CHARLESTON, W.Va. – U.S. Attorney Booth Goodwin today announced charges in connection with a false billing scheme orchestrated by former employees of Alpha Natural Resources ("Alpha") and certain companies that supplied supplies, equipment, and services to Alpha. Edward Ellis Mullins, 41, of Peytona, West Virginia, Joey R. Phalin, 36, of Crab Orchard, West Virginia, and Nicholas R. Coleman, 29, of Lester, West Virginia, are former local "sourcing agents" for Massey Energy ("Massey") legacy mines operated along WV Route 3 in Boone and Raleigh counties. Donald Bryan Steele, 43, of Barboursville, West Virginia, is the owner of M&S Hydraulics, a major Alpha supplier with offices in Barboursville and a rebuild shop in Switzer, West Virginia. Each has been charged by information with wire fraud and aiding and abetting. All four have agreed to plead guilty and are cooperating with the ongoing investigation.
An 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. The false invoices, prepared by the supplier, were intended to look like legitimate purchases, but were really used to provide cash, gifts and other things of value to the sourcing agents and other Alpha employees.
"Today's announcement is the first step in an ongoing criminal investigation," U.S. Attorney Goodwin said. "People who accept bribes or who cheat their employers by approving fake bills are committing fraud, plain and simple, and my office will prosecute them to the fullest extent of the law."
"Schemes like this create unfair obstacles for suppliers who want to do business honestly," Goodwin continued, "and they drive up prices for everyone. There's no place for that in the American economy."
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. Over the course of the next six months, the 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, the agents identified an even more prominent supplier involved in the false-billing scheme. In February 2013, the FBI and the State Police confronted Steele, the owner of M&S Hydraulics, a major Alpha supplier. The significant evidence uncovered by the FBI and the State Police led Steele to agree to cooperate immediately in the investigation.
Mullins, Phalin, Coleman and Steele each face up to 20 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.
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