Texas Businessman Sentenced to 18 Years’ Imprisonment for Laundering Investor-Fraud Proceeds

On July 12, a Texas state judge sentenced Daniel C. Walsh, the Chief Executive Officer of Western Capital Inc., to 18 years’ imprisonment, after Walsh had pleaded guilty on July 10 to money laundering.  Walsh had been indicted in Wichita County, Texas on first-degree felony charges of theft, money laundering, and securing execution of a document by deception.

Those charges — according to the Texas State Securities Board, whose attorneys assisted the Wichita County District Attorney’s Office in prosecuting the case — stemmed from Walsh’s “stealing $492,090 from 12 investors who purchased investments in oil wells that were supposed to be drilled in the High Island section of eastern Galveston County.”  Walsh reportedly told investors that

their money would pay for the drilling and testing of High Island wells named Sun Fee #1 and #2. The wells were supposed to be turnkey projects, a financing arrangement in which investors pay a set amount and the promoter assumes all financial responsibility for drilling the well.

Walsh, however, “mostly used investors’ money to pay his personal expenses – including a $6,000-a-month mortgage – and other costs unrelated to the Sun Fee wells.”  After he “initially raised money for the High Island wells from 2007 to 2009,” Walsh did not disclose how he had misused earlier investors’ funds when he attracted additional investors for the project.

Note: The severity of this sentence may be surprising to some, in light of the comparatively small amount of money that Walsh obtained from investors.  Under subsection 34.02(e)(4) of the Texas Penal Code, however, money laundering in which the value of the funds is more than $300,000 is a first-degree felony.  A first-degree felony, under subsection 12.32(a) of the Texas Penal Code, is punishable by imprisonment ”for life or for any term of not more than 99 years or less than 5 years.”  As a point of comparison, under section 2S1.1 of the Federal Sentencing Guidelines, a defendant who is convicted under the federal money laundering offense, 18 U.S.C. § 1956, and had no other aggravating factors and no prior criminal history would likely face a sentencing range of only 37-46 months imprisonment after acceptance of responsibility.  The sentencing judge, however, may have been influenced by the circumstances of the victims, who included “a retired real estate broker in Houston and an instructor and pilot at Sheppard Air Force Base in Wichita Falls.”

In any event, this case is a strong reminder to corporate financial-crimes compliance officers that even though federal investigations and prosecutions often command more media attention, their compliance programs need to factor state law requirements and offenses into their compliance programs, including compliance training.

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