For some reason I’ve become the lightning rod of seemingly all the Lloyd Ward information out there floating about. For those that are not aware, Lloyd Ward is a Dallas based attorney who first became known to me because of his debt settlement business.
I guess since Lloyd Ward decided to egregiously sue my wife and I for articles about him, people apparently now feel compelled to send me information about him. And then, dammit, here I am writing about him again.
As I’ve said before in An Open Letter to Lloyd Ward and Amanda Ward I have no grudge or animosity against Ward.
From the complaint.
This case involves a fraudulent scheme by the senior management of Basin Water, Inc. to overstate the company’s financial results for each of its quarters beginning with its initial quarter as a public company (the first quarter of its fiscal year 2006 ended March 31, 2006) through its fiscal year 2007 ended December 31, 2007. The company’s senior management responsible for the fraud were its founder, Chairman of the Board and Chief Executive Officer, Defendant Peter L. Jensen, and its Chief Financial Officer, Defendant Thomas C. Tekulve, Jr. The Defendants materially overstated and caused Basin to materially overstate its revenues by improperly recognizing and reporting substantial amounts of revenue from the company’s purported sales of water treatment systems. The purported revenue failed to meet the most basic Generally Accepted Accounting Principles (“GAAP”) for recognizing revenue. In particular, as explained below, several sales were contingent on the customer’s acceptance of the treatment system or resale of the system to an ultimate customer; several sales did not occur in the quarter for which revenue was recognized; several sales were recorded even though the company never delivered the treatment system; and in several sales, collectability was not reasonably assured and the company in fact did not receive the required payments from the customer. Finally, in 2007, the Defendants caused the creation of two special purpose entities to which Basin purportedly sold systems in sham transactions that had no economic substance and which involved Basin round-tripping its own cash to purchase the revenue. The Defendants materially overstated Basin’s 2006 revenues by 13% and its 2007 revenues by 74% as well as materially overstating Basin’s revenues for interim quarterly periods. On August 11,2008, the company announced it was restating its financial results for these periods, which restatement was issued on February 10,2009.
Prior to the August 11,2008, announcement that Basin would restate, between December 12,2006 and August 7,2008, on the basis of material nonpublic information that the company’s financial results were being and had been materially overstated, Defendant Peter L. Jensen engaged in insider trading, selling 1,660,943 shares of company stock, gaining and realizing profits of $9,173,075. Additionally, he made charitable donations of 290,000 shares of company stock, taking a total of $763,345 in tax deductions. All of these sales of stock and charitable donations were made within twelve months of Basin filing a Form 10-Q or Form 10-K which was subsequently restated due to the material noncompliance of Basin, as a result of misconduct, with financial reporting requirements under the securities laws, as alleged below.
These are the parts that mention Ward.
The Defendants Materially Overstate Basin’s 02 2007 And Year-To-Date Revenues By Engaging In A Sham $3.8 Million Sale To A Special Purpose Entity They Directly Or Indirectly Cause To Be Created
Initially, in most cases Basin was placing units on customer sites and signing long-term leases with those customers. In or about early 2007, Basin began to engage in transactions pursuant to which it recognized additional revenue by purporting to sell the systems rather than by leasing them. Tekulve was primarily responsible for carrying out Basin’s plan.
Basin paid a consultant, Charles Litt, to obtain financial partners to facilitate purchase of units from Basin. Litt introduced Basin to CCH Netherlands and its related companies (“CCH”), and to Lloyd Ward (“Ward”), a Dallas, Texas attorney. Because CCH did not want to do a transaction with Basin in its own name, Ward created VL Capital, LLC. Tekulve was Ward’s sole contact at Basin.
VL Capital, LLC (“VL Capital”) was registered in Delaware as an LLC on June 29, 2007, one day before the end of Basin’s Q2 2007 on June 30, 2007, and Ward was its Managing Member, and sole member. VL Capital was created to purchase units from Basin. It had no other business. Accordingly, it was a “special purpose entity” (“SPE”). Tekulve received the invoices from Ward relating to formation of VL Capital and drafting of documents relating to the agreements between Basin and VL Capital and VL Capital and CCH; Basin agreed to pay and paid these fees.
The Defendants Materially Overstate Basin’s Q3 2007 And Year-To-Date Revenues By Engaging In A Sham $2.1 Million Sale To Another Special Purpose Entity They Caused To Be Created
Water Services Solutions, LLC (“WSS”) was registered as an LLC on September 27,2007, three days before the end of Basin’s Q3 2007 on September 30,2007. Ward was its Managing Member, and sole member. Like VL Capital, WSS was created solely to purchase units from Basin. It had no other business. Accordingly, like VL Capital, it was an SPE.
Seventeen days before it was legally formed, on September 10,2007, WSS transmitted a letter to Tekulve signed by Ward, which proposed that WSS purchase systems then being manufactured by Basin for lease to the City of Cottonwood for $4.4 million less the present value of expected costs of insurance and property taxes related to the purchase (the “WSS Letter”). Tekulve signed the WSS Letter as “acceptable and agreed to” on or about September 24, 2007.
On or about October 31, 2007, pursuant to a request by Basin’s auditor, Basin’s Director of Finance, Hansen, prepared a memorandum, or “white paper,” which, after being reviewed and approved by Tekulve on or about November 1, was provided to Basin’s auditors. The memorandum purported to justify recognition of revenue based on the September 10,2007, WSS Letter signed by Tekulve on September 24. The memorandum was materially misleading in part because it failed to disclose that WSS was an SPE with no operations which Basin caused to be created for the sole purpose of creating purported revenues. Additionally, the memorandum misleadingly states that “collect ability is reasonably assured” because WSS “is backed by National City, a large Chicago bank,” when National City was, in fact, National City Energy Capital LLC, based in Cincinnati, Ohio; and because the $25,000 deposit had been made into an escrow account when in fact no such deposit had been made. In fact, as stated above, the National City financing and $25,000 escrow deposit never occurred.
According to court records the case is still ongoing.
You can read the full complaint here.
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