Judge Acts After SEC Accuses First Oil & Gas Co. of Massive Fraud : Los Angeles Firm Ordered to Halt Phone Sales
A federal judge here has ordered a Los Angeles firm to halt a national telephone sales operation accused of obtaining millions of dollars in a massive fraud, using oil and gas wells it didn’t own for investor bait.
Acting on a complaint filed by the Securities and Exchange Commission, U.S. District Judge Irving Hill also froze the bank accounts of First Oil & Gas Co., whose executive offices have been at 326 Lincoln Blvd., and its owner, John Gust Westine of Marina del Rey.
Reading from sales scripts, a force of 30 sales representatives telephoned prospective buyers listed on computer cards and offered “guaranteed” royalty income of 20% to 30% a year, payable quarterly, the SEC told the court last week.
The agency said the calls were followed up with mailings. Sales people were paid 15% to 25% of the minimum individual investments of about $2,250, the SEC said, which added that it had already traced $2.5 million in sales to about 400 persons.
Elaborately detailed sales materials on the unregistered securities said the “guaranteed” returns to investors were based on oil sold from First Oil’s wells in Coalinga, Calif., to Shell Oil Co., according to the court papers.
But First Oil does not own any of the specific real estate parcels identified in its sales materials as the sites of its leases on oil and gas wells, nor elsewhere in the Coalinga area, the SEC alleged. The agency also said that First Oil got no income from the sale of oil produced by “its” wells, which are owned by someone else, and that First Oil sold no oil to Shell.
The complaint said the defendants failed to disclose to investors that its ability to pay such returns depended on the influx of new investors’ funds.
First Oil was incorporated in California last March and has conducted its operations from several locations in Los Angeles and Santa Monica, the complaint said.
No one was answering telephone calls to the company Friday, and the defendants could not be reached for comment.
Regulators informed the court that a temporary restraining order without prior notice to the defendants was imperative because of “grave risks” to investors’ funds obtained by the defendants “through an egregious fraud.”
In papers supporting the request to freeze assets in the hands of the defendants, the SEC noted that Westine pleaded guilty about 18 months ago to a charge of passing bad checks in May, 1982.
Further, it said, a mortgage default on Westine’s former residence in Venice was issued in February, 1984, and the property was foreclosed upon about last May.
Nevertheless, the SEC papers continued, “in or about September, 1984, approximately six months after sales of First Oil securities had begun, Westine purchased a home in Marina del Rey for about $666,000.”
The SEC said Westine deeded this house to another person for the same price, but apparently with no cash down payment, last Nov. 20, several weeks after he was notified that the SEC had begun an informal investigation of First Oil securities sales.
