SEC Charges L.A. Man With Fraud in Oil Well Scheme

A self-described oilman from Los Angeles has been accused by the Securities and Exchange Commission of fraud in an alleged scheme that extracted more than $1 million from at least 167 investors around the country who thought they were investing in promising oil wells in Wyoming.

The SEC suit claims that Jason W. Smith, 44, and various sales agents ran a “boiler room-type sales operation” that enticed naive investors into believing that he had discovered oil, when in fact the only hole he drilled hasn’t produced any oil.

A judge in U.S. District Court in Los Angeles on Wednesday ordered the assets of Smith and his Jason Smith Petroleum Corp. frozen until a hearing next Friday.

Smith couldn’t be reached for comment.

Offered More Than $400 Million

A recent press release put out on Smith’s behalf also identifies him as a bidder for KMEX-TV in Los Angeles and several other Spanish-language stations. The release said that Smith and partners had offered more than $400 million to acquire the station.

It couldn’t be learned whether such an offer has been submitted to the station owners, who are conducting a secret bidding process. SEC officials in Denver, where the oil case was investigated, said they are unaware of any efforts by Smith to buy a television station.

However, in an affidavit filed with the SEC suit, the former accountant for Smith’s oil company said that when he quit in March, Smith Petroleum had $7,000 in the bank and $100,000 in overdue bills.

Documents filed by the SEC contend that Smith and up to 10 sales agents, working the phones 16 hours a day, seven days a week, had managed to contact more than 200,000 potential investors since his oil company was formed in January, 1985.

Despite weakness in oil markets throughout 1985 leading up to this year’s price collapse, the SEC said the victims--many of them elderly--were persuaded to invest amounts of $2,500, $5,000 and more on the strength of a sales pitch that wells drilled or planned by Smith had struck oil or were virtual certainties to do so.

Little Chance of Success

But David M. Abbott Jr., a geologist in the SEC’s Denver office, said in an affidavit that the leases that Smith held in the so-called Battle Ax oil field had a “very low” probability for successful drilling. Investors also believed that they were investing in three projects, but only one has been drilled, Abbott said.

One victim, 80-year-old Jewell Forsgren of Hayward, Calif., said in an affidavit that she initially sent Smith’s company $5,000 after being contacted by phone. After being told that oil had been struck and that the well was producing 240 barrels a day, she invested another $2,500, she told the SEC.

The former accountant, James King of Ventura, told the SEC that he wrote checks totaling $144,000 to have the well drilled in February. Other investor funds were spent on luxury car leases, hotel rooms, telephone bills and unknown other expenses, according to King’s affidavit.

None of the interests sold by Jason Smith Petroleum were registered with the SEC, none of the sales agents were licensed under the names they used over the phone, and the assignment of those interests to the individual investors hadn’t been recorded as required in Weston County, Wyo., the SEC said.