Two Men Sentenced in $39 Million Fraud
|U.S. Attorney’s Office December 02, 2013|
MONTGOMERY, AL—After a three day sentencing hearing, on November 27, 2013, United States District Court Judge Myron S. Thompson sentenced Paul Hulse, Sr. to the statutory maximum of 10 years’ imprisonment, followed by three years’ supervised release, for interstate transportation of property by fraud, announced George L. Beck, Jr., U.S. Attorney for the Middle District of Alabama. Judge Thompson also sentenced Frank J. Teers to eight years’ imprisonment, followed by five years of supervised release, for conspiracy to commit wire and financial institution fraud, and committing wire fraud and financial institution fraud.
Both men were ordered to pay $39,239,561.06 in restitution to the Federal Land Bank Association of South Alabama. Judge Thompson continued the sentencing of co-defendant Steven P. Mock until 2014.
According to court filings, Paul Hulse, Sr. (Hulse) was a director of H&H Worldwide Financial Service Inc.; Paul Hulse, Jr. (Hulse, Jr.) was H&H’s president; Steven P. Mock was an attorney in the Houston area; and Frank J. Teers was a bond broker employed by Tri-Star Financial Services in Houston. Beginning in 2003, Hulse began soliciting various persons and businesses for loans based on the false representation that he controlled a large portfolio of bonds—the amount ranged from tens to hundreds of millions of dollars—that could be used as collateral for the loans. Mock and Teers made false statements to the prospective lenders that supported Hulse’s claim that he owned a substantial bond portfolio. In fact, Hulse did not have a bond portfolio. None of the solicited institutions, which included Western National Bank of Midland, Texas; MetLife; UBS Securities; and Jefferies and Co. agreed to make a loan to Hulse or H&H.
In February 2005, Hulse began soliciting loans from the Federal Land Bank of South Alabama (the bank) in Montgomery, Alabama. During the course of the discussions:
- Hulse falsely represented that he had a large bond portfolio that could serve as collateral for the loans to H&H and submitted documents that concealed Hulse’s plan to use approximately half the loan proceeds to purchase the bonds that were going to serve as collateral for the loans.
- Mock falsely claimed that he was Hulse’s “senior trust officer” and that the “trust agreements” permitted the use of $15 million of trust bonds in connection with the proposed loan.
- Teers falsely represented that he managed a significant bond portfolio for Hulse, provided documents to Hulse that Hulse used to support his claim of ownership, signed documents that represented that bonds were on account at Tri-Star, and failed to disclose to the bank and to Tri-Star that he had been interviewed by IRS criminal investigators about Hulse’s fraudulent activities.
Based on those false representations, the bank made two loans to H&H totaling $68.5 million in August and December 2005. H&H used more than half the money to buy the bonds that were to serve as collateral for the loan. A significant amount of the loan proceeds were used for the personal benefit of Mock, Hulse, and members of the Hulse family. Teers made more than $600,000 in commissions from the buying and selling of bonds on behalf of H&H. By spring of 2007, the relationship between H&H and the bank had deteriorated. In an effort to convince the bank to allow the principal of the bonds to be used to make the quarterly loan payment, on June 28, 2007, Mock, Hulse, and Hulse, Jr. sent a letter to the bank that (a) falsely claimed that H&H was on the “doorstep” of obtaining a loan from Wells Fargo that would allow the bank to be paid in full and (b) described how the loan proceeds had been used without disclosing the fact that more than half the loan proceeds had been used to buy the bond collateral.
“These sentences are particularly fitting because these crimes were committed by professionals who have a fiduciary duty to our citizens of loyalty and trust,” stated U.S. Attorney Beck. “In order to maintain a level of confidence in our lending institutions, those closely involved with those lending institutions have to be forthcoming and honest. These defendants were not. These defendants lied and mislead these credit institutions for their own gain.”
The case was investigated by the FBI, with assistance from the Internal Revenue Service-Criminal Investigations in Houston, Texas. This case was prosecuted by former Assistant United States Attorney Andrew O. Schiff and Assistant United States Attorney Denise O. Simpson.