Oil and Gas Tax Shelter Placed in Receivership

A federal judge Monday placed a beleaguered oil and gas tax shelter with 2,000 investors, most from Orange County, into receivership.

U.S. District Judge Consuelo B. Marshall appointed Richard G. Shaffer, a former banker who serves as managing partner of a Flintridge consulting firm, to act as receiver for Western Reserve Oil & Gas Co. Ltd. She also issued a preliminary injunction against the general partner of Western Reserve, prohibiting the sale of any assets.

Trevor Phillips, a former Orange County advertising executive who organized the partnership five years ago, has been a fugitive since September, when a federal bench warrant was issued for his arrest after he failed to appear in court on another tax matter.

Since 1981, about $20 million in cash and $280 million in notes have been invested in Western Reserve oil and gas drilling partnerships in four states. In addition to losing portions of their original investment, many investors have been ordered by the Internal Revenue Service to pay millions of dollars in back taxes and penalties. The IRS describes the drilling program as an “abusive tax shelter” in its letters demanding payments from investors.

“He (Phillips) expected this to happen,” said Paul Young, Phillips’ Utah attorney.

Young argued against the receivership, telling Marshall that several limited partners were interested in taking over the management of the partnerships. Young, who said he is in frequent phone contact with Phillips, said the value of the partnerships ranges from an IRS estimate of $168 million to Phillips’ own estimate of $600 million.

Meanwhile, Charles Slyngstad, an attorney for 40 investors who filed suit against Phillips seeking the receivership, said Marshall’s ruling in federal court in Los Angeles will “give us the ability to deal with the government without Phillips getting in the way.”

He urged Marshall to appoint the receiver so the investors could “find out exactly what went wrong . . . . We are happy to get this far, after so many months of fighting the invisible man, Trevor Phillips,” Slyngstad said in an interview after the ruling.

Slyngstad told Marshall that the receivership was needed to stop about $5,000 a month in natural gas royalties from being transferred to two offshore trust accounts in the British Channel Islands. He said the receiver will also try to track down property and other assets that have been sold without the limited partners’ consent.