A Dickinson man and former vice president of U.S. operations at the now-defunct publicly traded Canadian oil-services company pleaded guilty to perpetrating a scheme in 2012 aimed at fraudulently inflating the company’s reported revenue, resulting in shareholder losses in excess of $886 million.
Joseph A. Kostelecky, 60, of Dickinson, who was indicted with the scheme in February of 2015, was subject to an extensive investigation by the United States Postal Inspection Service’s D.C. Division and the United States Department of Justice.
Kostelecky previously agreed to pay $75,000 to settle other fraud charges levied by the U.S. Securities and Exchange Commission after the SEC filed in federal court in North Dakota in 2015. In addition to agreeing to settle with the SEC, Kostelecky agreed to be barred from serving as an officer or director of a U.S. publicly-traded company.
“The magnitude of the overstatements was substantial, comprising approximately 64 to 72 per cent of total revenues reported over the first three fiscal quarters of 2012,” the SEC said in a press release.
With the SEC issues reaching agreed upon terms, Kostelecky was then faced with the remaining charges of illegally engaging ina scheme intended to defraud while serving as highest-ranking U.S. executive of Poseidon Concepts Corporation (Poseidon) between November 2011 and December 2012.
According to court documents, Kostelecky admitted that, in his role, he caused Poseidon to falsely report approximately $100 million in revenue from purported long-term contracts with oil and natural-gas companies that were Poseidon’s customers. Kostelecky’s misconduct included fraudulently directing Poseidon accounting staff at the U.S. corporate headquarters in Denver, Colorado, as well as its field office in Dickinson, to record revenue from such contracts and then assuring management that the associated revenue was collectable, when he knew that the contracts either did not exist or that the associated revenue was not collectable.
“The U.S. Postal Inspection Service has a history of protecting American investors from fraudulent schemes perpetrated by individuals driven by sheer greed,” Eric Shen, Inspector in Charge of the U.S. Postal Inspection Service’s Criminal Investigations Group, said. “Today’s guilty plea demonstrates corporate executives are not exempt from justice. The U.S. Postal Inspection Service and its federal law-enforcement partners will continue to exhaust all their efforts to protect American shareholders from corporate fraud.”
After Poseidon reported a partial write-down of uncollectible accounts in its financial statements, resulting in a drop in the company’s stock price, Kostelecky fraudulently caused the issuance of a public filing falsely reporting that he had purchased a substantial number of shares of the company, when in fact he had made no such purchase. Kostelecky admitted that when the inflated revenue came to light at the end of 2012, Poseidon’s stock price plunged and the company was forced into bankruptcy, causing over $886 million in shareholder losses.
Kostelecky further admitted, according to court documents, that he perpetrated the scheme to inflate the value of the company’s stock price and to enrich himself through the continued receipt of compensation and appreciation of his own stock and stock options.
“Joseph Kostelecky engaged in a fraudulent scheme with catastrophic consequences to Poseidon Concepts Corporation and its shareholders, resulting in hundreds of millions of dollars in victim losses,” Kenneth A. Polite Jr., Assistant Attorney General of the Justice Department’s Criminal Division, said. “Today’s guilty plea demonstrates the department’s continued commitment to prosecuting executives at all levels of public companies, holding them accountable for their misconduct, and protecting the investing public from corporate malfeasance.”
Kostelecky pleaded guilty to one count of wire fraud and one count of securities fraud in the District of North Dakota. A federal district court judge will determine the sentence, after considering the U.S. Sentencing Guidelines and other statutory factors, but the Dickinson native could face a maximum sentence of 40 years in prison.
The matter is scheduled for court on Jan. 10, 2022.