As the Eagle Ford Shale boomed four years ago, state Sen. Carlos Uresti was pitched an opportunity by a slick-talking ex-Marine named Stan Bates: There were millions of dollars to be made, and the legislator could make a cut by joining Bates in his upstart fracking sand business.
Uresti agreed to be a part of Bates’ FourWinds Logistics to supplement his earnings as an attorney — the day job he had while earning $600 a month as a public servant.
In May 2014, Uresti joined FourWinds, a company that soon collapsed in bankruptcy and a raft of criminal complaints against its leadership and Uresti, who is accused in federal charges of conning wealthy clients to invest in the shaky operation.
Bates and three other principles of the company pleaded guilty to fraud charges. But Uresti is fighting for his political future, his livelihood and his freedom in a trial that began last week.
Also on trial with Uresti is Gary Cain, a consultant who was acquitted in an unrelated fraud case and was brought on board by FourWinds on the recommendation of Uresti and his friend, Bexar County District Attorney Nico LaHood.
Because Uresti’s Senate District 19 covers a large swath of the Eagle Ford, Uresti recognized the shale’s potential.
“He knew full well that this fracking industry was crazy good at the time,” one of Uresti’s lawyers, Michael McCrum, told jurors in opening statements. “So when a fracking company came along and said, ‘You want to get involved?’ he said yes.”
Uresti did business with Bates despite warnings from a lawyer friend, Alexander Begum, who testified he told Uresti to “get away from this guy,” and to “run” from Bates’ deals.
Uresti agreed to help bring in clients who had about $1 million or more to invest. He was given a 1 percent ownership stake, and an agreement that he would get a commission on any investment he brought in. Uresti also became FourWinds’ general counsel, on a $3,000-a-month retainer.
During the first week of trial, lead prosecutor Joseph Blackwell argued that Uresti and Cain became knowing and willing participants in FourWinds’ fraud.
Prosecutors argue Uresti acted as a broker to recruit investors for FourWinds, and never disclosed to investors that he would receive a commission and share in the profits on their investment.
The investors and FourWinds entered into joint ventures, which prosecutors say were securities. As such, the feds say Uresti should have been registered as a securities broker to recruit investors.
Government witnesses testified that among the investors Uresti lied to was Denise Cantu, a Harlingen woman whom Uresti helped obtain a large settlement in a 2010 crash that killed two of her children. She invested $900,000 of her settlement money in FourWinds, and lost $800,000 of it.
Cain, according to testimony so far, willingly provided Cantu with a false accounting of her investment, knowing the documentation of Cantu’s account that he was provided at FourWinds contained false information.
Uresti’s lawyers, McCrum and Tab Turner, countered that Uresti was unaware of FourWinds’ scams on investors because he was not part of the “inner circle” at FourWinds, didn’t have access to its computers and didn’t even have a key to its office, which was in the 17000 block of San Pedro Avenue.
McCrum also told jurors that Uresti was a “finder” who simply looked for investors.
“If you are a broker, then there are requirements to register,” McCrum argued. “But if you’re a finder, then you don’t.”
Cain’s lawyers, Charles “Chad” Muller and John Muller, have argued that Cain wasn’t part of the alleged fraud conspiracy, but was brought in toward the latter phases of FourWinds’ existence and tried to first help find capital to grow the company. Cain later tried to keep it from imploding by battling Bates over his raiding of the company till, according to the lawyers.
“If you’re going to commit a crime, he’s going to get some money out of it,” Chad Muller argued. “Mr. Cain did not raise any funds from any investors. … Mr. Cain had no authority over the FourWinds bank accounts.”
Run like a ‘brothel’
Missing from the high-profile trial is Bates. He pleaded guilty Jan. 8 to eight felonies rather than sit at the same defense table with Uresti and Cain.
With the first week of testimony in the books, it’s clear to see why. Not only has the government pointed the finger at Bates for defrauding investors and depleting FourWinds funds, but Uresti and Cain blame him as well.
