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Two former executives of EarthWater Limited (EarthWater), a Dallas-based company, were charged in a superseding indictment with conspiracy to commit wire fraud and bank fraud and obstruction of justice.

Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division, U.S. Attorney Erin Nealy Cox of the Northern District of Texas and Inspector in Charge Delany DeLeon-Colón of the U.S. Postal Inspection Service’s (USPIS) Criminal Investigations Group in Washington, D.C., made the announcement.

Beth Ellen DeGroot, 60, and Harley E. “Buddy” Barnes III, 61, both of Plano, Texas, were charged with one count of conspiracy to commit wire fraud and bank fraud and one count of obstruction.    

Barnes and nine other individuals had been previously indicted by a Dallas grand jury for their alleged roles in a high-yield investment fraud scheme involving EarthWater.  To induce victims to purchase EarthWater stock, the defendants allegedly falsely promised victims the opportunity to earn a high-rate of return in a short period of time by offering them stock at a low price on what they falsely claimed was the eve of EarthWater’s initial public offering (IPO).  In truth, EarthWater had no ability or actual plans to go public. 

The defendants also allegedly lied to victims about how their money would be used, telling victims that nearly all of their money would be reinvested in EarthWater’s business (including to launch the IPO).  In truth, the defendants allegedly stole most of the victims’ money and treated EarthWater’s accounts like their own personal piggybank.  Barnes and his co-conspirators allegedly targeted elderly victims, defrauding them of millions of dollars.  A trial date is currently scheduled for March 30, 2020.   

The superseding indictment alleges that, following Barnes’ arrest for the alleged EarthWater fraud, DeGroot, who was EarthWater’s vice president, partnered with Barnes, who was EarthWater’s chief financial officer, to continue to use EarthWater to raise money, including by selling stock.  In addition, Barnes and DeGroot conspired to use EarthWater to fraudulently obtain large paychecks from EarthWater’s payroll processor and to fraudulently obtain a substantial mortgage from an FDIC-insured financial institution.  Specifically, Barnes and DeGroot allegedly misrepresented that EarthWater continued to operate and employ them as its top executives when, in reality, EarthWater had shut down and they were unemployed.

The superseding indictment further alleges that, after Barnes was arrested in connection with the EarthWater fraud, Barnes and DeGroot attempted to hide Barnes’s assets to prevent his money from being subject to forfeiture and fine in the event he were to be convicted. 

The superseding indictment includes two counts of obstruction for which DeGroot was originally charged in October 2019.  Among other things, DeGroot was charged with providing falsified records to a Dallas-based grand jury in order to conceal evidence relating to the conspiracy described above.

An indictment is merely an allegation and all defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 

USPIS investigated the case.  Trial Attorneys Christopher Fenton and Amanda R. Vaughn of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Mary F. Walters of the Northern District of Texas are prosecuting the case.

https://www.justice.gov/opa/pr/two-former-texas-executives-charged-fraud-and-obstruction-justice

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