and Human Services Commission employees who served as director and associate director of the agency’s medical transport program cannot proceed with their whistleblower claim that they were fired in retaliation for reporting alleged wrongdoing by a private contractor.
The state’s high court issued its unanimous opinion Friday, determining the HHSC will not have to face the claims brought by former employees Dimitria Pope and Shannon Pickett, reversing rulings from the Third Court of Appeals and a Travis County district judge that would have allowed the suit to proceed.
Pope and Pickett made a report to law enforcement that the contractor was transporting children who were Medicaid beneficiaries without an accompanying parent or an authorized adult as required under federal and state law. Pope and Pickett alleged they were fired in retaliation for making the report.
“The Texas Whistleblower Act protects only express ‘reports of a violation of law’ by an agency employer or another public employee, not reports based on implications that the appropriate law enforcement agency must then decode,” Justice Brett Busby wrote for the court. “Accordingly, Pope’s and Pickett’s reports of misconduct by [the contractor] in failing to comply with the accompaniment requirements cannot support a Whistleblower Act claim against HHSC.”
Pope and Pickett are represented by Manuel Quinto-Pozos of Deats Durst & Owen.
Texas is represented by assistant solicitor general Rance Craft and assistant attorney general Drew L. Harris.
The case number is 20-0999.