By Jennifer Kocher and Mark Christensen, County 17
New Campbell County Attorney Mitch Damsky is making good on his promise to look into some of the dealings of out-of-state coal companies, setting his sights first on former Blackjewel CEO Jeff Hoops.
On top of leaving the county on the hook for $16 million in ad valorem taxes after the company’s bankruptcy in 2019 that exposed the tangled – and allegedly deceitful – underpinnings of his fossil fuel empire traversing 32 mines, several states and an undisclosed number of shell companies, Damsky said that Hoops left a lot of ruined lives in his wake as he and his family profited handsomely.
For this reason, Damsky said he will take a closer look at potential criminal activity on the part of Hoops, whether that be fraud, theft or other crimes with the goal of procuring enough evidence to empanel a grand jury investigation in Campbell County.
“Let’s put it before the people and let them decide whether or not any criminal activity has been done,” he said. “If anyone has first-hand knowledge of secreting, diverting or subverting funds, we’d like to hear from them.”
Damsky feels there’s enough evidence based on his preliminary investigation, as well as the many red flags that continue to be unearthed through the complicated unlayering of the company itself, to justify a grand jury.
He pointed to a July article in a publication by the Sightline Institute detailing what reporter Clark Williams-Derry described as seven bombshells.
Of interest most pointedly to Damsky was Hoops’ own admission of the tight cashflow back and forth between Blackjewel and affiliate company Revelation Energy between 2013, during which they racked up hundreds of millions in unpaid bills, which Williams-Derry said either pointed to business failure or outright fraud.
This on top of Hoop’s breaking ground on a $30 million resort called the Grand Patrician, complete with a 3,500-seat arena modeled after a Roman coliseum, that was unimpeded by the bankruptcy filing.
Equally troubling to Damsky was bombshell No. 4 in the article which described the $79 million in transfers between Blackjewel and other bank accounts under his control, including his own personal accounts.
In one instance, Hoops transferred $45 million into Blackjewel before extracting $34 million, which by Hoops’ accounting meant he was still owed $11 million among other discrepancies.
In short, Damsky would like to take a closer look for potential wrongdoing.
“It’s like a Chinese house with a 1,000 doors,” Damsky said, which he views as part of a larger pattern by other out-of-state coal companies who ‘blow and go’ through bankruptcies before selling to the next highest bidder – or the next company willing to take on reclamation liabilities – at the expense of the people of Campbell County.
A snake oil salesman
Rory Wallett, for one, was happy to hear that the county attorney is planning to delve into Hoops’ affairs. It’s about time somebody step up and do some investigating, he said.
Fresh off the night shift from Belle Ayr early Thursday morning, Wallett, a production technician, sipped an iced chai at The Local coffeeshop in downtown Gillette, as he recounted the stress that he and the 600 other local miners went through following the layoffs two years ago.
As a result of the layoff, Wallett lost his house and recalled the strain on both his family and his marriage. He knows of at least a handful of marriages that broke up as a result of those rocky times and just as many of his former friends and colleagues who were forced to take work elsewhere and move as a result of Hoops’ shady and inept business dealings.
This is the guy who flew out to Gillette, stood among workers in the breakroom and shook all their hands.
“He’s definitely a snake oil salesman,” Wallett said. “He knows how to sell the product he’s selling.”
A house of cards
On July 1, 2019, Blackjewel abruptly entered Chapter 11 bankruptcy along with its affiliated companies (County 17, Jul. 1, 2019). The filing caught many within the community by surprise, not because of Blackjewel’s financial status, but because of the chaotic nature of the process.
When the bankruptcies of Arch Resources, Peabody Energy, and Cloud Peak Energy had been announced, the firms simultaneously said they’d already secured debtor-in-possession (DIP) financing (a form of financing used by lenders in Chapter 11 bankruptcies that gives them priority over older debts).
Those companies entered bankruptcy, but for employees and the community very little initially changed. The workers continued working, their paychecks continued coming and the companies continued relationships with vendors.
