While he served as the highest-ranking U.S. executive of Canadian oil company Poseidon Concepts Corporation, a North Dakota man perpetrated a fraud scheme that caused shareholders to lose more than $886 million.
This week, the man – 61-year-old Joseph A. Kostelecky – was sentenced to three years in prison for the scheme, according to the U.S. Department of Justice.
According to The Bismarck Tribune, the government had asked for a 20-year sentence for Kostelecky before a sentencing hearing Tuesday.
Kostelecky’s scheme fraudulently inflated Poseidon Concepts’ reported revenue, the department explained. In October, he pleaded guilty to his role in the company falsely reporting approximately $100 million in revenue “purported long-term contracts with oil and natural gas companies.”
In order to pull off the scheme, Kostelecky directed Poseidon’s accounting staff at the U.S. corporate headquarters in Denver, Colo., as well as its field office in Dickinson, N.D., to record revenue from such contracts and then assuring management that the associated revenue was collectable. However, he “knew that the contracts either did not exist or that the associated revenue was not collectable.”
Eventually, Poseidon reported a partial write-down of uncollectable accounts in its financial statements, which resulted in a drop in the company’s stock price. At that point, Kostelecky caused the issuance of a public filing falsely reporting that he had purchased a substantial number of shares of the company.
When the inflated revenue came to light at the end of 2012, Poseidon’s stock price dropped and the company was forced into bankruptcy. This led to the $886 million in shareholder losses.
Kostelecky “admitted that he perpetrated the scheme to inflate the value of the company’s stock price in order to enrich himself through the continued receipt of compensation and appreciation of his own stock and stock options,” said the Justice Department.
He was ordered to pay $406.2 million in restitution in addition to his three-year prison sentence.
“The restitution list of 6,648 potential payees varies from about $123 million at the top to $4.90 at the bottom,” The Bismarck Tribune reported.
Markus Powell, Kostelecky’s attorney, didn't immediately respond to the outlet’s request for comment Thursday.
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