Financier Indicted in Mineral Scheme : Clifford Graham, Missing Since 1985, Charged in $13-Million Gold Operation

Missing San Diego financier Clifford Graham, who drew nearly $13 million from more than 100 wealthy investors by persuading them that his firm could turn mining waste into gold, was indicted Tuesday by a federal grand jury and charged with 22 counts of fraud and income tax evasion.

Graham, a founder of Fotomat, was last seen in San Diego in May, 1985. According to the indictment, he sold about 120% interest in his firm between 1979 and June, 1984, and spent more than $10 million of his investors’ funds on such personal luxuries as a 180-foot yacht and an 18-acre estate in Rancho Santa Fe.

Graham claimed that his Au Magnetics company--using a technology that the indictment states he falsely said he owned--could extract gold, silver and platinum from natural and residual mineral deposits. The process, according to the indictment, did not require the large quantities of water needed in conventional mining methods.

Less than $3.5 million was spent on development of the Au Magnetics technology, known as the iron carbonyl process, according to the indictment. The process had been laboratory tested but never marketed commercially.

Graham’s clients included several prominent San Diegans, among them businessmen Malin Burnham and Leon Parma, as well as Rep. Jack Kemp (R-N.Y.) and members of the Dow chemical family.

Graham was charged with 13 counts of mail fraud, two counts of wire fraud, four counts of income tax evasion and three counts of filing false income tax returns. If convicted, he could be sentenced to 104 years in prison and assessed $310,000 in fines.

The indictment alleges that, contrary to claims, Graham did not own rights to the iron carbonyl process and that, also contrary to his claims, a major oil company had not made a purchase offer of $10 million for the rights.

Investors were told they would receive a return on their investment “within a relatively short time frame” and were promised that they could at any time receive a refund.

Investors discovered the scheme in early 1984 and filed a flood of lawsuits. The FBI and the Internal Revenue Service later opened an investigation of Graham and his firm.

Last October, a group of disgruntled investors forced Graham’s firm into bankruptcy. However, the trustee in charge of liquidating the company has been unable to identify any assets “largely because of (Graham’s) disappearance,” according to Jim Hill, the attorney for trustee Harold Taxel.

On Oct. 31, Graham’s 180-foot yacht, the Pegasus, was sold at auction for $925,000 to an overseas buyer. It is now reportedly docked at the old Bumble Bee Tuna plant and may need as much as $2 million in repairs, according to a source familiar with the vessel.

Funds from the sale of the yacht went to General Electric Credit, which lent Graham $1.3 million to buy the boat in 1976.

The only other identifiable asset is Graham’s 18-acre ranch-style house in Rancho Santa Fe. Once owned by Bing Crosby, it is for sale for $3.9 million.

The house is “hopelessly overencumbered,” Hill said.

Graham was last seen in San Diego in May, 1985. Bill DeLeeuw, owner of the Kona Kai Club, where Graham’s yacht was docked until the auction, said he met with Graham at a Del Mar restaurant to discuss the boat.

“He kept talking about capitalizing companies in Canada,” recalled DeLeeuw.

Since then, speculation on Graham’s whereabouts has abounded, with investors placing him everywhere from the Caribbean to an undisclosed home in Rancho Santa Fe.