Risk Management

Judge Freezes Assets of Former CFO

Patterson-UTI's ex-CFO is accused of embezzling more than $69 million from the oil-drilling company.
Stephen TaubNovember 17, 2005

A federal judge froze the assets of the former chief financial officer of Patterson-UTI Energy Inc. after the Securities and Exchange Commission accused him of embezzling more than $69 million from the company over a five-year period, according to the regulator.

The SEC said the former CFO, Jonathan Nelson, used the funds to purchase an airplane, an airfield, a cattle ranch, homes, vehicles, and a full-service truck stop, as well as other assets. Earlier this month, Nelson resigned from the oil and gas driller “for personal reasons.”

Last week, Patterson-UTI officials announced that about $70 million may have been embezzled from the company by a former officer during the past five years. However, at the time, officials did not identify the individual.

In the SEC’s emergency lawsuit, it also named as relief defendants five Nelson-controlled companies alleged to have received proceeds from the scheme: XIT Land and Energy, Chisum Travel Center, Z8 Properties, Three Stars Aviation, and Chisum Coach. (Relief defendants are usually charged with being unjustly enriched.)

The commission alleges that Nelson “orchestrated a massive phony-invoice scheme” that caused Patterson-UTI to pay millions of dollars to XIT, a company he secretly controlled that was not a legitimate Patterson-UTI vendor. According to the complaint, Nelson finally confessed to Patterson-UTI on November 9 that he embezzled about $29 million, but company records show that he actually stole more than $69 million from January 2001 through October 2005.

The lawsuit said that Nelson circumvented Patterson-UTI internal controls by, among other things, forging another company official’s initials on payment documents. To hide his scheme, Nelson also made false written representations to Patterson-UTI’s independent auditor about the accuracy of the company’s financial statements and signed false public certifications attesting to the truthfulness of the company’s quarterly and annual SEC reports, reported the SEC.

The court order immediately froze Nelson’s assets and appointed a receiver over the former CFO and the relief defendants. Further, the order requires Nelson and the relief defendants to account for all proceeds stolen from Patterson-UTI, prohibits the destruction of documents, and expedites discovery.

In addition, the SEC is seeking disgorgement of Nelson’s illegally obtained gains, civil penalties, and a permanent bar against him serving as an officer or director of another public company.