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‘Money Mule’: Canyon Lake homebuilder nearly cost a Fortune 500 company millions

San Antonio Express News logo San Antonio Express News 2/15/2023 By Guillermo Contreras, Staff writer
The Secret Service alleges Howard J. Nelms received $5 million from $12.7 million that Kohlberg Kravis Roberts & Co. lost in an email spoofing scam. © Getty Images

The Secret Service alleges Howard J. Nelms received $5 million from $12.7 million that Kohlberg Kravis Roberts & Co. lost in an email spoofing scam.

A Canyon Lake homebuilder is at the center of an apparent scam that nearly cost a Wall Street behemoth millions.

Federal court records said Howard J. Nelms, 54, received wire transfers totaling $5 million of $12.7 million that investigators believe was stolen from New York-based Kohlberg Kravis Roberts & Co, one of the world’s largest private equity firms, through an email “spoofing” scheme.

Email spoofing is a technique to trick people into thinking a message came from someone they know and trust. The messages often come with instructions to re-direct payments to accounts controlled by scammers.

KKR has not publicly disclosed that it lost the money, but court documents reviewed by the San Antonio Express-News show the firm sent the funds in two wire transfers after getting spoofing emails in March 2022.

The company has been frantically trying to recover the funds. Records show it has traced and recovered $9 million, with the help of federal authorities, Chase Bank and other financial institutions.

Federal court records show that U.S. Secret Service officials in San Antonio have helped KKR since last spring recover some of the $5 million that passed through Nelms’ bank accounts.

Federal authorities seized $1.6 million from Nelms’ accounts, but has not charged him.

Nelms did not respond to detailed messages seeking comment, and a lawyer he hired for escrow work told the Express-News that he was unable to get ahold of Nelms.

Last week, the U.S. Attorney’s Office in San Antonio filed a forfeiture lawsuit against the $1.6 million to see who else, besides KKR, might file claims for the money.

KKR said the fraud affected only one client, and added, “We have recovered the majority of the funds.”

The Secret Service won’t discuss cases that are under investigation, but court documents describe Nelms as a “money mule” — a middleman recruited by con artists to move ill-gotten funds. In many cases, money mules are recruited by email to receive money in their bank accounts and then send it to another account or divvy it up among several others. They are paid a portion of the money.

“Most of them believe they are doing a legitimate job. They don’t know they are doing something illegal,” said Dan Morales, acting special agent in charge of the Secret Service in San Antonio. “That’s how the crooks wash their (dirty) money.”

The technique also puts additional distance between the ringleaders, who are usually based in a foreign country, and police.

Morales said the Secret Service in San Antonio seized $20 million in 2022 connected to scams involving money mules.

“This office is pretty close to leading the nation in seizures,” Morales said.

A Secret Service affidavit said KKR was trying to pay quarterly distributions last year to Great Wall Asset Management. But instead of sending the $12.7 million to Great Wall, someone at KKR followed instructions in a spoofed email that closely resembled a real email from Great Wall.

KKR sent nearly $5.8 million to a Chase Bank account on March 18, 2022. Twelve days later, KKR transferred $6.9 million to the same bank account.

A lawyer for KKR told the Secret Service that, after receiving a third email with similar, fraudulent payment instructions, the company began an internal review. After discovering discrepancies in the emails, KKR contacted Great Wall and found that it had not received either of the two wire transfers, and that Great Wall never sent new payment instructions.

By April 2022, the Secret Service-led South Texas Regional Task Force was on the case. An investigator with Wells Fargo Bank told one of the federal agents that $5 million — a portion of the $12.7 million — was transferred to Nelms from the Chase Bank account of Horizon Devco LLC in Phoenix, Arizona.

The affidavit said Nelms then appears to have transferred most of the money to various accounts, including $560,000 to accounts in the name of his deceased mother, more than $142,150 to lawyer Sheldon Vann in Florida, and more than $2.4 million to a law firm, Lorium Law, in Fort Lauderdale, Fla., among others. The Wells Fargo investigator told agents that $1.6 million was on hold.

That amount is the basis of the forfeiture lawsuit filed in San Antonio.

The affidavit said that the $2.4 million went from Lorium Law’s Truist Bank account to an account at the Bank of Oklahoma.

An investigator with the Bank of Oklahoma told federal agents that “the account was virtually depleted with most of the funds wired to the United Kingdom,” the affidavit said.

In a statement, Lorium Law told the Express-News that Nelms has never been one of the firm’s clients.

“At this time, we are unable to comment on pending matters and investigations,” Lorium Law said.

The affidavit said Vann told agents that he represented Nelms and that Nelms got “mixed up” in a cryptocurrency scam involving the purchase of “discounted” Bitcoin.

Vann also said that Nelms was in contact with two individuals as part of the cryptocurrency deal.

“These two individuals purported to be the owners of the funds, and represented that the funds were related to real estate transactions,” the affidavit said. “They directed Nelms to purchase Bitcoin on their behalf for ‘investment purposes.’”

Vann said Nelms didn’t know the $5 million had come from KKR, according to the affidavit.

Agents have been unable to locate the pair.

Vann told the Express-News that he was one of several escrow attorneys that Nelms used.

He said Nelms portrayed himself as an expert on cryptocurrency, and said he would pay Vann for his escrow services when Nelms’ first investment deal went through. Vann believed Nelms lived in a suburb of Orlando, Florida, and was unaware Nelms lives in Texas.

“I was never part of any deal involving millions of dollars,” Vann said.

Vann said the Secret Service froze the $142,150 that went into his account, which contained part of what Nelms was supposed to pay him.

Vann said he has not heard from Nelms since December.| Twitter: @gmaninfedland


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