Two Indicted in Phony Oil Well Investment Fraud Scheme

Two Southern California business partners accused of swindling investors out of their life savings with phony oil well partnerships have been indicted in what federal authorities say is the first use of federal racketeering laws to prosecute an investment fraud scheme.

Joseph Cullen, 40, of Malibu and Ann Borrowdale, 35, of Reseda were named in a 44-count indictment unsealed Tuesday charging them with defrauding investors throughout the nation out of as much as $1 million by falsely claiming that they had discovered oil on their land.

“Three of them were elderly women, and one of them lost her life savings of over $100,000,” said Assistant U.S. Atty. David A. Katz.

Among the assets seized by federal officials Tuesday with Cullen’s arrest was a 1984 Ferrari allegedly bought the same day a Louisiana widow wired him $68,000 of her savings, Katz said.

According to the indictment, Cullen and Borrowdale told potential investors that they had discovered oil on their land and offered to go into partnerships to extract it, promising dividends of up to 200%.

“He would call them up and tell them, basically, ‘We struck oil on your land and I know you’re not going to sell to me, but since our geologist found it and we have the know-how to extract it, why don’t we go into partnership,’ ” Katz said.

Cullen either set up phony companies or impersonated legitimate businesses and executives to persuade potential investors but disappeared as soon as targets of the scheme handed over their capital, Katz said.

In the case of the Louisiana woman, Lorraine Anderson, Cullen persuaded her to wire him $68,000 in the summer of 1984, then learned she had an additional $52,000 in the bank, Katz said.

To induce her to invest the remainder of her money, Cullen paid her a dividend of $2,500 over the next two months, and disappeared after she sent the rest of her savings, he said. “No refund, no call, no explanation,” Katz said.

Anderson said in a telephone interview that she was persuaded to invest in a phony oil well in Kentucky when Cullen told her that his company, Standard Resources, was a subsidiary of Standard Oil of California--a claim later proved to be false.

“He was real clever. He didn’t say that Chevron was now the name, and of course, I didn’t even think of that myself,” Anderson said.

The elderly widow, whose complaint to the Federal Trade Commission helped launch the investigation, said she has lost most of her monthly income from her husband’s estate and her own stock portfolio.

“I decided, you know, people like that ought to be stopped,” she said. “He’s skillful, you know? I feel like an idiot.”

Several other elderly investors were similarly defrauded, Katz said.

The indictment also charges Cullen and Borrowdale with defrauding other investors in non-existent gold krugerrands and gold Canadian maple leaf coins.

Cullen is also accused in a later scheme involving NET Inc. of Malibu, in which he allegedly marketed exclusive distributorships for medical gadgetry to a variety of people within the same state--apparently without the knowledge of top NET officials.

The racketeering charge allows federal authorities to seize assets belonging to Cullen and Borrowdale, including the Ferrari and various bank accounts, Katz said. Investors can then seek court orders for restitution out of the assets, he said.

“The regular fraud statutes allow substantial fines and restitution, but a lot of times there are difficulties in getting the money, and you have to pierce various smoke screens,” Katz said.

The racketeering charge carries a maximum sentence of 20 years in prison, contrasted with the five years’ imprisonment the two defendants face on the fraud counts.

Cullen was arrested Tuesday and ordered held without bail pending a hearing today before U.S. Magistrate George King. Borrowdale remains a fugitive.