How attorneys with the Texas State Securities Board helped Collin County prosecutors try a man for fraud, theft, and money laundering in a scheme that bilked oil investors out of $400,000
Joseph J. Rotunda
William Seelye told investors he was a successful oilman in the classic Texas mold. Using investor funds as working capital, he was reportedly able to deliver significant returns through drilling or reworking wells throughout Texas and Oklahoma. Investors anted up more than $400,000, but their monies often didn’t make it to the oilfield. Seelye instead used their funds to make payments to his mortgage and credit card companies and to sustain his lifestyle. Not surprisingly, his oil drilling program turned out to consist mostly of phantom projects and low-producing wells. The only return on the investments was a 99-year state prison sentence, which we secured in a Collin County courtroom earlier this year.
The State Securities Board works with many prosecutors’ offices to facilitate the prosecution of white-collar criminal cases. These types of cases frequently involve voluminous evidence and a commitment of otherwise limited resources. The State Securities Board frequently assists prosecutorial authorities in addressing these challenges by subpoenaing records, analyzing financial data, interviewing victims who live all over the state, participating in court proceedings, and providing expert witnesses.
Seelye’s oil and gas scam
The scam that led to Seelye’s conviction and sentence started in 2002. Seelye and a business partner formed Seel-Mac LLC. The partner put up money and credit to obtain an operator permit from the Texas Railroad Commission, the entity that regulates oil and gas in Texas, and to purchase oil leases. The partnership didn’t last long. His business partner filed suit against Seelye in state district court in Denton County in 2004, alleging that Seelye used cash from Seel-Mac’s operating account to pay his personal credit bills and monthly payments for utilities and personal automobiles, among other expenses.
State District Judge Vicki Issacks entered a restraining order against Seelye on March 25, 2004. Just two weeks later, after the business partner complained that Seelye was violating its terms, Judge Issacks ordered the company into receivership and appointed Ricky Perritt, a Denton County attorney, to act as a receiver.
With the company he co-founded in receivership and at odds with his former partner, Seelye nonetheless continued to solicit investors for other oil and gas projects. He formed Rasher Energy Inc., after Seel-Mac was ordered into receivership, to assist in soliciting these new investors. The use of a new corporate entity concealed the legal and operational history associated with Seelye’s activities, as new investors were far less likely to learn about Seelye’s troubled past.
Lewis Jue, an insurance agent, knew Seelye because he at one time employed Seelye’s mother-in-law. Seelye first approached Jue in September 2004, soliciting funds for a drilling venture. Jue declined because of the risk in starting a new drilling venture from scratch. The next month Seelye came back with another, presumably less risky, proposal to drill existing wells in Cooke County. That way, he told Jue, the oil and revenue would flow more quickly. Jue became one of 18 people who eventually invested approximately $400,000 in Seelye’s oil ventures over the next three years.
Seelye followed a well-worn path in oil and gas fraud. He sold interests in drilling projects he didn’t own and failed to drill on leases in which he held an interest. He also failed to provide investors with a true and accurate portrayal of his business reputation, qualifications and operating history—disclosures that would have made potential investors run the other way. For example, he did not disclose the lawsuit that McKenzie, his one-time partner, filed against him in 2004 that forced Seel-Mac into receivership. He falsely claimed that Rasher Energy owned rights in leases that it did not.
Then there is the way Seelye lined up investors: one connection at a time, methodically transforming members of the public into victims named in an indictment. Lewis Jue told State Securities Board attorneys he told a friend from Houston about Seelye’s projects, and the friend promptly invested $6,500. In 2005, Seelye approached another friend of his insurance agent and convinced him to invest. Seelye also successfully solicited more than $85,000 from his dentist.
Not surprisingly, none of these investors were provided with material information regarding the receivership, the false claims related to the ownership of mineral leases, and his use of investor funds. The state securities statutes require that promoters provide investors with material and relevant information in connection with the offer and sale of securities, which often include oil and gas investments. These statutes also provide that promoters who intentionally fail to disclose material facts and knowingly misrepresent relevant facts commit felonies.
Seeyle was therefore indicted in Collin County for securities fraud (first degree), theft (first degree), and money laundering (second degree). His trial started April 28, 2009, and lasted five days.
Prosecuting such crimes
The prosecution was a collaborative effort between the State Securities Board and the Collin County Criminal District Attorney’s Office. The State Securities Board has an established relationship with Judge John Roach, the elected Criminal District Attorney for Collin County, who is an accomplished and demonstrated leader in prosecuting cases involving investment fraud and white collar criminal activity. The DA’s office had received complaints from investors in and around Collin County and asked the State Securities Board to help investigate because of our experience in these types of trials.
The Seelye case was investigated by the State Securities Board and the Special Crimes Division of the Collin County DA’s Office, and tried by Dale Barron, a veteran enforcement attorney for the State Securities Board, assistant criminal district attorney Christopher Milner, and fellow Collin County prosecutor Kelly Crowson. Judge Roach appointed Barron as an assistant district attorney to prosecute the case against Seelye.
Evidence in white-collar criminal prosecutions is largely banking and financial records—evidence that isn’t limited by someone’s memory or any of the challenges associated with eyewitness testimony. These records frequently provide a succinct and straightforward roadmap that demonstrate how a defendant received money from investors and spent it on expenses that were not related to the underlying investment program. In the Seelye trial, for example, a State Securities Board financial examiner conducted an analysis of the defendant’s bank accounts and used the records to connect the multiple companies he established. The financial examiner testified about these aspects at trial and showed the jury exactly how Seelye used investor funds as part of a criminal scheme.
