Ponzi Scheme Laundered Through Mazuma CU

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KANSAS CITY, Mo. – Federal authorities on Thursday charged a local investment manager with operating a $7.2 million Ponzi scheme they say was partially laundered through local branches of Mazuma CU.

Isreal Hawkins, 55, president and CEO of Petro America Corp., was charged with securities fraud and with structuring financial transactions in order to evade federal reporting requirements. Hawkins founded Petro America, which bills itself as a holding company for crude oil and gold mines, in 2007.

The indictment charges that Hawkins and others made large cash withdrawals from Petro America’s various credit union and bank accounts, which were structured to avoid bank reporting laws. For example, Hawkins and an unidentified co-conspirator visited Mazuma CU several times each week. Sometimes they made big deposits of multiple checks into the company’s credit union account. On most visits, the affidavit says, they withdrew $7,500 to $9,800, often on consecutive days. In this manner, Hawkins obtained at least $537,515 in cash from Petro’s account at Mazuma. The affidavit also alleges that Hawkins structured currency withdrawals out of Petro America accounts at U.S. Bank and Bank of America.

Under federal law, credit unions and banks are required to file Currency Transaction Reports for financial transactions that exceed $10,000 in one day. It is illegal to conduct multiple cash withdrawals in amounts less than $10,000 for the purpose of evading that federal reporting requirement.

More than 9,000 victims invested in excess of $7.2 million since August 2008, but instead of using that revenue for legitimate business-related purposes, Hawkins and his co-conspirators allegedly withdrew investors’ funds from Petro America’s bank accounts in cash, which they spent on personal expenditures such as a house by a lake, luxury cars, a $5,700 fur coat, a $37,000 boat, a $5,200 piece of Louis Vuitton luggage purchased in Switzerland, expensive jewelry and travel.

Hawkins, the only full-time employee of Petro America, paid himself an annual salary of $595,000 under a contract that also granted him a $175,000 bonus, 500 million shares that are immediately exercisable, a company car, a company apartment in Missouri and a dining card, according to the charges. Hawkins drew his salary in cash, in random amounts at inconsistent times, and the company did not withhold taxes.

Conspirators often recruited investors through churches and used religious language in their pitches, authorities said, including promoting Petro America as a once-in-a-lifetime opportunity to “share the blessing.” Petro America cultivated a relationship with the African American Ministers Alliance Group, the affidavit says, and according to its records made large payments to multiple Kansas City-area pastors, religious leaders and a local civil rights activist.

Hawkins began selling shares of unregistered stock to investors in 2008. At the time, Petro America had no oil, no realistic prospects for obtaining, transporting or storing large amounts of oil, no significant assets, no revenue and no other employees. The government said yesterday it is aware of no evidence that Petro America has seriously pursued any opportunities to acquire oil fields or conducted oil trading operations. Nevertheless, Hawkins and others touted excellent prospects for Petro’s rapid growth in the oil industry.

 

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