2013 was supposed to be a banner year for Little Rock businessman Stephen K. Parks’ coal businesses, but things were falling apart even before the year arrived.
In October 2012, federal agents raided Parks’ Little Rock home and businesses and collected documents. As a result of that raid, the government on Feb. 1, 2013, seized $6.2 million in cash and other assets.
The seizure of money and the fact that it was under a criminal investigation prevented one of Parks’ companies, Ecotec Coal Inc., from moving forward with two contracts to provide clean coal, according to Ozark attorney Christopher Brockett, who is representing Ecotec in a dispute over the Internal Revenue Service’s decision to disallow $147 million in tax credits. The IRS made its decision in August 2013, and the case has been pending since Ecotec challenged the IRS in U.S. Tax Court in November 2013.
Brockett said that Ecotec was close to having a contract with the Port of Louisville, Kentucky, but a company official there disputed that claim to Arkansas Business last week. No one at the only other company that Brockett said was in negotiations with Ecotec, AES Shady Pointe Inc. in Panama, Oklahoma, could be reached for comment.
Ecotec was founded in 2005 by a penny stock company, Geotec Inc. of Delray Beach, Florida, to produce clean coal. Parks took ownership of Ecotec in 2009, which was the same time the U.S. Securities & Exchange Commission filed a civil suit accusing Geotec Inc.; Bradley Ray, who was Geotec’s CEO; former CEO William Lueck; and CFO Stephen Chanslor of false filings and accounting improprieties. In 2010, without admitting or denying the allegations, Geotec and the officers entered into a consent judgment. Ray was fined $75,000 and Chanslor was assessed a penalty of $25,000. Lueck cooperated and didn’t have to pay a fine.
Tax Credits
Before wading into federal coal credits, Parks was involved with Arkansas tax credits.
In the early 1990s, the Arkansas General Assembly passed legislation that allowed the creation of regional industrial development companies with the goal of helping develop businesses and create jobs. Once an IDC was approved, it could offer tax credits to startup companies, which could then sell the credits to raise money.
After a company called Arkansas Valley Regional Industrial Development Co. of Little Rock received its approval in 2002, Parks, who had no role in that company’s creation, jumped into action. Parks launched three companies: Natural Gas Solutions LLC, Sea Heritage Investment LLC and Winstarrs. Sea Heritage was created to fund the recovery of a sunken fortune of Spanish treasure off the coast of Panama.
In 2006, Columbia Mutual Insurance Co. and Columbia National Insurance Co. sued Arkansas Valley, Natural Gas Solutions, Parks and others in U.S. District Court in Little Rock and accused them of fraud in connection with Columbia buying more than $300,000 worth of tax credits. The case settled in 2008 and the insurance companies received a total judgment of $375,000 against Parks and his National Gas Solutions.
Regions Bank sued Sea Heritage in Pulaski County Circuit Court in 2006 for defaulting on a $200,000 loan it took out the previous year. Parks was named in the lawsuit because he had guaranteed the loan.
By the time Regions received a judgment in November 2007 for $231,000, Parks had already moved on to his new venture, coal tax credits. The docket sheet doesn’t indicate that the judgment was paid.
Sometime in mid-2007, Parks was in his Little Rock office “and some guys from Florida walked in and said, ‘We understand you have experience with state income tax credits. And we want you to be involved in the Ecotec matter,’” said Brockett, Ecotec’s attorney.
One of the people was Ray, the CEO of Geotec, a publicly traded company founded in 1996. In 2003 and 2004, Geotec’s business focused on a 10-year exclusive license on a patent involving a type of gas generator used in wells. In 2005, the company turned its attention to “green energy,” according to Brockett’s pleading in U.S. Tax Court. Geotec created Ecotec Coal LLC that year.
In late 2006, Ecotec Coal landed a contract to produce about 30 million tons of coal for a little more than $4 per ton. Brockett said he couldn’t remember which company the contract was with, but he said it was unrelated to Ecotec.
The U.S. Tax Court pleadings, however, show the contract was with Universal Coal, a company that was owned and managed by Ray, the CEO of Geotec, which was the owner of Ecotec. In a follow-up call with Arkansas Business, Brockett said Ecotec and Universal Coal were considered unrelated businesses because Geotec was a publically traded company and Ray owned an interest in it.
The contract, however, allowed Ecotec to generate the tax credits. In exchange for investing in Ecotec, investors would receive credits to offset some of their income taxes.
“And Ecotec’s interpretation under the [tax] code was it had 10 years to produce the amount of coal to qualify those tax credits,” Brockett said.
The IRS disagreed and denied the credits and other claims, saying Ecotec didn’t have the documentation to support the issuance of tax credits. Brockett disagrees. In 2006, he said, Ecotec had two small prototype machines that worked to clean the coal.
“I don’t know that they produced large quantities, but they had produced at least some in 2006 to qualify” for the tax credits, Brockett said.
King Coal
In 2007 Parks was involved in creating King Coal LLC of Little Rock to develop a deep mine in Scranton (Logan County). King Coal wasn’t involved in tax credits.
In early 2008, Parks, who owned 4 million shares of Geotec, became president of Ecotec. Ecotec still hadn’t produced the 30 million tons of clean coal, as required by the contract with Universal Coal. By May or June 2009, Parks traded his shares of Geotec to Geotec to become sole owner of Ecotec.
Under Parks’ management, Ecotec continued to suffer setbacks and didn’t come close to fulfilling the 2006 order from Universal Coal.
That changed in 2012.
In the middle of that year, Ecotec started negotiations with the Port of Louisville to use Ecotec’s clean coal process on all the coal that was passing through the port.
Brockett said that as a condition of getting the contract with the port, Ecotec had to show that it had more than $7 million in liquidity available, which it did in 2012 through its related company, King Coal.
A setback occurred in October 2012, when the IRS and federal agents seized several documents at Parks’ home and businesses.
Brockett said that Parks thought the seizure of documents was related to a possible audit and everything would be worked out. Parks maintained he didn’t do anything wrong, Brockett said.
Ecotec’s 2012 Christmas card to all its investors said, “Thank you. We are ready to flip the switch and move forward,” Brockett said.
Weeks later, in February 2013, the federal government seized the millions from Parks and his companies. Brockett said the seizure and the looming criminal investigation derailed the contract with the port and with AES Shady Pointe.
Joe Tegart, vice president for sales and marketing at the port, remembers things differently.
He told Arkansas Business last week that he remembered King Coal coming to a meeting and “maybe one or two talks with them on the phone or something, but nothing in depth.”
And he said there wasn’t a contract in place nor did he know anything about companies having to have $7 million in the bank.
Brockett acknowledged that he had never seen the contract with the port that his client Parks told him existed.
More than two years passed before Parks waived indictment and pleaded guilty to one count of wire fraud in connection with selling tax credits that didn’t exist for his company Global Coal. He was sentenced to 27 months and ordered to pay the IRS $845,000 in restitution. He also forfeited all the other money and assets seized.
As part of the plea deal, Parks agreed to dissolve the companies he had controlling interest in since 2005, which included King Coal, Global Coal and Ecotec.