Oil Scams: Beware the Friendly Phone Voice

For as long as there has been oil in Orange County, there have been oil scams.

Back in the 1920s, con artists operated “sucker” buses, hauling willing investors down from Los Angeles for a free fried chicken dinner and a look at a phony oil well.

Today’s version of the sucker bus, no doubt, is the telemarketing scam. Smooth-talking salesman contact unsophisticated investors by telephone and pressure them to invest significant sums in drilling deals by promising big returns and minimal risk.

“What cocaine is to Colombia, that’s what boiler-room operations are to Newport Beach,” said M. Douglas Mays, securities commissioner for the state of Kansas.

Mays launched a recent investigation into Transamerica, a former Newport Beach oil and gas operation, after the company unwittingly called Mays at home with a bogus investment pitch. Transamerica was one of three oil and gas telemarketing operations in Orange County shut down last month in a sweep orchestrated by securities regulators from five states.

Kathryn Holguin, an investigator with the California Department of Corporations, said that 20 new cases have been called to the department’s attention by disgruntled investors since Transamerica was shut down, and the agency is aware of at least 50 other alleged oil and gas scams.

According to regulatory officials and successful investors, avoiding such scams doesn’t take much more than common sense.

“Rule No. 1 is that you should never do business with people you have never heard of who call from companies you’ve never heard of that are located in another state,” Mays said.

“Rule No. 2 is that if it sounds too good to be true, than it is. Investors should be particularly cautious of anyone who offers guaranteed profits.”

Legitimate public oil and gas funds that solicit money from more than 35 people must register with both the Securities and Exchange Commission and the California Department of Corporations. Anyone who has been solicited by telephone to invest in oil and gas ventures should demand a prospectus and have a lawyer take a good look at it before proceeding, authorities said.

Even if it appears that a drilling deal is legitimate, it would be a good idea to spend $1,500 to $2,000 on an outside investigation by a registered geologist, according to Richard Sparling of the Independent Petroleum Assn. of America.

“You’ve got to know who you are dealing with,” said Thomas Hunt, spokesman for the Independent Petroleum Assn. of California.

“There are plenty of dishonest oilmen out there.”