How a Texas shale supplier’s founders made fortunes as the firm failed

FILE PHOTO: Drilling rigs operate at sunset in Midland

By Liz Hampton

(Reuters) – On July 7, the board of directors at Texas fracking sand supplier Hi-Crush granted nearly $3 million in bonuses to four top executives, including $1.35 million for CEO and founder Robert Rasmus.

Five days later, the company declared bankruptcy.

The payout marked the latest in a series of board decisions that allowed the oilfield supplier’s top executives and founders to rake in tens of millions of dollars as shareholders saw the stock price plummet to pennies.

The three-member independent board has since 2013 included two people with close ties to Rasmus: John Kevin Poorman, a former next-door neighbor in Illinois, according to deed records; and John Affleck-Graves, who until 2019 was the chief financial officer of the University of Notre Dame, Rasmus’ alma mater and a recipient of his donations.

Rasmus gave an undisclosed amount of money for a new 4,000-square-foot entertainment facility – dubbed the Rasmus Family Club – that opened in 2017 at Notre Dame stadium, where its storied football team plays. At same the time, Affleck-Graves served as the university’s chief financial officer – and, as a Hi-Crush director, was signing off on deals that put millions of dollars in Rasmus’ pocket.

Since 2014, the board has approved $640 million in company purchases of three sand mines and other assets in which Rasmus and his two co-founders each held a 12.78% stake, according to regulatory filings. The sales grossed the founders a combined $245.5 million, a windfall that came at the expense of other shareholders. 

Many investors would view Rasmus’ donation to Notre Dame as creating a conflict of interest with a board member who also served as the university’s CFO and could have benefitted from an associate’s major donation to the school, said Charles Elson, Director of the University of Delaware’s Weinberg Center for Corporate Governance.

Notre Dame declined to comment on the Rasmus donation. A university spokesman, Paul Browne, said in a statement that Affleck-Graves integrity is “beyond reproach.” Affleck-Graves did not respond to requests for comment.

Rasmus did not comment on the sand-mine transactions, his relationships with board members, or the pre-bankruptcy executive bonuses. He said in a written statement the firm’s board has always complied with “appropriate guidance, process, good corporate governance and practices, and securities and legal regulations.”

Reuters contacted all Hi-Crush officials, founders and directors named in this story. None responded.

The founders’ windfall from the sand-mine deals, which has not been previously reported, reflects lax corporate governance in the oil patch that has raised investors’ risk, said Ed Hirs, a veteran oil industry manager and an energy fellow at the University of Houston. 

Many investors have fled the U.S. oil-and-gas sector amid poor returns and governance concerns, pushing the industry to less than 3% of the S&P 500 index from more than 16% in 2008.

Hi-Crush has been one of the leading providers of sand for the Texas boom in fracking, a drilling method that involves blasting sand and water into shale rock to release oil. It is also one of more than 50 U.S. companies in the oil and gas industry that have declared bankruptcy amid the coronavirus pandemic, which wrecked fuel demand, according to law firm Haynes and Boone. 

But the firm’s downfall also stems from poor oversight by directors who prioritized the interests of executives over shareholders, a common problem in the U.S. shale sector, said Michael Boyd, of investment adviser Energy Income Authority.

“Mom and pop retirees don’t consider the ramifications of poor corporate governance,” he said. “They’ve made some poor investment decisions in this space, whether it be Hi-Crush or others.”


Hi-Crush shares have fallen from more than $70 in 2014 to become nearly worthless amid heavy competition. In June 2019, Rasmus and two other executives – Chief Operating Officer Michael Oehlert, and then-Chief Financial Officer Laura Fulton – reaped a gain by purchasing company shares just days before the company announced market-moving news. Company filings show the executives bought about $300,000 in company stock, with Rasmus buying more than half that amount. Days later, Hi-Crush announced a share-buyback plan that boosted the stock by 50%.

Securities laws bar executives from trading company shares if they know of a pending announcement likely to affect the stock price. Rasmus told Reuters that he and the other executives had not been aware of the buyback plan. The purchases, he said, did not constitute insider trading because they were made a day before the board agreed to the buyback.

Jacob Frenkel – a former SEC Enforcement lawyer who is currently Securities Enforcement Practice Chair for law firm Dickinson Wright – said it was unlikely that the executives had no advanced notice of the buyback.

“Board agendas and cash-flow analyses at a New York Stock Exchange-listed company do not show up the morning of the board meeting along with bagels and danishes,” he said.

Reuters was not able to independently confirm when the executives learned of the pending stock buyback.


Hi-Crush was founded in 2010 and went public in 2012 as a master limited partnership – a two-tiered structure that included a general partnership to manage day-to-day operations and a limited partnership of investors providing capital.

Between 2014 and 2017, the general partnership sold three sand mines for hundreds of millions of dollars to the limited partnership over a period when the market for Wisconsin sand was in decline. Rasmus and two other Hi-Crush founders, Jefferies Alston and James Whipkey, grossed tens of millions of dollars from the transactions because each of them held a 12.78% stake in the general partnership, according to SEC filings.

The publicly traded limited partnership – which included all stock investors – was left with mines that are now worth a fraction of the sale prices. All the sales were approved by the company’s three directors, who are elected by the general partners, including Rasmus and the other founders.

In April 2014, Hi-Crush’s general partner sold a Wisconsin sand mine to its limited partner for $224.25 million, according to SEC filings – grossing about $30 million each for Rasmus, Alston and Whipkey. In 2015, the mine was idled for about a year because of weak market conditions. Hi-Crush’s general partner sold two more Wisconsin mines to its limited partner over the next two years for a total of more than $300 million. Hi-Crush in 2019 reported more than $215 million in writedowns on two of its mines as the market tanked. 

By late 2018, the limited partner bought out the general partner entirely in a $96 million deal that ended Hi-Crush’s MLP structure. Under the deal, the three founders were awarded about $12.3 million of newly issued Hi-Crush shares, company filings show.

The deal drew criticism from some corporate analysts who said it weakened share value for stockholders by diluting the stock. Hi-Crush shares had been trading at more than $16 in July 2018, before the deal, but ended the year at around $3.50.


While Hi-Crush was shifting Wisconsin sand mines facing declining demand to its limited partners, its board in 2017 approved a $275 million purchase of 1,226 acres in the west Texas town of Kermit. The move was part of an industry rush to find sand mines closer to the oil patch to lower transportation costs, but it ultimately failed to pay off for investors or reverse the company’s declining fortunes.

Hi-Crush paid an extraordinary premium for the land at a time when larger properties in the region were selling for less than half that amount, according to a Reuters review of four other deals. The seller – Permian Basin Sand Company, an entity affiliated with Platte River Equity – had acquired the same parcel roughly two months earlier for $12 million, according to a deed, before flipping it to Hi-Crush for more than 20 times that amount.

One of the private equity company’s managers was Mark Brown, who is on the board of a Notre Dame student investment management program with Hi-Crush director Affleck-Graves. Brown said he had no relationship with Affleck-Graves and declined to comment on the sand-mine sale.

The land offered some benefits to Hi-Crush. It had guaranteed income through a sand supply contract with a major shale producer, and the company at the time touted the deal by saying it made the company the first local fracking sand producer in West Texas.

But larger properties, and their plants, went for far less. Fairmount Santrol’s land and mining facility in the same town, for example, had about three times as many sand reserves, more than twice the acreage, and a similar planned production rate, but its 40-year lease and production facility was priced at $110 million the same year.

(Reporting by Liz Hampton; Editing by Richard Valdmanis and Brian Thevenot)