Tuesday, December 1, 2020

San Antonio oilman Brian Alfaro gets 10 years prison for defrauding investors

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A federal judge Tuesday sentenced San Antonio oilman Brian Alfaro to 10 years and one month in prison for defrauding investors in the sale of units in oil and gas wells in Gonzales County.

Alfaro, 51, used money from the sales to support an extravagant lifestyle that included a $500,000 Lamborghini and Spurs season tickets for seats behind the team bench.

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U.S. District Judge Fred Biery also ordered Alfaro to pay about $9.9 million in restitution and serve three years of supervised release when he leaves prison. He can have no involvement in offering investment opportunities to prospective investors during his supervised release.

Alfaro has until March 8 to report for his prison sentence. He had been in jail awaiting his sentencing following his February conviction, but was released in March due to the spread of COVID-19.

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Alfaro suffers from multiple sclerosis, a disease that makes him more susceptible to the effects of the virus. Biery had ordered Alfaro to remain confined to his Shavano Park home pending the sentencing.

A jury convicted Alfaro of seven counts of mail fraud following an eight-day trial. He had faced the possibility of up to 20 years in prison, three years of supervised release and a fine of up to $250,000 on each count.

Biery sentenced Alfaro to 121 months in prison for each count, but he will serve the sentences concurrently.

Prosecutors said Alfaro misled investors who purchased units in oil and gas drilling ventures by telling them he would not take transaction-based compensation from their investments. Their money would be used to acquire leases and pay for drilling costs, Alfaro said, but it was deposited in a company account and then went directly to Alfaro.

Michael McCrum, Alfaro’s defense lawyer, suggested a sentence of three years and one month was more appropriate based on several factors.

Alfaro and McCrum declined to comment after the sentencing.

Exotic wildlife venture

Alfaro learned his fate a day after the Texas State Securities Board ordered him, his wife Kristi and children Ariana and Reece Alfaro to cease and desist from selling any securities without first registering them with the securities commissioner.

The Alfaro family allegedly has been pitching investors the opportunity to profit from the conservation of endangered wildlife in a venture called ARCA Wildlife Development and Conversation LLC. ARCA has sought to raise $3.2 million, offering 5 percent interests in the venture for almost $160,000 each.

A July press release from ARCA said it acquired a 300-acre lease in La Pryor in Zavala County where it would operate a breeding facility while “providing a financial windfall to investors.”

The state’s order described Brian Alfaro as a “recidivist and a white-collar criminal,” though McCrum told Biery his client has no involvement with ARCA. The lawyer added that an offering document presented to prospective investors have been vetted by lawyers for Kristi Alfaro.

The Alfaro family can challenge the board’s cease-and-desist order within the next month.




Victims’ letters

Kristi Alfaro, the couple’s four children, 15 other family members, six family friends, four business associates and three investors all wrote character-reference letters to Biery on Alfaro’s behalf in hopes of earning him a lighter sentence.

Investors also penned letters to the judge about the money they lost with Alfaro and the havoc it wrought in their lives. Some who were in retirement had to return to work.

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At one point, the judge ordered Alfaro to turn around and face one of his victims in the courtroom — Yong Li, a Chinese immigrant and restaurateur who invested his family’s life savings of $100,000 with Alfaro six years ago on the promise that he could double the money. Li intended to use the proceeds to provide care for his disabled daughter.

“Do you have anything you wish to say to Mr Li?” Biery asked Alfaro.

Alfaro apologized for the “issues” he had with the well Li invested in. “We were too confident,” Alfaro said. “We had just made two wells, over a thousand barrels a day. We were actually — I was actually arrogant in thinking that in this uncertain business I could make you another thousand-barrel-a-day well.”

Alfaro then blamed “Mother Nature” for having “other plans for us.”

“Ultimately, it’s my responsibility to deliver your return to you, and I’m very sorry,” he said to Li.