Blackjewel was different. Based upon conversations with Blackjewel employees, the morning of the bankruptcy, mine managers told employees about the bankruptcy, but said that things would continue as had been the case with the bankruptcies of the other PRB coal companies – their employment would continue and the operations would carry on producing coal.
Hoops was portrayed initially as Blackjewel’s savior, indicating that he and his family, and their entities, would provide the DIP financing Blackjewel desperately needed. Hoops delivered cashier’s checks by private jet from his West Virginia bank to PRB employees for the most recent payroll they hadn’t received.
Hoops’ proposal to the bankruptcy court for Blackjewel’s DIP financing would provide the company with $8,963,068.
The proposed loan, however, secured by the DIP priority and basically all of the Blackjewel assets, was for $20 million.
The new cash would come from Hoops and a company he controlled. The proposed order, prepared by Hoops’ attorneys, took money that he had previously loaned personally and through other entities and categorized it as having been used “for valid business purposes” and noted that it was a revolving line of credit, not an equity contribution (important for priority in a bankruptcy, where equity is traditionally gone) and that the entire amount should be treated as DIP financing.
Hoops also included a reimbursement for the use of his private aircraft to fly the cashier’s checks to Wyoming at a value of $16,800.
Classification of all of the money as DIP financing would give Hoops and his companies super priority over other creditors, vendors, employees and local governments like Campbell County.
As the day drug on, no announcement on the DIP financing was made. Employees were finally told they were being laid off and to go home. Chaos at the PRB mines ensued as many employees had not been paid by Hoops for the current period and had never seen deductions from their checks for 401(k) accounts and health savings accounts (HSA) deposited for their benefit.
Judge Frank W. Volk of the Southern District of West Virginia held a hearing on July 1, but no decision was made. The hearing including many hours of testimony from Hoops and hearings were held the following day too.
It appeared to most that after alleged mismanagement and potentially fraud, Hoops was looking to use the bankruptcy to put himself above others and guarantee himself a payout. He also took the opportunity to imply to employees that the lack of approval of the DIP financing was because of a number of creditors, not serious concerns with his proposal.
On July 3, Volk denied the proposed emergency motion for post-petition financing (County 17, Jul. 3, 2019). In his ruling, Volk said that Blackjewel and the other Hoops entities failed to meet their burden of proof under Chapter 11.
“Moreover, I find that the proposed terms of the debt facility would unduly prejudice the rights of other parties and interests, in the majority of which have not had an opportunity to be heard, given the unusual circumstances that have been presented,” Volk said.
The same day he denied Hoops’ proposed post-petition financing arrangement, Volk signed an interim order granting emergency DIP financing priority for a $5 million loan from Riverstone Credit Partners (County 17, Jul. 3, 2019). Riverstone was already a Blackjewel creditor and their loan would address urgent needs at the mines in Campbell County – mainly fire watch since coal at rest and open to the elements can combust. As a condition of Riverstone’s loan, it moved to the top of the list of creditors.
Volk required one other thing. Hoops and his family were out of Blackjewel’s management.
The ramblings of a delusional man or a fraud who had run out of time?
One day after the Volk ruling on the emergency funding, Hoops sent a letter to Blackjewel’s 1,800 out-of-work employees (County 17, Jul. 5, 2019).
By this time Blackjewel’s PRB employees had missed a paycheck (those in the eastern U.S. were behind on multiple payroll payments) and found out that money withheld from their checks for 401(k) contributions and HSAs had never been deposited. Court records confirmed that more than $1 million in contributions had not been made. They were also unemployed with no sign of when some normalcy would return.
“No one is hurting more than me,” Hoops wrote in capital letters in a letter to employees, citing threats being made against him, his family and “anyone associated” with him “as a result of the misinformation.”
In his July 4 letter, Hoops vehemently denied any wrongdoing, and instead claimed that Clearwater Investments, which is owned by a Hoop’s Dynasty Trust “with many investments,” had loaned Blackjewel more than $11 million since January of 2019 due to flooding and missed shipments out West.
