[Editor's Note: This story incorrectly identified Alan Halperin as the U.S. trustee when he is in fact the trustee of the GFES Liquidation Trust, also known as the liquidating trustee. The U.S. trustee is Andrew Vara, who replaced Roberta DeAngelis after she retired. Yes, it's a bit confusing.]
Mike Moreno, who is in his mid-40s, has spent much of his professional career defending himself in lawsuits and filing many of his own, but if the bankruptcy court finds merit in allegations laid out in a 63-page petition filed by the liquidating trustee against Moreno and 13 of his affiliate companies, he is in the legal fight of his life.
The April 6 lawsuit, filed by the New York-based liquidating trustee charged with maximizing recoveries for Green Field Energy Service’s creditors, comes a year after a court-appointed examiner similarly slammed Moreno, Green Field's founder, chairman and CEO, for his role in the company’s demise. Representing the GFES Liquidation Trust, trustee Alan Halperin filed suit on behalf of Green Field’s estate — in essence, for the benefit of its creditors — and is seeking $230 million from Moreno and his companies.
Moreno, a Cuban immigrant who grew up in Morgan City and earned an MBA from UL Lafayette, spearheaded the group that purchased Lafayette-based Hub City Industries in 2011; though it had long been engaged in traditional well services, HCI had begun venturing into the fracking business in late 2010. Moreno changed HCI’s name to Green Field, and soon after, the Moreno-led entity boasted that it was years ahead of its competition in the use of natural gas to run its hydraulic fracturing equipment (claiming it could even pipe the hydrocarbon directly from the wellhead). Its turbine-powered hydraulic fracturing pumping units were powered by remanufactured turbine engines previously used in U.S. military applications — and it was ready to take on the big boys of the oilfield services industry, Halliburton, Schlumberger, Baker Hughes.
At one time, Green Field, which had its corporate office 4023 Ambassador Caffery Parkway, had staffed up to more than 350 employees in multiple states.
In 2011, trustee Halperin writes, Moreno saw an opportunity to make “a massive debt-fueled bet on certain speculative fracking technologies with other people’s money.” At that time, Moreno acquired a controlling interest in Hub City Industries, which had been engaged in traditional well services, and renamed it Green Field Energy Services, or GFES. “Causing GFES to increase its capital expenditures more than 50-fold from the previous year — funded by large occurrences of new debt — Moreno plunged GFES into battle against formidable, established competition, tying the fate of the its business largely to the success of its speculative fracking technologies,” Halperin writes.
But the smoke and mirrors was exposed in October 2013, when Green Field (along with affiliates Hub City Tools and Proppant One) filed for Chapter 11 bankruptcy protection after the company defaulted on an $80 million loan from Shell (which accounted for a head-scratching 92 percent of Green Field’s business) and a $250 million loan from Wilmington Trust. The company's assets were liquidated in a sale called “the largest disposition [the] industry has seen.”
Moreno’s alleged actions before the collapse of the company are what Halperin meticulously details in his 31-count lawsuit filed in Delaware bankruptcy court, claiming Moreno plundered the company after realizing he’d made a disastrous bet on new fracking technology. Halperin is going after Moreno and his companies for breach of fiduciary duty, breach of contract, preferential transfer and related claims.
“Upon realizing that the gigantic bet on ‘fracking’ that he had made with a 44-year-old energy company’s debt proceeds was headed for failure,” Moreno made a calculated decision “to use his position of control to loot the company,” Halperin writes.
The suit also claims a web of Moreno affiliates “engaged in a concerted campaign to strip the company ... of its most valuable asset and walk away from substantial contractual funding obligations, ensuring the company’s swift demise — all while extracting massive payments from the company as it headed towards its final collapse.” Among the 13 affiliate companies named in the trustee's suit are Moody, Moreno and Rucks (Mike and his wife Tiffany own one-third interest in MMR, along with Kevin Moody and Billy Rucks; MMR initially invested in Hub City Industries in 2005 and still owns 10.2 percent of Green Field’s common stock), MOR MGH Holdings and Dynamic Group Holdings (although Moreno has not run Dynamic, which is now based in New Orleans, since mid-2012, Halperin says he is still a board member and through MOR MHG owns 97.46 percent of Dynamic’s common units and 13.74 percent of its preferred unites). Also named are Turbine Generation Services, Dynamic Energy Services International, Moreno Properties and Elle Investments.
Halperin explains that when Moreno realized the company was heading toward “a spectacular failure,” he made yet another gamble. Rather than shore up the company’s financial position, which Halperin says at a minimum would have preserved assets for creditors, he stripped hundreds of millions of dollars in value from the company in an effort to just walk away from Green Field. “In a calculated series of decisions, Moreno used his positions of trust and control to denude GFES of a $200 million business opportunity in power generation technologies, and to cause certain Defendant Moreno Affiliates — at a critical moment — to shirk over $20 million in contractual funding obligations to GFES. As GFES headed toward collapse, [Moreno et al] continued to seize millions in payments from GFES, under terms and conditions that were anything but arms-length.”
