NEWSSee all articles
Oilfield exec charged with fraud
Former Poseidon employee accused of inflating water tank rental firm's revenues by tens of millions of dollars
A former executive of an oilfield water tank rental firm faces federal charges of fraud over his involvement in a scheme that caused the company’s stock to balloon then abruptly crash.
According to an indictment filed in US District Court, the executive, Joseph Kostelecky, ran the scheme while working in the North Dakota and Denver offices of Calgary-based Poseidon Concepts from November 2011 to November 2012. Prosecutors say he sought to enrich himself through continued compensation from the firm and the appreciation of his own Poseidon stock and stock options.
According to the indictment, Kostelecky directed Poseidon’s US accounting staff to book long-term contracts that were either non-existent or not collectible, inflating the company’s revenues by tens of millions of dollars.
“Virtually no customer ever agreed, either verbally or in writing, to any long-term tank rental with Poseidon, meaning a tank rental that lasted for more than one year,” according to the indictment.
But Kostelecky insisted that the contracts existed and pushed his staff to record them. He also lied to management about the contracts’ existence when asked about them.
The non-existent contracts accounted for surges in the company’s revenue, according to federal prosecutors.
Poseidon reported revenues of around $52 million for the first quarter of 2012, a 460% increase over the same period a year before. Second-quarter 2012 revenues of $55 million represented a 568% increase, according to the indictment. The overwhelming majority of the growth was seen in the company’s US business.
“But Poseidon’s revenue growth as reported in its financial statements was not driven by any corresponding growth in Poseidon’s tank-rental business,” prosecutors said.
“Instead, such growth was caused by Kostelecky’s fraudulent directives to book revenue for customers that had not agreed to long-term tank rentals and his false representations and assurances that the large and aged accounts-receivable balance remained collectable.”
Poseidon management caught on by November 2012 and began informing investors that much of its reported revenue was not collectible, causing its share price to plummet from $13.10 per share to 18 cents per share. Kostelecky, who was promoted from senior vice president to executive vice president in May 2012, resigned from the company in January 2013.
A trial has been scheduled to begin on 7 March.
Kostelecky faced similar charges last year from US securities regulators, who accused him of fraudulently reporting about $100 million in revenue. He agreed to settle the charges by paying a $75,000 penalty and being barred from serving as an officer or director of a US publicly-traded company. Under the terms of the settlement, he neither admitted nor denied the charges.