Federal authorities have charged three former executives of Worley & Obetz in a bank fraud that they say extended over at least 15 years.
The former CEO of the oil and gas company, Jeff Lyons, and two controllers, Karen Connelly and Judith Avilez, are charged with defrauding Fulton Bank of $60 million, the U.S. Attorney's Office Eastern District of Pennsylvania announced Tuesday.
Manheim-based Worley & Obetz abruptly closed June 4, 2018. The company's employees, about 200 to 250, lost their jobs.
Lancaster County authorities charged Lyons and Connelly a few months later with using company funds to pay $1 million in Lyons' personal credit card debt.
But the federal case alleges the scheme was much bigger: from 2003 through May 15, 2018, Lyons, with the help of Connelly and then Avilez, inflated Worley & Obetz's revenue on its financial statements, according to the U.S. Attorney's Office.
Seth Obetz, who was vice chairman and co-owner of the company, said the charges “bring justice (for) the 200-plus employees whose careers were interrupted” by the fraud. “It was a horrible time.”
Obetz, whose office was in Lancaster, while the defendants were based in the company's Manheim headquarters, added:
“In some ways, I feel sorry for Jeff, Karen and Judy. What they did doesn’t make sense. But they have to do their penance.”
The alleged scheme
Lyons began his role as CEO in 1999. Connelly was the office manager in the 1990s and became controller around 2000.
Representatives of Fulton Bank met with Lyons monthly to review Worley & Obetz's financial statements. The bank used the total accounts receivable, total inventory and loan balance information to determine how much to lend to Worley & Obetz, according to charging documents.
Lyons and Connelly allegedly falsely increased revenue, costs of goods sold and accounts receivable to make Worley & Obetz appear more profitable. Every month from 2003 through about July 2016, Connelly gave Lyons the actual profit and loss figures, which Lyons revised and returned to Connelly, according to court documents.
Connelly retired Dec. 31, 2015, but continued to use a Worley & Obetz computer at her home to falsify the monthly financial statements, according to court documents.
Avilez took over as controller in January 2016. Court documents allege Lyons and Connelly taught Avilez to carry on the scheme during a July 2016 gathering at Connelly's home.
Avilez allegedly carried on the scheme from there, until Lyons went missing in May 2018.
Over the 15-year period, Lyons used the fraudulent statements to obtain over $60 million in new and existing lines of credits and loan from Fulton Bank for Worley & Obetz, according to the U.S. attorney's office.
Lyons, 58, of Lancaster, Connelly, 65, of Manheim, and Avilez, 58, of Elizabethtown, are charged with bank fraud and aiding and abetting. None of the three are in custody.
Lyons is also charged with aiding and abetting and tax evasion for not reporting over $650,000 in income from Worley & Obetz in 2013, according to court documents.
Lyons and Connelly were charged by information. Lyons' defense attorney Robert Beyer of Goldberg & Beyer in Lancaster said they've been working with authorities for the past year, and the charges were essentially filed by agreement. Avilez was charged under a sealed indictment Sept. 26.
Family company's downfall
As LNP has reported previously, Worley & Obetz was thought to be a prosperous family business until May 2018, when Lyons went missing instead of attending a meeting with Obetz and the company’s largest customer, Giant Food Stores.
Worley & Obetz provided gasoline to Giant for its gas stations.
Lyons’ decision to go AWOL rather than attend the meeting made Obetz suspicious.
A quick comparison of the sales that Lyons had reported Worley & Obetz was doing with Giant, and the amount that Giant said it was buying from Worley & Obetz, exposed the fraud.
Lyons was fired that day.
Worley & Obetz quickly laid off some employees to reduce expenses, but was optimistic it could survive as a smaller firm.
However, in early June, Worley & Obetz’s bankers – who had lost tens of millions of dollars from the fraud – refused to loan more money to Worley & Obetz. That forced Worley & Obetz to fold immediately. It filed for bankruptcy liquidation two days later.
Revelations in the bankruptcy case have foreshadowed several key aspects of the criminal case.
Bankruptcy trustee Christine Shubert, who oversees the case, alleged in court filings last year that the fraud involved the three defendants and likely lasted more than 10 years.
She also has detailed how Lyons allegedly used the fraud to fund the purchase of a half-dozen properties, including a home in Berks County for his mistress.
Lancaster County criminal case
In August 2018, Lyons and Connelly were charged by Lancaster County authorities with using Worley & Obetz funds to pay $1 million in Lyons' credit card debt. The matter was brought to the attention of police by Avilez, who noticed irregularities in the payments, according to officials. Avilez was not charged by Lancaster County authorities in that case.
Brett Hambright, spokesman for the Lancaster Count District Attorney's Office, said the office expects to withdraw the local charges because of the federal indictment.
Asked why Avilez had not been charged, Hambright said she was cooperative.
"We considered that in the decision to not immediately charge. The investigation was ongoing when it went under federal jurisdiction," he said.
A Fulton Bank spokeswoman said in a statement the company is "pleased that this matter is being thoroughly investigated."