Filings: D&L Owners Improperly Diverted Funds

The owners and managers of a company whose majority owner is facing federal charges for ordering chemically-laced oilfield waste dumped into the Mahoning River watershed may have improperly diverted funds from D&L Energy to other companies the group owns.

The claims were made Tuesday in bankruptcy records filed Monday in U.S. Northern District Court in Youngstown for D&L Energy and Petroflow, Inc., both owned and created by Ben Lupo, who was charged Feb. 14 with violating the U.S. Clean Water Act for ordering an employee to dump oilfield waste down a storm sewer that eventually flowed into the Mahoning River.

The employee, Michael Guesman, 34, of Cortland, also faces illegal dumping charges. They both could face up to three years in federal prison and millions of dollars in fines.

D&L also owned an injection well that was found to be the cause of 11 earthquakes in late 2011 and early 2012 in the Youngstown area. Those injection wells were shut down by the state. The company was cited for more than 50 violations in Ohio since the 1980s, but the Ohio Department of Natural Resources granted Lupo a permit for a new injection well on Jan. 7, according to records obtained by WKBN.COM.

The Chapter 11 bankruptcy filings say D&L owns assets totaling more than $50 million and expects to make more than $2 million this year. Lupo resigned his position as president of the company the day after he was indicted, but kept an 81 percent ownership in the company filings say. His wife, Holly Serensky Lupo, owns four percent and Susan Faith, of Girard, owns the remaining 15 percent.

The company owes some $5.2 million to its top 20 creditors, including $1.3 million to Hunting National Bank for loans used to buy equipment and the High Grove Golf Course in Milton Township for $557,730, which they sold March 30 at a public auction for more than $755,000.

The company owes $2.46 million to three companies— Sunpro, Inc. of North Canton, Tom’s Sewer and Drain Service of Girard and Heavy Duty Industrial of McDonald— for cleaning up D&L’s alleged illegal dump.

Petroflow owes $904,641 to its top 20 creditors. The companies are looking to either restructure or liquidate through bankruptcy proceedings, filings say.

D&L President, CEO and Trustee Nicholas C. Paparodis said in an affidavit that Lupo, Serensky Lupo, Faith or others may have “improperly diverted” money to one of Lupo’s other 20 business entities for “little or no consideration.”

“Throughout the years, the business dealings, accounts and finances of these other entities and the former principals became extensively intertwined with that of the” owners, filings say. “This intertwined relationship, coupled with lax and/or inefficient accounting procedures, led to an extremely complicated and convoluted set of books and records which the debtors have diligently been attempting to unravel in the period of time before filing.”

Filings say those attempts have been unsuccessful, leading to attorneys asking for U.S. Bankruptcy Judge Kay Woods to grant a two-week extension at a hearing set for Friday, in which D&L attorneys will argue several motions.

D&L was created in 1986 by Lupo, disgraced former Trumbull County Engineer David DeChristofaro and James Beshara as an oil and gas well operator and producer in the Clinton Sandstone formation.

Since, they’ve launched joint ventures with other companies and stakeholders to drill, own and operate drilling and injection wells throughout Ohio and Pennsylvania, filings say. The joint ventures would hire D&L to drill the wells through Petroflow and would hire other Lupo companies to manage the wells. The company would gross revenues from the well and fees for drilling and managing the wells. D&L would also retain an “overriding royalty interest” in the lease, which would provide a certain percentage from the well.

The company also marketed and sold rights to Marcellus and Utica shale formations. Filings say they own or partially own rights to 17,000 acres of mineral rights, which is valued at an estimated $39.1 million. Paparodis claimed in his sworn affidavit the company sold $17 million in mineral rights in 2011 and 2012.

The filings estimate D&L manages and operates 580 oil and gas wells in the area. The criminal charges was the catalyst for financial difficulties that led to the company filing for bankruptcy, records say.

The company has since reduced the number of employees to 18 people and pays about $77,000 in wages and benefits per month, filings say. They also began liquidation, including soliciting offers for interests in some of its saltwater injection wells.

“However,” filings say, “even with considerable cost-cutting efforts and the potential liquidation of assets due to the substantial monetary liabilities associated with the clean-up process and other related litigation, the loss in good will value of the debtors and as a result of the suspected diversion of funds from the debtors, the debtors cannot continue to operate without the protections of the bankruptcy court.”

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