Prosecutor: FBI investigating former official of WRT Energy

The Advocate (Baton Rouge, LA), February 20, 1999
By Peter Shinkle

The FBI is investigating a former official of the defunct WRT Energy Corp. who sent $2.6 million to an account in the Turks and Caicos Islands, a federal prosecutor said Friday.

The man, James Florence, already faces a civil lawsuit accusing him of defrauding WRT. The federal judge in that case has ordered Florence not to move the money from the offshore account.

U.S. Attorney Mike Skinner said Friday his office normally does not reveal its investigations, but did so in this case so the attorneys suing Florence could "secure the offshore account." The FBI probe is the latest twist in the sprawling litigation over WRT, an independent oil company operating in South Louisiana. WRT filed for bankruptcy protection from its creditors in 1996, shortly after writing down the value of its oil leases by $100 million.

Even by the standards of Louisiana's sometimes rough-and-tumble oil industry, the case of WRT seems, well, unusual.

Attorneys seeking to recover cash for creditors have sued an array of defendants including a trust set up by L. Ron Hubbard, the deceased founder of the Church of Scientology; two leading Wall Street investment firms; former Gov. Edwin Edwards' son, Stephen; an associate of the former governor; and WRT's directors and officers. At least 10 of the suits make allegations of fraud.

The massive litigation over the company's failure inching through U.S. Bankruptcy Court in Opelousas. One case where there have been developments is that of Florence, a Houstonian who was WRT's director of marketing and whose tasks at the company included selling WRT's oil and gas to other companies. At the same time as he worked for WRT, Florence set up his own company, Tri-Deck Oil & Gas Inc., to act as an intermediary, buying WRT's oil and selling it to larger companies, he has said.

Meanwhile, WRT's former president, Steven McGuire, has said he cannot recall signing WRT's oil sales contract with Tri-Deck, although McGuire's signature appears on the contract.

Florence has said he got $2.6 million from selling WRT's oil, and sent that money to the offshore account after discussions with Gordon Kerr, an attorney in the Turks and Caicos Islands. But Florence said in a sworn statement he could not recall how he learned about the account or when he transferred the money, though it might have been in 1996.

Florence also said he sent the money as a "blind investment," making it impossible for him to get any information about the money.

In a sworn deposition in November, Florence professed ignorance about his offshore arrangement with Kerr.

"I don't know what a blind investment is, but it was made based on my conversations with him," Florence said.

He said he made the investment "with expectations of great returns."Attorneys for a trust representing WRT's creditors have asserted that Florence defrauded WRT though the oil marketing contract, perhaps with McGuire's help. Florence has repeatedly blocked efforts to uncover information about the money, the attorneys claimed.

Florence has denied those claims and said he intends to pay WRT any money he owes the company for selling its oil.

On Friday, Skinner acknowledged the U.S. Attorney's Office is investigating Florence, but said he could not comment on whether his office is probing other dealings by WRT.

"It's generally our policy not to even confirm that an investigation is under way," he said.

The creditors trust - headed by former New York City comptroller Harrison Goldin - pointed to the criminal investigation when it asked U.S. Bankruptcy Judge Gerald Schiff to block movement of the money from the account. Florence "would possibly flee and dissipate the funds," Kerry Brennan, an attorney for Goldin's law firm, Winthrop, Stimson, Putnam & Roberts of New York City, said in an affidavit.

On Dec. 28, Judge Schiff, who is overseeing the case, ordered Florence not to move the money and "not to take any steps to thwart" the trust from getting information about it.

In 1997, an independent bankruptcy examiner reported that he found numerous transfers of funds by WRT and people associated with the company for which there was no explanation or for which WRT received little or no value.

Last year, Judge Schiff approved a partial resolution of the bankruptcy in which an Oklahoma oil company bought WRT's oilfield leases and other assets. Yet with WRT's creditors claiming they are still owed more than $100 million, Schiff set up trust headed by Goldin to bring litigation to recoup funds for the creditors.

Here are some snapshots of the litigation: Scientology founder Hubbard invested money in a company run by McGuire, according to Goldin's attorneys. WRT improperly paid out some money to a trust set up by Hubbard, the attorneys claimed. That trust paid $12,500 to settle a suit in which Goldin sought to recover money paid by WRT.

Mark Miller, a former stockbroker for CIBC Oppenheimer, a worldwide investment company, advised WRT, Florence said. Miller also signed Florence's contracts with WRT, identifying himself as a vice president of Tri-Deck. The creditors trust has sued Miller and CIBC Oppenheimer for fraud and negligence in a Texas court.

The creditors trust alleges Stephen Edwards conspired with McGuire and other WRT officials to defraud WRT through a series of transactions that drained it of millions of dollars.

Stephen Edwards, who has acknowledged WRT placed more than $11 million in a trust account he controlled, said he distributed the company's money in accord with the law and at the direction of WRT. He and his father are awaiting trial on an unrelated federal indictment that stems from their dealings with riverboat casinos.

Joseph Brantley IV, a Baton Rouge attorney, received a $378,000 house in 1995 from Stephen Edwards as partial payment for an oil lease WRT bought from Brantley and other investors in 1994.

Attorneys for Goldin claim the house transfer was fraudulent because WRT received nothing of value in exchange.

Brantley has denied the claims and said the house transfer was a legitimate payment.

Brantley and Stephen Edwards disagree on some facts about their dealings. For instance, Stephen Edwards said the two met in the early 1990s when Brantley, whose firm represented a local casino, sought advice on gambling regulatory matters. But Brantley has said the two met years later, and only in relation to WRT.

The creditors trust also sued an associate of Edwin Edwards, former Department of Natural Resources Secretary William Huls. In part, Huls defrauded WRT by helping a company collect a $500,000 fee from WRT on the sale of an oil lease, Goldin claims.

Huls sent the court a handwritten letter from Florida saying he was too poor to afford an attorney. The trust also claims that a company once owned by Louis Roussell II, a longtime friend and political backer of Edwin Edwards, sold a lease to WRT at an exorbitant price, $1 million. The company has denied the claim.

Attorneys are now taking sworn statements from many of the figures in the case in advance of a hearing, set to begin in August, in which Schiff will decide when WRT became insolvent.

That issue is important because, under federal law, a judge can order the return of money transferred out of a bankrupt company before it declared bankruptcy, if the company was insolvent at the time of the transfer and if the company did not receive fair value for the expenditure.

The creditors trust is seeking return of numerous payments, claiming WRT was insolvent as early as 1994, a point disputed by the defendants.

Connell Archey, attorney for Stephen Edwards, said the defendants have won several preliminary battles with the creditors trust and are confident about winning on the insolvency issue.

"At this point, I believe the depositions have gone very well for the defense," he said.

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