Woodbury man tied to $5M fraud scheme

A federal investigation into an alleged $5 million fraud scheme involving Kansas City-based Petro America Corp. has implicated a 56-year-old Woodbury man.

Government investigators say in court documents that the scheme involved selling and giving away billions of unregistered shares of Petro America under the promise that they would be worth something when the company went public -- which always seemed to be about two years away.

The alleged scheme involves three central figures: Isreal Owen Hawkins, president and CEO of Petro America; Teresa Brown, a major Petro stockholder from Bandera, Texas; and another major shareholder named Johnny Heurung of Woodbury, owner of Money Investment Inc.

In federal court documents filed in Kansas City, Mo., last week, the government says Hawkins and Brown spent most of the money that Petro America raised from investors on houses, cars, a boat, jewels, travel and a $5,200 set of Louis Vuitton luggage, among other luxuries. Heurung, who allegedly received Petro America stock and $130,000 in payments, told investigators that the money was compensation for work he did on behalf of the company.

Hawkins, Brown and Heurung could not be reached Monday. However, Hawkins told the Kansas City Star last week that he didn't defraud anyone and didn't believe his associates had, either.

The U.S. Attorney's office in Kansas City said no criminal charges have been issued in the case and declined further comment.

"The sale of Petro America stock is part affinity scam, part get-rich-quick scheme," wrote Devin Fields, an IRS criminal investigator, who filed an 81-page affidavit as part of the government's civil complaint to forfeit some seized cash and jewelry.

According to Fields, besides selling shares in Petro, Heurung was responsible for finding "suitable gold mines for Petro" to buy into. Heurung told government investigators that he found 24 mines for the company. He claims he obtained reports to substantiate their value. Heurung said he told investors the mines were worth billions, but he believed they had untapped gold stores worth $7 trillion. He said he lowballed the value because he planned to release the higher valuations slowly, after Petro goes public, to keep its stock price rising.

But Fields says the mines are essentially worthless.

"In some cases, the documents provided to support the sky-high purported valuations are, on their face, clearly ridiculous," Fields wrote. In addition, a government mining expert found that most of the mines Petro claimed to have an interest in were mining claims -- not producing mines -- or they were old, exhausted mines that have been associated with "various schemes and fraudster owners." A mining claim is merely a plot of government land in which a mineral deposit may or may not exist.

Petro America, which claims 12 billion outstanding shares, pitched its stock on a website and in presentations to church congregations, drawing $400,000 to $700,000 a month at its peak in the fall of 2009 and early 2010, Fields says. For the last eight months, Petro America has told investors its holdings are worth $284 billion by market capitalization, which the government notes would make it the second largest company in the U.S. behind Exxon-Mobil and larger than even Wal-Mart.

Fields says that Hawkins, who is black, told the SEC in August 2009 that Petro America will be the first African-American-owned oil company to go public in the United States. And he says that Hawkins told investors that Petro was being hamstrung by "racist government agencies" that don't want minority-owned firms to succeed."

"To date, Petro has no significant revenue and no realistic plan for obtaining revenue," Fields says.

In addition to his involvement in gold mines, the affidavit says, "Heurung also sells various products, including a magic wand that purportedly heals the body and makes food taste better. At an interview with federal agents in September 2010 in Arlington, Va., Heurung instructed a Treasury agent to pass one of the wands over his coffee, clockwise, 28 times, and it would improve the taste."

Heurung has left a trail of small civil judgments and liens in Minnesota since the mid-1990s. He was a former general manager of Bio-Energy Services, which promoted a machine that supposedly could cure cancer and AIDs with electromagnetic waves. Heurung -- who personally touted the machine as a painkilling device -- told the Seattle Times in 2007 that he was fired after he complained about the lack of patient safety measures and high-pressure sales tactics for the machine.

The U.S. Securities and Exchange Commission and securities investigators in Missouri, Kansas and Arizona have all investigated elements of Petro America and its alleged stock sale scheme and have taken various actions against the firm or its associates.