Some of his former employees and a few visitors who saw Bates’ sales pitches or attended company parties described the office as full of provocatively dressed, “surgically enhanced women” who brought FourWinds the reputation of a “brothel.”
Bates put up a facade for potential clients, buying $60,000 apiece Ford Raptor pickups, pictures of sand piles he falsely claimed to belong to FourWinds and its investors, only to lure investors on board so he could use their funds to rent exotic cars or on personal expenses like child support, his son’s college tuition and fraternity dues, and vices including prostitutes and drugs.
Shannon Smith, who was FourWinds’ chief operating officer from May 2014 to May 2015 and also pleaded guilty, testified it appeared Bates was using cocaine because Smith saw him “sniffling real bad or just looking hung over.”
Bates denied using cocaine.
“He told me he was fake snorting cocaine in front of people,” Smith testified. “I never heard of fake snorting,” drawing chuckles from jurors and trial observers.
Bates came up with a plan to buy sand, resell it at about a 30 percent markup and then split the profits with investors who put up all of the money at FourWinds.
Smith agreed to help Bates find investors, bringing him two contacts that led to investments, including an initial $1.4 million that was used for company operations instead of to buy sand.
“At the time, we didn’t even have sand,” Smith testified. “This is after these guys had invested and we didn’t have sand yet.”
Smith said Bates’ pitches included all kinds of false statements, claiming to potential investors, for example, that he would put in his own money, that they had sand sitting in warehouses “ready to go,” and that they had several contracts with big players in the oil and gas industry.
Smith and ex-FourWinds office manager Desirée Talley also testified that some investors were given a bank statement that had been altered to hide the fact that FourWinds had less than $100,000 in the bank. The statement was changed to show FourWinds had nearly $19 million.
Smith also testified that Bates claimed in at least one pitch meeting that he had investment deals in the works with Tim Duncan and actor Matthew McConaughey, something at least one other witness confirmed during his testimony.
“You have to understand Stan’s psyche and how he sold,” Smith said. “It was just a way to pitch wind.”
Also in spring 2014, clothing salesman Margarito Alonzo, who had known Bates had been a Marine recruiter, took Uresti to meet Bates. Uresti, who like Bates had served in the Marine Corps, hit it off with Bates.
In Uresti, Bates saw an opportunity to pump up FourWinds.
“What do you think when you see a senator come into your office?” attorney McCrum asked the jury in openings. “Stan Bates used Sen. Uresti’s name every time he could.”
Alonzo and Uresti agreed to help bring investors to FourWinds in exchange for commissions.
But Alonzo testified he didn’t trust Bates because of Bates’ “shady” history that included bouncing checks in a venture years before FourWinds.
“What I told Carlos is that this had to work or you have to monitor Stan Bates,” Alonzo said.
Begum testified that Bates was evasive when Begum pressed him for details.
“It was like talking to a politician; you ask one thing and they answer another,” Begum told FBI agents during their joint investigation with the IRS.
Begum later met with Uresti and told him Bates “was a complete con man.”
Bates was able to bamboozle people who had experience in investing, and who vetted FourWinds’ deals, McCrum told the jury.
For example, he swindled a group of Mexican businessmen, who had two accountants, including one who set up shop inside FourWinds’ offices to keep an eye on the group’s investment.
They “were very experienced, smart people, (and) had invested millions of dollars in other projects,” McCrum said.
McCrum also argued that prosecutors wrongly charged Uresti and Cain, when “Stan Bates and a few of his employees in his inner circle, who had control of their own bank accounts and in the secrecy of their computers, misused these people’s money.”
Still to testify in the trial are Cantu, investors Richard and Sharlene Thum and Eric Nelson, FourWinds’ marketing director.
The trial isn’t moving along as quickly as U.S. Senior District Judge David Ezra would like. At the end of testimony Friday, he instructed the lawyers to pick up the pace.
“I don’t want to be presiding over this case seven weeks from now,” Ezra said. The trial was expected to take three weeks.