Kentucky Oil Tycoon Pleads Guilty to Ponzi Scheme Charges
David Rose agrees to serve 52 months in prison, compensate victims.
July 9, 2009— -- Less than two weeks after fraudster Bernie Madoff was sentenced to 150 years in prison, Kentucky oil-and-gas tycoon David G. Rose pleaded guilty on Wednesday in the U.S. District Court of Western Kentucky to Ponzi scheme charges of tax evasion and defrauding hundreds of investors across the world out of tens of millions of dollars through oil and gas reserve development projects.
Acting U.S. Attorney Candace G. Hill, announced that the former head of enTerra Energy, LLC and the oil and gas exploration firm Robo Enterprises, Inc. pleaded guilty to 21 counts of defrauding investors and one count of willfully evading more than $200,000 in taxes on an income of $3.5 million in 2000 and 2001.
As part of the plea agreement, Rose will pay more than $2.9 million in restitution to 60 victims. He paid the first $1 million in court as he entered his plea and agreed to a 52-month prison sentence for the two separate charges that were combined for this trial.
In his plea, Rose admitted that he instructed company salespeople to give false statements to investors, so as to encourage them to invest in the two oil and gas well projects promoted by enTerra Energy. With the tempting allure of black gold and claims of 50 percent returns, Rose convinced hundreds of potential investors to transfer tens-of-millions of dollars to his companies.
Under the fraud scheme, enTerra Energy falsely claimed it had entered into partnerships with major oil companies such as Citgo Petroleum Company, Samson International, Hunt Oil and Texaco, in developing the oil and gas wells which comprised the two projects.
Last month, one fraud victim told reporter Adam Walser from local ABC affiliate WHAS-TV that his father invested almost $300,000 with 33 units in three different projects that showed no returns.
"This well was dry. This well was pulling salt water. We had to cap it," said Rick Wimp, whose family owns the Corydon Service Station in Louisville, Ky. "I could go out here, dig 33 holes and probably find more oil and gas than they did."
Documents Seized
Wimp's investment brought in a measly $20,000, something federal investigators say happened to more than 200 investors.
Rose's companies have been under investigation by departments within the FBI and IRS since 2001, culminating in an FBI raid on his Louisville headquarters in 2004. Among the documents seized, investigators uncovered scripts that were issued to enTerra Energy salespeople, making false claims of successful oil and gas production.
WHAS reporter Adam Walser also interviewed a former Rose salesperson who managed to smuggle out a copy of the script.
"They would say that the well's come in and that everything looks like it's gonna be good. As time went on there was nothing. There's no pot of gold at the end of the rainbow," said the former Rose employee, who asked not to be named due to concerns for his personal safety. He went on to say, "You've got to be a heck of a salesman. But you've got to be willing to mislead people too. And I couldn't do it anymore."
For the tax evasion charge, Rose admitted to employing evasive tactics to conceal the income and assets he owned and controlled, such as titling vehicles he purchased and owned in the names of acquaintances, having someone else make payments on a Florida condominium he purchased in 2001 and diverting monies from companies such as enTerra Energy to friends and family members. It also alleges that some of the money he took from investors for drilling paid for company bonuses and salaries.
Rose, along with his son Jason and nine other businesses and people, are also named in a civil suit filed by the Security and Exchange Commission in the Southern District of Indiana in June. In it, the government alleges that another company, Berkshire Resources, LLC, raised $15.5 million from 265 investors throughout the United States and Canada then defrauded them by spending $6.7 million on items having nothing to do with drilling, including $1.3 million to pay for mortgages on the Roses' homes, home furnishings and electronics, cars and credit card charges.
Rose Awaiting Sentence
In the complaint, the SEC claims that, while David's son Jason T. Rose was listed as the managing member and touted as the public face of the company, it was David Rose who truly ran the business behind-the-scenes. Berkshire Resources is still in operation.
A lawyer representing Jason Rose could not be reached for comment.
Two other oil and gas executives connected to Rose and his former company Robo Enterprises have already served prison time for tax evasion. David W. Stewart pleaded guilty in April 2007 for failing to report $640,000 of taxable income and was sentenced to one year in prison. Richard P. Underwood pleaded guilty in June 2007 to tax evasion amounting to more than $3 million. He was sentenced to a little over three months in prison.
Had Rose been convicted at trial on the 21 counts of mail and wire fraud and one count of tax evasion, the maximum potential penalties would have been 425 years' imprisonment and $5.5 million in fines. The government also sought the forfeiture of $6.6 million.
Rose's lawyer Scott C. Cox said Rose decided to plead guilty to the criminal charges because the case has "just worn him out financially and been hard on his family. He wants to put it behind him." Rose remains free on bail and is scheduled to be officially sentenced before the Chief U.S. District Judge Thomas B. Russell on November 16 in Louisville.
Linsay Rousseau Burnett is a 2009 Carnegie Fellow with the Brian Ross Unit. She is a graduate journalism student at UC Berkeley.