Seven defendants charged to date in ongoing fraud investigation at Massey legacy mines

Updated 7 years ago From a Release by U.S. Attorney's Office for Southern District of WV

CHARLESTON,  W.Va. – U.S. Attorney Booth Goodwin today announced additional charges in  connection with a major false billing scheme orchestrated by former employees  of Alpha Natural Resources (“Alpha”) and certain companies that provided  supplies, equipment, and services to Alpha.   Three individuals were charged today: Ricky R. Smith, of 49, Glen  Daniels, James Rodger Long II, 34, of Beckley, and Harold Wayne Brown, II, 41,  of Madison, W.Va.

Smith  and Long, both former local “sourcing agents” for Massey Energy (“Massey”) legacy  mines, have been charged by information with wire fraud and aiding and  abetting.  Brown, a former Alpha  underground maintenance chief, was charged with making a false statement to  federal authorities in connection with the false billing scheme.  All three have agreed to plead guilty and are  cooperating with the ongoing investigation.

An  ongoing investigation revealed that several mine sourcing agents, generally  responsible for ordering goods and services for mining operations from Alpha  suppliers, participated in an illegal scheme to obtain goods for their own  personal benefit.  The investigation  further revealed that the sourcing agents, working in conjunction with the  suppliers, hid numerous illegal transactions by creating false invoices. 

According  to court documents, on October 6, 2011, sourcing agent Ricky Smith submitted a  false invoice for $16,500 to purchase a “duster” from a leading Alpha parts  supplier, M&S Hydraulics.  Court  documents also revealed that in a similar scheme, James Long, working with  co-conspirators, submitted a false invoice for equipment totaling $8,820 to  M&S Hydraulics.  The false invoices  were intended to look like legitimate purchases, but were actually used to  provide cash, gifts and other things of value to the sourcing agents and other  Alpha employees. 

In  March, charges were filed against the owner of M&S Hydraulics, Donald Bryan  Steele. Steele was charged with wire fraud and aiding and abetting in  connection with the false billing scheme.   Charges were also previously filed in March against co-conspirators  Edward Ellis Mullins, 41, of Peytona, W.Va., Joey R. Phalin, 36, of Crab  Orchard, W.Va., and Nicholas R. Coleman, 29, of Lester, W.Va.  Mullins, Phalin and Coleman are all former  sourcing agents for Massey Energy (“Massey”) legacy mines. Each defendant was  charged by information with wire fraud and aiding and abetting.  All four defendants have agreed to plead  guilty and are cooperating with the ongoing investigation.

Mullins was employed as the  sourcing agent for the Shonk Powellton #1 mine, operated by the Elk Run Coal  Company, an Alpha subsidiary.  Around  November 2011, Mullins approached a supplier, who generally provided tires,  wheels and other vehicle-related materials to Massey and now Alpha, about  supplying him and other Alpha employees tires and wheels for their personal  vehicles.  In exchange, Mullins agreed to  allow the tire seller to submit false invoices for payment to Alpha reflecting  that tires used in the mining operations had been delivered.  For its participation, the tire seller was  told to “pad” the false invoice.  The  tire seller immediately provided this information to Alpha corporate security,  who, in turn, contacted the FBI and West Virginia State Police.  A criminal investigation revealed that not  only Mullins, but other sourcing agents, including Phalin and Coleman, who were  employed by another Alpha subsidiary, Marfork Coal Company, were also engaged  in the false billing scheme. 

Through the sourcing agents’  cooperation and other information, law enforcement agents have identified other  conspirators linked to the widespread false-billing scheme. 

Mullins,  Phalin, Coleman and Steele each face up to 20 years in prison and a $250,000  fine.  

Smith  and Long each face each face up to 20 years in prison and a $250,000 fine.   Brown faces up to five years in prison and a  $250,000 fine.

The investigation was  conducted by the FBI and the West Virginia State Police with cooperation from  Alpha Natural Resource’s internal security team.  Assistant United States Attorney Thomas Ryan  is in charge of the prosecutions. 

In June 2011, Alpha  Natural Resources finalized the purchase of Massey, including the mining  divisions located along WV Route 3 in Boone and Raleigh counties. 

Note: A sourcing agent  refers to the individual located at each mine site who is responsible for  ordering goods and services from vendors to ensure the continuation of mining  operations.