As you know, everything is bigger in Texas – ranches, oil fortunes, trucks, you name it.
But there's a certain court case that's getting to be a really big thing… even by Texan standards.
Last week in San Antonio, Texas State Sen. Carlos Uresti testified in a bankruptcy hearing. The process follows from the 2015 insolvency of FourWinds Logistics.
The company's former CEO, a consultant to management, and Uresti himself have been charged in a separate criminal case alleging investor fraud.
For his part, the senator has been indicted by a federal grand jury in San Antonio on no less than 11 counts, including wire fraud, money laundering, securities fraud, and engagement in monetary transactions with property from specified unlawful activity.
If found guilty on all 11 counts, he could get some 200 years in prison. Unlike most of the company folks, he has entered a "not guilty" plea.
Uresti worked as an advisor to FourWinds. According to the charges, his function was to attract investors in exchange for a share of the resulting proceeds.
That case is going to trial next month.
But in his testimony in the bankruptcy proceedings last Tuesday, Uresti acknowledged that FourWinds "might have been a Ponzi scheme."
Right, and Irma might have been a hurricane…
The thing is, this alleged Ponzi scheme operated right in the middle of the American "shale revolution."
And it could be happening again, right now…
FourWinds Owes Investors $14 Million
The bankruptcy hearing involves an attempt by a Chapter 7 trustee to recover investment funds from a third-party recipient of FourWinds revenue.
If successful, about half of the original funds at issue could be returned to about a dozen investors claiming they were defrauded.
When it went belly up, FourWinds owed investors at least $14 million. For his part, in exchange for his services, Uresti received company shares, commissions, and a $40,000 loan, according to the indictment.
Four senior managers of the company were also indicted. Three of those have already pleaded guilty. The charges lodged against the four mirror those against Uresti, with the addition of what appears to be a classic example of cooking the books.
For example, one investor testified that he was shown a bank account with a balance of more than $18.8 million, while in fact bank records revealed that over the period under scrutiny, the bank account never had more than $1.4 million in it – most, if not all, of that total represented in funds provided by individuals claiming they were victims of fraud.
But there is something else that makes the criminal case interesting. In a state famous for "Texas-sized" oil swindles and drilling land graft, this one is all about sand.
Frac sand, that is.
In the unconventional "shale" revolution, oil and natural gas has been extracted from shale rock formations. Actually, this is a smaller category of broader tight oil and gas (where sandstone and other non-shale rock are involved).
This revolution has dramatically increased U.S. production.
The process has made "fracking" central in the national energy debate. "Fracking" describes using water under high pressure to break the rock and release the oil and gas trapped within.
But to actually harvest that oil and gas, the cracks in the rock have to be kept open.
That's where frac sand comes in. It sticks in those cracks and keeps them from closing, allowing the oil and gas to flow.
When the frac movement took off in earnest, frac sand was in very high demand and companies selling it made some very nice profits.
Unfortunately, the collapse in oil and natural gas prices that began in late 2014 put pressure not only on oil and gas producers. As new drilling for oil and gas fell, the decline also hit frac sand providers hard.
This is where FourWinds comes in…
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.