Alfaro later told the judge he drilled 150 wells and believed he was authorized to take money from the profits. Some wells, though, suffered from engineering and drilling errors and sustained collar and casing failures that resulted in large, unplanned expenses.

“I should have been more vigilant in looking at the financials, evaluating the overage expense issues, and not take the draws at the time I took them,” Alfaro said. “I’m sorry for this.”

Alfaro said he accepted responsibility for his crimes and indicated he would not appeal his conviction.

Sentencing debate

Much of the court proceeding was devoted to arguments over the appropriate sentencing range.

“This was an egregious case,” Assistant U.S. Attorney Gregory Surovic told the judge. “The sentence, in this case, needs to bear that out.”

McCrum objected to the more than $9 million in losses that the government calculated investors suffered. It assumed that 425 investors were victims of criminal conduct, he said.

“You can take into consideration that a relatively small number of investors formed the basis of this evidence,” he told the judge. “No, you don’t want to hear 400 people testify…. But if (prosecutors) are going to ask you to make findings that people feel they were defrauded, then show us at least the interview reports that they interviewed a lion’s share of them.

“Let’s say 125 of ’em, or 100 of ’em, or 75 of ’em, or 50 of ’em,” he said. “They have not presented you with any of that evidence. All they presented you with were these five or six (investors) who came into court.”




The 425 investors were invited to join a civil lawsuit against Alfaro, yet only 39 chose to make a claim, McCrum said in a court filing last week seeking leniency for his client. Of those, only nine investors proved fraud during a six-day trial held by U.S. Bankruptcy Judge Craig Gargotta in 2017. The judge awarded the nine almost $8 million.

Bankruptcy

The civil case served as the basis of the criminal charges — and Alfaro’s undoing. He was indicted in late 2018.

The investors had sued Alfaro in state District Court in 2015. One of Alfaro’s companies, Primera Energy, filed for bankruptcy after a receiver was appointed to take control of the company. The lawsuit was later removed to bankruptcy court.

Gargotta ruled the nine investors proved fraud by showing Alfaro had transferred more than $700,000 in investor funds to a family trust and then bought personal items, including a $189,000 Bentley.

U.S. marshals in late 2018 seized various property, including a Ferrari, Mercedes-Benz, 24 wristwatches and jewelry from Alfaro’s home as part of an effort to satisfy the investors’ judgment. Some of the items were later sold at auction. His real estate holdings, including his $3 million home, are either up for sale or have been sold.

Biery asked Alfaro if he had any assets left.

“They’ve taken everything, your honor,” Alfaro said. “I’ve given them everything.”

During the criminal trial, McCrum blamed the criminal charges against Alfaro on a rogue Primera accountant who the lawyer said had committed numerous breaches of fiduciary duty, including diverting profits from one well to cover unexpected costs in two other wells the accountant personally invested in.

McCrum called it “corporate sabotage or corporate terrorism by somebody on the inside bringing down a company.”

Alfaro did not take the stand to testify in his own defense.

On ExpressNews.com: Possible perjury probe looms for San Antonio oilman Brian Alfaro

Previous troubles

Alfaro’s sentencing brings to a close a checkered investment career, which occasionally earned him scrutiny from securities regulators.

The Texas State Securities Board issued a cease-and-desist order against Alfaro a decade ago after finding he engaged in fraud in the sale of securities. Illinois and California also later took action against him.

The Financial Industry Regulatory Authority, the securities industry’s self-policing organization, barred Alfaro from working in the securities industry for fraudulent sales of oil and gas private placements. It accused him of running a boiler-room operation in San Antonio that raised $10 million from the sale of unregistered securities.

In 2011, Alfaro disclosed he was facing a possible enforcement action by the Securities and Exchange Commission. He had received a so-called Wells notice from the agency in late 2010. The notice gives recipients an opportunity to convince regulators that a civil enforcement action isn’t necessary. The SEC ultimately never took any action, however.

Alfaro defended himself in an interview at the time.

“All I can say is, we stand behind the way we do business,” Alfaro said. “We do business the right way.”

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