John C. Parsons, a two-time felon who struck it rich selling Alaskan oil leases to Midwestern investors, was arrested at his Newport Beach office Thursday morning on a six-count felony warrant alleging fraud and illegal securities transactions.
The charges--two counts each of securities fraud, sale of unregistered securities and operating as an unregistered securities broker--were contained in a warrant issued late Wednesday by the Kansas State Securities Commission.
Kansas is one of several states that have been investigating Parsons and his Newport Beach-based Citizens Oil & Gas Co., which securities investigators termed a telephone boiler-room operation. Sources say the operation has been grossing more than $150,000 a month for nearly two years from the sale of Alaskan oil and gas leases.
Citizens is one of nearly 100 similar telephone sales operations that Alaskan authorities are watching for potential oil lease abuses, according to Edward Watkins, securities examiner with the Alaska Department of Commerce.
Parsons, 55, is being held at Orange County Jail pending arraignment and extradition proceedings. He was arrested by Irvine police, who cooperated with Kansas authorities in part because Parsons is a resident of that city.
At 2 p.m. Thursday, employees at Citizens’ Oil & Gas told callers that Parsons was not available because he was seeing a doctor. Later, a man identified only as a spokesman for Citizens said: “We are unaware of it (Parson’s arrest). But we categorically deny any of the accusations being made.”
In 1967, Parsons, then an Arizona resident, was convicted and sent to prison for two years on felony charges of issuing bad checks. In 1981, while still residing in Arizona, he was convicted on three felony counts of larceny and one felony count of fraud in connection with an attempted embezzlement of more than $100,000 from a Phoenix manufacturing firm.
Despite his earlier conviction, Parsons was sentenced to straight probation in that case and still was on probation when he moved to Orange County in 1983 and set up Citizens Oil & Gas Co.
Larry Cook, director of enforcement for the Kansas Securities Commission, said Thursday that a five-month investigation by his department showed that Parsons and his company were making oil lease sales based on “misrepresentations of material facts and omission of material facts in their telephone sales pitches and in the advertising material they sent” to prospective clients.
Parsons sold the oil leases in 640-acre blocks for $10 an acre, despite the fact that the federal Bureau of Land Management sells the same leases for $1 per acre.
In many cases, according to interviews with several of Citizens’ clients, Parsons told his customers that they could write to the BLM and secure oil leases for $1 an acre. He told them that the additional money his firm charged covered extra services, including geological surveys of the property, the actual filing of the leases and Citizens’ services in negotiating with major oil companies that might want to buy the investors’ leases.
Many Repeat Customers
That sales pitch apparently worked, because Parsons reportedly not only has been able to sell hundreds of leases in the past two years but has a large number of repeat customers.
Grant Kime, a petroleum geologist who worked for Parsons for a short time when Citizens first began operating, said he knows of several elderly customers whose investments with Parsons top the $100,000 mark. He said it was not unusual while he was working there for Parsons to clear nearly $200,000 a week.
Kime, who now operates his own petroleum geology and natural resource consulting business, Champion Corp. in Costa Mesa, said he quit Citizens when it became apparent to him that Parsons was deceiving clients. Kime has filed complaints about Parsons’ operation with numerous law enforcement and regulatory agencies in the past six months and was largely responsible for the Kansas probe.
Cook said Kansas decided to pursue Parsons and Citizens as a criminal case “because we learned a long time ago that trying to deal with this kind of thing with civil actions doesn’t have much effect. They just ignore you.”
In the transactions on which Kansas is basing its case, Cook alleged, Parsons failed to tell his customers that his $10-per-acre charge represented a 900% markup.
Firm Denies Affiliation
Cook also alleged that Parsons and his salesmen represented to clients that Citizens had the services of a reputable firm of petroleum geologists when that company, in fact, “denies any knowledge of or affiliation with Parsons and Citizens Oil & Gas Co.”
Cook said Parsons also sent clients an “infared map that they represented as a map of the location of the leases they were selling.
“They told customers that the brown shading on the maps represented oil deposits. But we have a statement from a geologist from the University of Kansas who examined the maps and says that the shaded areas were vegetation,” Cook said. “Maybe he meant that it would be oil in a few million years.”
Finally, Cook alleged, Parsons and his salesmen told customers that Exxon and Arco were currently drilling for oil in areas close to the site of the oil and gas leases being sold by Citizens. “They told people that soon these companies would be after their leases.”
Both Arco and Exxon have publicly denied having any plans for the so-called public oil lands in Alaska and both companies filed statements in connection with the Kansas investigation saying that the leases being sold throughout the country by Citizens Oil & Gas Co. are “long distances from their operations and that they have no interest in the area,” Cook said.
The Kansas case is based on a sealed affidavit dealing with one Kansas resident’s multiple dealings with Parsons and other sales personnel from Citizens Oil & Gas. But Cook said in an earlier interview that his office has received more than 30 inquiries about Citizens from Kansas residents. The state issued a civil “cease and desist” order on June 7, barring Citizens from peddling oil leases without registering with the state.
Other states that have issued civil cease and desist orders against Citizens include Minnesota, South Dakota and Wisconsin.
The Times has interviewed several Minnesota and South Dakota residents who say they were solicited by Citizens’ telephone salesmen months after Parsons and his company were ordered to stop doing business in those states. In at least two cases, one in each state, Citizens actually sold leases and collected funds after the cease and desist orders were implemented, officials alleged.
Watkins contended that most of the oil lands offered for public leasing are marginal at best. Bob Sorenson, head of the Bureau of Land Management’s mineral leasing branch in Anchorage, echoed those concerns. “If (these lands) really had oil and the big companies wanted it, they could have bought it like these individuals are doing several years ago,” said Sorenson. “Some companies get a geologist to say they are offering tracts with great potential, but so far no one we are aware of has done more than a casual geophysical look and no major oil companies have shown any interest at all in these lands.”