One year ago today, a family-owned energy company named Worley & Obetz abruptly closed, drained by a mysterious internal fraud allegedly led by its former CEO.
The shutdown capped a three-week unraveling of the Manheim-based firm, beginning with the fraud’s discovery and ending with the company’s lenders balking at management’s proposed recovery plan.
All the Worley & Obetz employees, a number estimated to total 200 or 250, lost their jobs.
As months went by, and more about the company’s downfall became public, the Worley & Obetz case emerged as the second biggest fraud in Lancaster County history.
But the only issue to be resolved since June 4, 2018 is the fate of the business. It’s been broken up and sold in pieces to five other firms.
Accusations of a $2 billion bank fraud and a $1 million credit-card scam remain outstanding.
So do allegations that company insiders, their relatives and side businesses got $9.3 million in improper payments from Worley & Obetz to amass a real estate portfolio of 17 properties.
Here’s a look at those key issues and where they stand today.
The fatal fraud
Little was known about the fraud at the time of Worley & Obetz’s demise.
Company co-owner and vice chairman Seth Obetz as well as company attorney William J. Burnett accused former CEO Jeff Lyons of leading the scheme, but offered no particulars.
Four banking companies, including Worley & Obetz’s lead lender, Fulton Financial, said they had been victimized. But again, no details about the scheme were made public.
Then in July, details began to surface.
Lancaster-based Fulton said it had a net loss of $29.1 million on its $48 million loan to the company and it sketched out the broad strokes of the scheme.
The bank said that Lyons “and others” allegedly had shown phony billings to the bank for at least the past four years to persuade Fulton to up its loans to the company.
A much more detailed account emerged in October, when the court-appointed trustee overseeing the bankruptcy case disclosed the fraud’s alleged perpetrators, purpose, methods, duration and size.
The trustee, Christine Shubert, accused Lyons of leading a scheme that put $2 billion in phony revenue on Worley & Obetz’s books, so banks would lend more money to the company.
To support the phony revenue, Lyons directed the entry of bogus amounts of costs of goods sold, accounts receivable and net profits into the company’s books too, Shubert alleged.
That amount of fake revenue on the company’s books made the fraud the second biggest in county history, as measured by inflation-adjusted dollars.
It trails the $2.33 billion phony-contract fraud at International Signal & Control but surpasses the $36.2 million phony-billings fraud at United Chem-Con, both in the 1980s.
Both Lancaster-based defense contractors folded, with ISC’s slow demise erasing 1,800 jobs here and Chem-Con’s shutdown costing 150 employees here their jobs, according to LNP files.
Obetz has placed the number of employees idled at 250, but Shubert has said it was 200.
As with those ISC and Chem-Con frauds, the Worley & Obetz fraud involved more than a single person. Helping Lyons carry out the scheme, Shubert alleged, were company controller Karen Connelly and later, her successor Judith Avilez.
The scheme went back at least five years, the trustee alleged, “and likely for more than 10 years prior thereto.”
The bogus sales on Worley & Obetz’s books enabled the company to borrow $38.7 million in unjustified loans, according to the trustee.
Lyons allegedly diverted some of the extra loan money to invest in six properties that provided no benefit to Worley & Obetz, the trustee alleged.
In December, Shubert added to the list of properties that Lyons allegedly financed improperly — a house bought in 2013 by Lyons and Worley & Obetz’s human resources manager, with whom he “engaged in a romantic and adulterous relationship.”
Shubert said the house, in Wernersville, Berks County, was bought with funds that Lyons “illegally diverted” from Worley & Obetz. She did not provide an amount.
In an April court filing, Lyons declined to respond to any of the allegations, citing his Fifth Amendment protection against self-incrimination. Connelly and Avilez have denied the trustee’s allegations.
Shubert is seeking unspecified damages from the three defendants. The dispute is likely heading to a trial before U.S. Bankruptcy Judge Magdeline Coleman.
Lyons wants to pay for the cost of his bankruptcy case defense by using a liability insurance policy taken out by Worley & Obetz to protect its officers and directors.
In May, Lyons asked the court’s permission to tap the $1.5 million Travelers Casualty policy, saying he’s already rung up a $9,900 legal bill at a Blue Bell law firm.
Having to foot his own bill “will create a financial hardship,” Lyons argued. Shubert on Friday opposed the request, noting the severe damage Lyons allegedly inflicted on Worley & Obetz. The court has yet to rule.
