Home Kansas City Press Releases 2012 Indictment: False Promises, Fraudulent Reports Raised $132 Million from Investors

Indictment: False Promises, Fraudulent Reports Raised $132 Million from Investors

U.S. Attorney’s Office September 12, 2012
  • District of Kansas (316) 269-6481

WICHITA, KS—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, Kansas;
  • Dale C. Lucas, 62, Wichita;
  • Russell W. Kilgariff, 63, Preston, Kansas;
  • Lloyd F. Nunns, 68, Hutchinson;
  • Greggory A. Krause, 62, Hutchinson;
  • Steven L. Tallman, 58, Owasso, Oklahoma; and
  • Fredie J. Hembree, 57, Hutchinson.

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.

OTHER INDICTMENTS

Costel Neicu, 32, a citizen of Romania, is charged with one count of using a forged passport and one count of aggravated identity theft. The crimes are alleged to have occurred March 1, 2012, in Ellis County, Kansas.

If convicted, he faces a maximum penalty of 10 years in federal prison and a fine up to $250,000 on the passport charge and a mandatory two years to run consecutive to the underlying sentence and a fine up to $250,000 on the identity theft charge.

The Kansas Highway Patrol and Immigration and Customs Enforcement’s Homeland Security Investigations (HSI) investigated. Assistant U.S. Attorney Lanny Welch is prosecuting.

Leonardo Velasquez-Villa, 32, is charged with one count of money laundering and one count of possession with intent to distribute 120 pounds of marijuana. The crimes are alleged to have occurred June 16, 2012, in Sedgwick County, Kansas.

If convicted, he faces a maximum penalty of 20 years and a fine up to $250,000 on each count. The Wichita Police Department investigated. Assistant U.S. Attorney Debra Barnett is prosecuting.

Caldee Jordan, Jr., 60, Wichita, Kansas, is charged with one count of possession with intent to distribute heroin. The crime is alleged to have occurred July 27, 2012, in Sedgwick County.

If convicted, he faces a maximum penalty of 20 years and a fine up to $1 million. The Wichita Police Department investigated. Assistant U.S. Attorney David Lind is prosecuting.

Adan Villezacas Palacios, 28, Phoneix, Arizona, is charged with one count of possession with intent to distribute methamphetamine. The crime is alleged to have occurred Aug. 28, 2012, in Ellis County, Kansas.

If convicted, he faces a penalty of not less than 10 years and not more than life in federal prison and a fine up to $10 million. The Kansas Highway Patrol investigated. Assistant U.S. Attorney David Lind is prosecuting.

Christopher J. Grover, 42, Garden City, Kansas, is charged with one count of possession with intent to distribute crack cocaine. The crime is alleged to have occurred June 2, 2012, in Finney County, Kansas.

If convicted, he faces a maximum penalty 20 years and a fine up to $1 million. The Drug Enforcement Administration, the Garden City Police Department and the Finney County Sheriff’s Office investigated. Assistant U.S. Attorney Mona Furst is prosecuting.

Donald James Smith, 43, Wichita, Kansas, and Lisa Diane Boylen, 33, Wichita, Kansas, are charged with one count of conspiracy to commit credit card fraud. In addition, Robert Lowell Killough, 42, Wichita, Kansas, is charged with aiding and abetting credit card fraud. Smith also is charged with two counts of credit card fraud, two counts of identity theft, and two counts of aggravated identity theft. The crimes are alleged to have occurred at various times from May to July 2012 in Sedgwick County, Kansas.

Upon conviction, the crimes carry the following penalties:

  • Conspiracy: A maximum penalty of 15 years and a fine up to $250,000.
  • Credit card fraud: A maximum penalty of 15 years and a fine up to $250,000 on each count.
  • Identity theft: A maximum penalty of five years and a fine up to $250,000.
  • Aggravated identity theft: A mandatory two years to be served consecutively to the underlying sentence and a fine up to $250,000 on each count.

The U.S. Secret Service investigated. Assistant U.S. Attorney David Lind is prosecuting.

Brian J. Anderson., 35, Colwich, Kansas, is charged with one count of impersonating a U.S. Marshal. The crime is alleged to have occurred June 9, 2012, in Wichita, Kansas.

If convicted, he faces a maximum penalty of three years in federal prison and a fine up to $250,000. The U.S. Marshals Service investigated. Assistant U.S. Attorney Alan Metzger is prosecuting.

In all cases, defendants are presumed innocent until and unless proven guilty. The indictments merely contain allegations of criminal conduct.

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