Halperin says Moreno was aware that the power generation company, then called PowerGen, had substantial value because by early 2013 GE was contemplating an investment of $100 million in the company. Green Field had planned to develop the business to complement its existing well services and hydraulic fracturing biz, but on March 7, 2013, Moreno’s MOR DOH Holdings LLC formed a new company, Turbine Generation Services. Two months later, about the time Green Field’s shareholders and directors handed the company over to Moreno, GE Oil & Gas loaned Moreno $25 million to purchase equipment to get the business going.
“By taking PowerGen away from GFES and transferring it to a different entity under his control, he engineered the removal of PowerGen from the reach of GFES creditors, thereby hindering, delaying or defrauding them,” Halperin writes. The trustee explains how Moreno used his influence over the board and shareholders to pull PowerGen from Greenfield so that Turbine Generation Services and Moreno could pursue it independently.
The trustee also alleges Moreno stacked his board and management with allies — his friends and business associates who were loyal only to Moreno. Among them were Rick Fontova, Green Field’s president and director who earned $375,000 a year and was eligible for an annual bonus of 50 percent to 100 percent of his annual salary; Charlie Kilgore and Mark Knight, who served as directors from October 2011 to October 2013; and chief financial officer Earl Blackwell. (In an unrelated story, Blackwell in January replaced Knight as president and CEO of Knight Oil Tools.)
Halperin says shareholders Fontova and Rucks and board members Knight and Kilgore are responsible for waiving Green Field’s opportunity to pursue the PowerGen business (they signed a written consent without any expert analysis or valuation of the transfer, he claims) and has particularly harsh words for the board members for turning “a blind eye to the reality of the usurpation and transfer of PowerGen, acting in bad faith and in intentional disregard for GFES’s interests and the directors’ duties to GFES, as they rubber-stamped the transfer of the corporation’s most valuable asset for no consideration at the behest of Moreno.
“Simply put,” Halperin continues, “the directors’ purpose in approving the PowerGen Waiver was not to advance GFES’s interests, but to attempt to lend their misconduct an air of legitimacy. Of course ... none of the directors who approved the waiver were actually independent.”
Halperin says in the 12 months preceding the October 2013 bankruptcy filing, Moreno erected a “constellation of satellite companies to provide services” to Green Field and held a controlling interest in the entities. He says the business relationship between them and Green Field were not “open-market” and “arms-length.”
What the petition clearly establishes is that Mike Moreno, who has a controlling interest in Green Field, was in charge and had full authority to do whatever the hell he wanted to do.
Fontova, Kilgore, Knight and Blackwell all served at the whim of Moreno, who had control over the directors and officers, Halperin says in the lawsuit. As an indirect shareholder owning 100 percent of MOR MGH Holdings (as of the April 6 petition date, MOR MGH owned 81.6 percent of Green Field’s common stock and 88.9 percent of its preferred stock), Moreno could elect directors to one-year terms and remove a director at any time with or without cause. By controlling the board, Moreno also had the ability to remove officers. In fact, the trustee points out that the debtors’ annual report for the fiscal year ending Dec. 31, 2012 states that as a result of MOR MGH’s ownership interest, “[MOR MGH] has significant influence over our decisions to enter into any corporate transaction regardless of whether others believe that the transaction [in] our best interests.”
Halperin’s allegations mirror the findings in a 135-page report unsealed in April 2014 by Steven A. Felsenthal, a former chief judge of the U.S. Bankruptcy Court in Dallas who was appointed examiner by U.S. Trustee Roberta A. DeAngelis after the creditors’ committee requested the court appoint someone to look into some of Green Field’s dealings. As ABiz noted last year, Felsenthal’s report, in which he states that Moreno was “effectively on both sides of transactions,” opened the door for legal action against Moreno. Like Halperin, Felsenthal was particularly critical of how PowerGen was stripped from Green Field in favor of Moreno and Turbine Generation Services.
Not surprisingly, the $25 million GE loaned Moreno for Turbine Generation Services is the subject of yet another lawsuit. In April of last year, GE sued Moreno personally for allegedly defaulting on the loan, and Moreno countersued.
As bad as it looks for Moreno now, his legal troubles could take a seismic shift.
In bankruptcy cases, it’s the U.S. trustee’s job to investigate potential fraud or abusive conduct to recover civil penalties; the U.S. trustee in this case is now Andrew Vara, who replaced DeAngelis after she retired. But if Vara believes he has uncovered what may be criminal fraud, he would refer the matter to the U.S. attorney for investigation and criminal prosecution. (ABiz was unable to determine whether the duties of Halperin also include making such referrals to the U.S attorney.)
"The U.S. Trustee’s duties include referring suspected bankruptcy crimes to the U.S. Attorneys’ offices and, if requested, assisting in investigation and prosecution," Jane Limprecht, a spokeswoman for the Executive Office for U.S. Trustees, writes in an emailed response to ABiz. "We do not confirm or deny the existence of a criminal referral."