While the bankruptcy case grinds on, apparently so does a criminal investigation by the FBI.
Though local officials looked into the fraud initially, federal authorities “now have jurisdiction over the case and it is pending, to our knowledge,” said Brett Hambright, spokesman for the Lancaster County District Attorney’s Office, on Friday.
An FBI spokeswoman and a spokeswoman for the U.S. Attorney’s Office in Philadelphia both declined to say on Friday whether they were looking into Lyons.
A smaller scam
The bank scam didn’t allegedly provide a financial benefit quickly to Lyons. But another alleged scam did.
In August, Northern Lancaster County Regional Police accused Lyons of putting $1 million in personal credit-card charges on his personal credit cards, and having the company pay the bills.
The scheme, allegedly conducted with the help of Connelly, dated to 2008, police said. Connelly allegedly told her successor, Avilez, to continue paying off Lyons’ personal cards. But police say Avilez eventually she got suspicious and alerted police.
Police said company funds paid for Lyons’ personal expenses such as vacations, spa visits, house maintenance expenses, gym memberships, jewelry purchases and his daughter’s college expenses.
Lyons was charged with six felonies: five variations of theft plus dealing in proceeds of unlawful activities. Connelly was charged with dealing in proceeds of unlawful activities and conspiracy to commit theft.
A trial date has not been set. In the meantime, both Lyons and Connelly are free on bail.
According to the trustee, Lyons and his wife also took money out of Worley & Obetz to buy a $100,000 certificate of deposit at Fulton Bank. They tried unsuccessfully to withdraw the funds immediately after the bankruptcy filing.
Real owners of real estate
Shubert also is taking aim at the three-state real estate portfolio owned by Obetz, seven of his relatives, Lyons and his wife, saying they were acquired with improper financial help from the company.
That allows Shubert to take control of all 17 properties, sell them and give the proceeds to Worley & Obetz’s creditors, she maintains.
(Shubert and Obetz settled their differences on an 18th property, Molly’s convenience store in Manheim, allowing it to reopen.)
Shubert alleges four types of improper actions:
--Worley & Obetz loaning money to Obetz and Lyons for down payments and closing costs, then restating the loans as bonuses, eliminating the need for repayment.
--Worley & Obetz guaranteeing mortgages and paying closing costs on the insiders’ purchases of parcels not used by the company.
-- Worley & Obetz leasing space it didn’t need from the insiders.
-- Worley & Obetz paying rental rates that exceeded the market rate for those kinds of spaces.
Obetz, an owner of all of the properties, said all of the company’s real-estate actions were legal. But, in an effort to resolve the dispute, he is offering to give Shubert 14 of them.
Along with the real estate, Shubert also has her eye on $9.3 million in payments Worley & Obetz made since 2012. The payments went to Lyons, Obetz, three of Obetz’s relatives, their real estate companies and their yacht-rental business.
Shubert says she’s entitled to the money because the payments were made while Worley & Obetz was insolvent because of the fraud — even if Lyons was the only person to know the company’s true financial plight at the time.
These issues also appear likely to be resolved at a bankruptcy-court trial.
Breaking up the company
Worley & Obetz has been systematically dismantled, the divisions sold at auctions held by Shubert, with proceeds eventually going to the Worley & Obetz creditors.
The first division to get a new owner was Ranck Plumbing Heating AC, a mere three weeks after Worley & Obetz went dark. Local businessmen Art Dodge III and Greg Millen paid $1.64 million for the business, plus $229,000 more for its accounts receivable.
The biggest chunk of Worley & Obetz changed hands in September, when Massachusetts-based Diesel Direct paid $10.7 million for most of the remaining businesses, but only wanted its fleet-fueling operation.
Diesel Direct promptly re-sold the home propane business, home HVAC business, Amerigreen residential and commercial natural-gas business and Amerigreen wholesale propane business to Rhoads Energy for an undisclosed price.
In December, Diesel Direct agreed to re-sell the Worley & Obetz home heating oil business to Shipley Energy, where former Worley & Obetz executive Seth Obetz will oversee it in certain markets, for a price pegged to its future revenues.
Most recently, Schwanger Bros. paid $225,000 in March for three idle Worley & Obetz gas stations (in Lititz, Mount Joy and Elizabethtown) and a right of first refusal on a leased gas station on Greenfield Road, if it’s offered for sale.