Hoops’ letter, written in all capital letters with long run-on paragraphs, read more like a desperate plea for apology than an explanation for employees who had worked hard for Blackjewel.
Mobilization of resources
While the bankruptcy court began digesting the Blackjewel case, Campbell County and Wyoming stepped in to help on the mine sites. The Wyoming Department of Environmental Quality (WDEQ) on its first visit to the site found explosives that had not been properly stored, shovels in precarious positions, and coal which had been sitting in a silo for too long. WDEQ acted, with the assistance of some Blackjewel employees, to make the mines safe (Wyofile, Jul. 3, 2019, reprinted on County 17).
Those who first visited the mines said it reminded them of the eerie photos seen after the Chernobyl nuclear meltdown, where a once active community was suddenly evacuated, leaving in place a full city, cars, clothes and parks with no people.
As employees chaotically left after being “laid off,” they vacated the two PRB mines in a similar eerie state. The mines’ huge shop doors, large enough to perform maintenance and work on giant haul trucks and other equipment were left open. All of the lights were on. Music from the shop speakers could be heard by those walking in front of the building. Coffee pots were left on, where a small amount of coffee that had been remaining evaporated and left a dark layer in the bottom of the pot.
Wyoming Governor Mark Gordon and his executive team, including the directors of WDEQ and the Wyoming Department of Workforce Services (WDWS), traveled immediately to Campbell County to offer support.
Gordon held a joint meeting with Campbell County Commissioners and Gillette Mayor Louise Carter-King, where the elected officials took questions from Blackjewel employees.
One miner asked the group, “Has anyone had contact with Hoops?”
Gordon and WDEQ director Todd Parfitt both said that they had not heard from the then reining CEO.
“I look forward to his call,” Gordon had said.
WDWS began working with employees on unemployment. Representatives from the Wyoming Community Development Authority (WCDA) were sent to help miners who might miss a home loan payment looking at options and potentially restructure their loans.
The earlier bankruptcies of Arch Resources, Peabody Energy, and Cloud Peak Energy, and their earlier layoffs, had a positive effect on the Blackjewel bankruptcy – the state had learned how to step in to help employees quickly.
The bankruptcy and previous behavior by Blackjewel had left many in Campbell County hurting – from employees to small business owners who were vendors of the company (WyoFile, Jul. 10, 2019, reprinted on County 17). Much of the hurt was a result of Hoops alleged double-dealing – a topic to be visited in depth by County 17 next week – and possibly Damsky’s best chance for prosecuting the former CEO.
But while Campbell County hurt, a big question came to the front of many people’s minds. What would happen to the two mines? Would they be reclaimed or would they remain as they were left? The discussion of reclamation brought another of the PRB mines’ previous operators back into the equation, Contura Energy.
A path forward?
Contura was born out of Alpha Natural Resource’s 2015 bankruptcy. Alpha’s senior creditors formed Contura to take the “lucrative” Wyoming mines off Alpha’s books, while Alpha continued operating mines out east (County 17, Dec. 11, 2017).
In December 2017, Contura announced the sale of its flagship Belle Ayr and Eagle Butte mines to Blackjewel, LLC, which was known only as a “private company based in the Kentucky Appalachians.”
Contura was to receive deferred compensation and some royalty payments. The biggest gain for Contura, however, was the requirement for Blackjewel to assume all permits and reclamation requirements associated with the PRB mines.
In what ended up being a stroke of luck for state leaders, the transfer of the mine permits and reclamation bonding for Belle Ayr and Eagle Butte from Contura to Blackjewel was never completed because of a challenge by the Powder River Basin Resource Council (PRBRC) (County 17, Nov. 29, 2018). Because of the hangups in transferring the mine permits, Contura still had responsibility for the mines and bonding in place.