As important as they are, financial records tell only part of the story. Although this type of evidence frequently proves the source and use of victims’ money, it does not necessarily depict the cunning practices defendants use to deceive the victims or the significant harm that can be caused through white-collar criminal activity. Victimized investors must testify to bring home the impact of turning over their money—even money set aside for retirement—to the defendants. Their testimony often complements the financial records, providing a global sense of the overall nature of these schemes.
The case against Seelye
Even in cases involving many witnesses who can testify about the significant harm caused by the theft of accumulated life savings and retirement funds, some jurors may view white-collar crimes as inherently civil in nature. These views tend to associate white-collar offenses with crimes against property and draw a clear distinction between these offenses and violent ones such as murder or sexual assault. For this reason, it is imperative to develop special questioning in voir dire to expose potential biases or prejudices that may result in some form of jury nullification or preclude the rendering of a lawful verdict. For example, prosecutors often lead discussions designed to ensure a jury will fairly apply the law to the evidence, can render a felony conviction based upon nonviolent conduct, and, upon conviction, will consider the full range of punishment for such conduct, including incarceration. These discussions, coupled with the efficient use of preemptory challenges and challenges for cause, can address a number of potential issues before the issues impact the prosecution.
At the Seelye trial, the parade of investors brought cumulative weight to the prosecution’s case. The victims painstakingly explained how Seelye approached them, detailed his false promises and the misrepresentations associated with his background, and explained what happened to the money they invested. In short, one by one, the witnesses chipped away at Seelye’s persona as a self-made man who could deliver riches from the Texas oil patch.
In these white-collar cases, the con man’s appearance and persona is often an integral component in the criminal scheme. Slick hair, fancy clothes, and sophisticated lingo are frequently tools to convince investors to part with their nest egg. At Seelye’s trial, for example, one duped investor told the court, “I thought his appearance was, and his language was, someone very knowledgeable. And, of course, again, I didn’t have a whole lot of knowledge about oil wells, but he looked very professional.”
The witness continued, “You know, I fell for trustworthiness, I guess, because I viewed it that way. … He communicated a lot to me. He called, told me what was happening with the wells. So I had a comfort level.”
In the Seelye case, another kind of expert was needed, one who can clearly explain the often complex language of oil and gas production. Our staff frequently works with Sheila Weigand, a 30-year veteran of the Texas Railroad Commission. Her testimony was invaluable because she was able to compare the operations of a legitimate oil and gas company to those Seelye ran. Weigand’s trial testimony made clear that Seelye was not, as he often told investors, a successful oilman with a long track record and respect from his peers in the industry. She testified about Seelye’s numerous violations of the state’s Natural Resources Act—pollution violations, failure to plug abandoned wells, unpaid fines for previous violations—and the eventual revocation of his operator permit.
Seelye did not take the stand, but his defense was two-fold: He intended to do the work on existing wells and eventually produce profits for investors, and he believed he was entitled to sell interests in Cooke County leases owned by his family’s oil-and-gas company, called DSB Energy LLC.
As for Seelye’s contention that he intended to work the existing wells, Texas Railroad Commission records showed that most of his operations produced no or little oil, and certainly not an amount that could reward investors. The manner in which he spent investors’ monies completed the picture because investment funds used for personal effects rarely result in profitable drilling programs. And Seelye’s brother undercut the latter argument, telling the jury that Seelye did not hold any ownership interests in the family-owned wells and had no right to sell interests in them.
Not only did Seelye’s brother testify against him at trial, but Seelye’s wife also testified on behalf of the State. The Collin County District Attorney’s Office sought an indictment for money laundering against Mrs. Seelye for her role in her husband’s oil and gas drilling venture. She was not offered a plea agreement but nevertheless testified at her husband’s trial and gave the jury a unique perspective on his activities and the underlying criminal operations. She pleaded guilty to the charge in July 2009 and was later ordered to serve five years’ deferred adjudication and spend 60 days in county jail.
Even the best juries can return the worst verdicts when the State is unable to reduce voluminous evidence to a format that can be easily understood and comprehended. We therefore work with prosecutors in condensing voluminous financial records—often running tens of thousands of pages in length—to easily understood charts and graphs. These visual aids can effectively show the categories of funds received by the defendant (the source analysis) and the categories of goods or services purchased with the money (the use analysis). We discuss specific aspects of these when appropriate. For example, Seelye used investor funds to make payments for his mortgage and to credit card companies. This type of evidence is almost always useful in white collar criminal cases because it is relatively easy to convey and can readily demonstrate the criminal nature of the defendant’s activity.
The case in chief allows us to present evidence of the criminal activity, but the punishment phase permits us to offer evidence that often expands on the scope of the crime and the defendant’s other bad acts. In Seelye’s case, he owed back child support payments to children by two women, a fact that undercut his lawyers’ contention he should receive a relatively short sentence so he could pay restitution to his investors.
Prosecutors offered Seelye a plea bargain involving a 50-year sentence early in the case, and the offer stood until trial. Seelye did not accept this offer, and he was ultimately convicted at trial and sentenced by a jury to serve 99 years in prison. This sentence was the maximum punishment permitted by law, and it should send a clear message to would-be con men and other crooks: False promises of monthly production and annual returns can quickly transform into years of incarceration.
Editor’s note: Joe Rotunda has served as the Director of the Enforcement Division of the Texas State Securities Board since March 2007. Joe previously served as an Assistant District Attorney for the Travis County District Attorney’s Office, where he was assigned to both the Trial Division and the Insurance Fraud Division. For more information on the State Securities Board, please contact Robert Elder in Communications at 512/305-8386 or [email protected] .us.