Federal prosecutors in Kansas have filed a 42-page indictment alleging that a group of men swindled investors out of $132 million with false promises and fraudulent reports, U.S. Attorney Barry Grissom said today.
The 67-count indictment alleges that from 2004 to 2008 a team of seven men executed a scheme in which they distributed false and fraudulent brochures, joint venture agreements, application agreements, reports, updates, profit and loss statements and other documents designed to entice investors with false promises of high returns on investments in companies that leased drilling rigs and related businesses.
Charged in the indictment are:
Michael J. McNaul, 58, formerly of Hutchinson,
Dale C. Lucas, 62, Wichita.
Russell W. Kilgariff, 63, Preston, Kan.
Lloyd F. Nunns, 68, Hutchinson, Kan.
Greggory A. Krause, 62, Hutchinson, Kan.
Steven L. Tallman, 58, Owasso, Okla.
Fredie J. Hembree, 57, Hutchinson, Kan.
All seven defendants are charged in the first count of the indictment with conspiracy to commit mail fraud. McNaul is charged in every count in the indictment, which also includes 20 counts of mail fraud, 38 counts of wire fraud, seven counts of money laundering and one count of bank fraud.
The indictment alleges the scheme began with the creation of two companies: Mid Continent Manufacturing, LLC, and Tr-State Production. Tri-State Production was in the business of purchasing, refurbishing and leasing oil and natural gas drilling rigs and associated equipment. Mid Continent served as the management company for Tri-State. As the scheme grew, new businesses were created including Consolidated Leasing Joint Ventures, Consolidated Management, Alliance Leasing Joint Ventures, Garner Management LLC and others.
The indictment alleges:
– The conspirators worked together to execute the scheme by mailing prospective investors documents that contained false and fraudulent representations and promises, and after the defendants had obtained money from investors they sent investors false and fraudulent reports, updates and profit and loss statements.
– The conspirators used investor funds to pay a $300,000 settlement with the Colorado Securities Commission, which they fraudulently failed to disclose to investors.
– The conspirators made false claims to potential investors, telling them they would be paid every quarter, they would receive a 25 to 40 percent annual return and that the companies were already seeing returns in the 15 to 40 percent range.
Upon conviction, the alleged crimes carry the following penalties:
Conspiracy to commit mail fraud: A maximum penalty of 20 years in federal prison and a fine up to $250,000.
Mail fraud: A maximum penalty of 20 years and a fine up to $250,000 on each count.
Wire fraud: A maximum penalty of 20 years and a fine up to $250,000 on each count.
Money laundering: A maximum penalty of 10 years and a fine up $250,000 on each count.
Bank fraud: A maximum penalty of 30 years and a fine up to $250,000.
The FBI investigated. Assistant U.S. Attorney Alan Metzger is prosecuting.