As the bankruptcy case moved slowly, Wyoming’s Environmental Quality Council (EQC) delayed a decision on who held the mining permits for Eagle Butte and Belle Ayr pending information from the bankruptcy court.
As state Sen. Micheal Von Flatern, whose area includes the City of Gillette stated, “Thank God they didn’t [approve the permit] and kept Contura on the hook,” (WyoFile, Jul. 16, 2019, reprinted on County 17).
As Contura was still on the hook for reclamation at the two mines, which had been estimated to cost upwards of $250 million, the bankruptcy took an unexpected turn. Contura, who had only two years earlier happily sold off its PRB mines to place more focus on metallurgical coal, became the backup buyer for Belle Ayr and Eagle Butte after Judge Volk approved the stalking-horse agreement between it and Blackjewel. Parties interested in the assets could bid on them, but if no buyer came forward, the stalking-horse agreement terms would prevail (County 17, Jul. 26, 2019).
Under the agreement, Contura agreed to purchase what was referred to as the Western/Pax Assets including the Belle Ayr and Eagle Butte mines in the PRB and the Pax mine in West Virginia. The deal included an $8.1 million purchase deposit plus $12.5 million in additional cash to, in effect, finance the sale process.
That deal never happened. Riverstone Credit Partners, the firm who had provided the initial $5 million DIP financing for Blackjewel and jumped to the head of the line as a creditor, leveraged Contura’s reclamation obligation, to push the deal up to nearly $34 million (WyoFile, Aug. 13, 2019, reprinted on County 17). After initially making a loan to Blackjewel in 2017 at a 15% interest rate, the private equity firm would leave the ordeal largely unscathed, with remaining creditors, vendors, and local governments left out in the cold.
On September 18, 2019, Contura announced again the sale of its Belle Ayr and Eagle Butte mines. The owner this time would be Eagle Specialty Materials, LLC (ESM), an affiliate of FM Coal, LLC (County 17, Sept. 18, 2019).
“We’ve been clear that operating long-term in the PRB was not in Contura’s strategic plans, and that the best possible outcome for all interested parties would be for another responsible operator to step up that was interested in doing just that,” said David Stetson, Contura’s chairman and CEO. “We are extremely pleased that this deal outlines a path to relieve Contura from any go-forward liabilities related to these assets, while also providing long-term employment opportunities for hard-working miners and ongoing revenue to local, state, and federal governments.”
Under the terms of the deal, Contura agreed to pay ESM $90 million cash for taking over the two mines. Contura also agreed to pay Campbell County $13.5 million for back ad valorem taxes, though $15 million was due and assessed in Contura’s name exclusively (County 17, Oct. 1, 2020). ESM agreed to pay the county half of the tax debt owed by Blackjewel over a five-year period.
Wallett was lucky, he said. He and his wife weathered the rocky times, and Wallett was among the first crew to be rehired that fall by ESM with a $2 per hour raise. In recent weeks, he said, some of his former coworkers have also begun returning.
So far, so good, Wallett said, when it comes to the mines’ new owner.
For the first time that he can remember, Wallett and staff will receive a $500 year-end bonus and ESM has also donated $20,000 to local community groups. Their signal, in his mind, that they intend to be part of the community. The company just celebrated its first year in the PRB in October with a company-paid dinner and stocking caps and gifts cards for all employees.
Despite the otherwise happy ending, Wallett was pleased to hear that charges may potentially be brought against the former Blackjewel CEO who had once sidled up to them as one of their own, while in his mind, lying directly to their faces.
He’s happy to spread the word that the new county attorney is looking into potentially pressing criminal charges. Anyone with information is asked to contact either the Campbell County Sheriff’s Office or the Campbell County Attorney’s Office.
If nothing else, Damsky would like to send a message to Hoops and others like him that Campbell County isn’t planning to sit still and take it anymore.
His message: Don’t screw Campbell County.
“I’m not afraid of his (Hoops’) money,” Damsky said. “If there’s any criminal activity of his part, I’m going to go after him with a vengeance.”