Block letters spelling fraud, with magnifying glass

The U.S. executive behind an accounting fraud at Canadian oil services company Poseidon Concepts Corp. has pled guilty to securities fraud in a U.S. court.

The Calgary-based company’s executive vice-president of U.S. operations, Joseph Kostelecky, 60, pled guilty to one count of wire fraud and one count of securities fraud, in connection with a scheme to overstate the company’s reported revenues, which led to its eventual collapse.

He is scheduled to be sentenced on Jan. 10, 2022.

According to court documents, Kostelecky admitted he caused Poseidon to falsely report approximately US$100 million in revenue from purported long-term contracts with energy companies that were Poseidon’s customers in 2011 and 2012.

U.S. authorities said he directed the company’s accounting staff to book revenue from contracts that either didn’t exist or was considered uncollectible. And, after the company took a partial write-down of the uncollectible accounts, which caused its stock price to drop, Kostelecky falsely reported he had purchased a substantial number of company shares.

“Kostelecky further admitted 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,” the U.S. Department of Justice (DoJ) said.

Ultimately, when the fraud was revealed, Poseidon’s stock price plunged and the company was forced into bankruptcy in 2013, which the DoJ said caused US$886 million in shareholder losses.

“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,” said assistant attorney general Kenneth Polite Jr., in a release.

In 2018 shareholders settled a class action for $36.6 million against the company, its directors, auditor and underwriters.

In 2017 the Alberta Securities Commission fined Kostelecky $750,000 and banned him from the markets for securities law violations.

He had previously settled with the U.S. Securities and Exchange Commission (SEC) in 2015. Without admitting or denying the allegations, he agreed to pay $75,000 to settle the SEC’s case.