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San Antonio-area man set to be sentenced in oil and gas scheme found dead by Comal sheriff’s deputies

San Antonio Express News logo San Antonio Express News 8/29/2022 By Patrick Danner, Staff writer

A Bulverde man set to be sentenced Monday morning in federal court in San Antonio for orchestrating an oil and gas fraud scheme was found dead by Comal County sheriff’s deputies, a court official said.

Paul Russell Montgomery Jr. was 47. A cause of death wasn’t reported, and the sheriff’s office didn’t respond to requests for comment.

Before Montgomery’s body was discovered, Senior U.S. District Judge David A. Ezra had issued a warrant for his arrest after he failed to appear for the 9 a.m. sentencing.

San Antonio defense lawyer Thomas McHugh, who represented Montgomery, said he is acting on the assumption that his client took his own life.

“It’s tragedy every way you look at it,” McHugh said. “It’s something that we try and prevent. But I’ve seen this before, and I only see it in white-collar crimes, that somebody who has never jaywalked a day in his life gets pulled into something like this — right or wrong — and it’s too much to manage.”

Montgomery pleaded guilty last year to one count of mail fraud and one count of filing a false tax return. He was facing up to 20 years in federal prison, up to three years of supervised release and a maximum fine of $250,000 on the mail fraud charge. The false tax return charge carried a maximum sentence of three years in prison, one year of supervised release and a $250,000 fine.

As part of the plea, prosecutors agreed to drop two other counts of mail fraud and one count each of filing a false tax return and failing to file a tax return. Montgomery agreed to pay about $3.9 million in restitution to his victims and about $262,100 to the IRS.

McHugh said he’d been texting with Montgomery over the weekend and even sent him the address and picture of the federal courthouse so he’d know where to show up. Ezra gave him time to try to reach Montgomery, but it was to no avail. The judge also suggested his lawyers check on their client’s welfare.

The schemes

Montgomery duped investors out of more than $3 million. Through associates, he lured investors in one of the schemes with promises of 32 percent returns from wells they would drill and rework in South Texas. They never worked on any wells.

Title to the mineral rights on most of the contemplated wells was clouded or subject to a court-ordered injunction that effectively precluded the oil and gas projects from moving forward, Montgomery admitted in his plea agreement.

On a LinkedIn profile, Montgomery previously described himself as a “leading oil industry geologist” who was a “recognized … expert” in the area of investing and analyzing petroleum-bearing formations. He said he had consulted with multinational oil firms.

Last year, U.S. District Judge Fred Biery ordered him to pay nearly $3.7 million in civil penalties, ill-gotten gains and interest to resolve a related lawsuit brought by the Securities and Exchange Commission. The judge found that Montgomery and an associate’s “fraudulent conduct” in oil and gas ventures “permeated the projects from start to finish.”

Montgomery’s crimes began in 2013 after he was hired as chief operating officer at Texas Coastal Resources. His job included finding and executing mineral leases at the best price for the company.

However, he had various landowners increase the lease price and kick back a portion to him as an unauthorized “commission,” his plea deal stated. Some of the inflated invoices were paid to a company he formed, Torchwood Joint Venture. Others were paid to a person identified in the plea agreement as R.W., who then paid Montgomery.

He failed to report the income on his taxes.

In another scheme, Montgomery had offering booklets prepared for Torchwood and two entities he later created, Engergon3 and Energy Acquisition Fund Joint Venture. Two associates, identified in the plea agreement as M.D.F. and T.M.B., then solicited investors.

In its 2002 lawsuit against Montgomery, the SEC also named Michael David Fischer of Canyon Lake as a defendant. A judge ordered Fischer to pay $3.3 million in that case.

The investment offerings for the three Montgomery entities contained numerous false statements, including how they would spend the money raised from investors.

Big commissions

Montgomery rarely spoke to investors but had exclusive control over all their money. He paid substantial commissions — often close to 50 percent of the amounts raised — to his associates and kept much of the rest for himself, the plea deal said. Montgomery failed to report that income on his taxes.

Some initial investment money was returned to Torchwood investors, who were falsely told it was distributions from operations. They were then solicited to invest in Energon3.

Of the roughly $3.5 million raised from investors, Montgomery redirected almost $1.8 million to himself and his associates.

The SEC’s action, which is referenced in the plea agreement, said Montgomery, Fischer and James Hurst Willingham of Cedar Park raised at least $2.7 million from the sale of securities to about 15 investors.

They inflated the potential investment returns and lied about Montgomery’s expertise and qualifications in the oil and gas exploration industry. They engaged in the scheme using entities known as Oil Lease Joint Venture, Exxpand Energy, Navarro Phase 1 and Seguin Development Phase II.

Montgomery filed for personal bankruptcy in 2015. During his case, it was determined that he had not filed income tax returns from 2009 through 2014. He subsequently filed in 2016 but failed to show income from the oil and gas schemes, resulting in the charges for filing false tax returns.

For 2014, Montgomery and his wife jointly reported $180,019 in income when it was about $600,000.


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