Oil field services figure gets probation in wire fraud scheme
Shannon Smith, a former coowner of FourWinds Logistics, the San Antonio oil field services company that defrauded investors and cratered Carlos Uresti’s political and legal career, was sentenced to five years of probation Tuesday.
Smith, 42, of Beaumont, pleaded guilty to one felony count of conspiracy to commit wire fraud in 2016 and testified for federal prosecutors in the criminal trial of Uresti and FourWinds consultant Gary Cain. Smith could have received a sentence of 46 to 57 months.
Senior U.S. District Judge David Ezra cited Smith’s “minor” role at FourWinds and his cooperation in laying out the whole scheme for investigators for earning the sentence.
“It wasn’t a gift,” Ezra said. “It was a reward for doing the right thing.”
Lead prosecutor Joseph Blackwell and Smith’s lawyer, Alex Scharff, asked Ezra to sentence Smith to probation.
As part of his sentence, Smith must pay the victims of the fraud $6.3 million in restitution, just like other defendants in the case. He also must perform 500 hours of community service during his probation.
FourWinds bought and sold sand used in fracking for oil production.
Prosecutors claimed the company was a Ponzi scheme, with some investor money going to support the lavish lifestyle of
CEO Stan Bates.
Smith is the fifth defendant to be sentenced in the FourWinds saga. The only defendant who has not been sentenced is Bates, who pleaded guilty to eight felonies rather than stand trial with Uresti and Cain. Bates is scheduled to be sentenced on Sept. 11. The judge said last week Bates will spend “several years” in prison.
Uresti, the longtime San Antonio Democrat who resigned from the state Senate in June, was sentenced to 12 years in prison. Cain was sentenced to five years and eight months. Laura Jacobs, FourWinds’ comptroller, received a year’s sentence in a women’s prison camp. Eric Nelson, the company’s marketing director, was sentenced to four years of probation.
Smith expressed his remorse to Ezra during the sentencing hearing.
“I should have seen the red flags sooner,” he said. “I wish in retrospect that I had never been a part of FourWinds.”
Smith has been free on bond since entering his plea. During Uresti and Cain’s trial, Smith testified that despite considering Bates “untrustworthy” based on a previous experience, he accepted an invitation to go work for FourWinds in 2014. Smith was given the title of chief operating officer and a 48 percent ownership in the company. Bates owned 51 percent and Uresti owned 1 percent of FourWinds.
Ezra called Smith’s 48 percent stake in FourWinds “illusory,” noting Smith didn’t pay anything for it.
When FourWinds was getting off the ground, Bates told investors it had multiple purchase orders and sand lined up to ship. But Smith testified little of the spiel was true.
“We didn’t have any sand,” Smith said, adding how he spent a lot of his time just trying to find places where FourWinds could buy sand.
Smith detailed how Bates was raiding the corporate till, including spending $7,000 in one weekend on food, hotels and the rental of a Ferrari.
Smith also testified he started noticing “red flags” with Bates over the way he was acting. “I started seeing he was sniffling real bad, or just looking hung over,” Smith said, adding he heard that Bates was doing cocaine. Bates, though, denied it.
“He told me he was fake snorting cocaine in front of people,” Smith said. “I never heard of fake snorting,” drawing laughs from some jurors.
In an Aug. 1 sentencing memorandum, Bates admitted that he started using cocaine at the time he was running FourWinds.
Lead prosecutor Joseph Blackwell told jurors during the first day of Uresti and Cain’s trial that those who made the most from the FourWinds scheme were Bates, Smith, Uresti and Cain. Smith received $196,000, Blackwell said.
As FourWinds careened toward collapse in 2015, Smith testified at a 2016 bankruptcy court hearing that Bates pulled him aside for a private conversation.
“He says, ‘It’s inevitable this thing’s going to fold,’ ” Smith said on the witness stand. “He says, ‘There’s roughly $300,000 or $400,000 that’s going to be in the operating account. I’m going to send that money to Blair, my son, and we’ll say it’s a consulting fee, and I’ll send you a $100,000 check.’ ”
Asked how he responded to Bates’ plan, Smith said, “Not no, but hell no. I’m not that kind of guy. There was no more conversation.”