Investigator Found Swarms of Con Men Operating in County

California can thank John B. Hiatt, director of the New Mexico’s state Securities Division, for pushing precious metals into the Leviticus Project fold and giving the Golden State another weapon with which to fight fraud.

Around 1987, Hiatt began noticing so-called “gold-in-the-ground” schemes popping up in his home state. In gold-in-the-ground operations, also known as dirt-pile schemes, swindlers use official-looking mineral assay tests to convince investors that the ore they have laid claim to contains guaranteed levels of gold.

For an initial investment of about $5,000, investors are told they hold title to 100 tons of unprocessed dirt. The con men then tell the investors that the gold found in that dirt will be sold to them at as low as one-third of the world spot market price. In reality, there is no mine, no ore, no gold.

Investor complaints and a serious warning from New Mexico’s state geologist about the abundance of gold-mine fraud led Hiatt to talk to colleagues in other Western mining states, California chief among them. Hiatt got a $32,000, 18-month grant from the North American Securities Administrators Assn. and went to work on Operation Goldbrick.

“I thought there were four to six (gold mine schemes) in New Mexico and perhaps another eight to 10 in neighboring states for a total of 15 to 20,” Hiatt said. “There are currently 80 to 100. . . . The promoters operating the boiler rooms are primarily located in California, Orange County, Newport Beach. And they’re calling all over the country.”

Among the con men unearthed in Operation Goldbrick was Gordon MacManus, a persistent man from Casper, Wyo. MacManus was sentenced in 1987 to 2 1/2 years in a Wyoming prison after pleading guilty to bilking at least 40 persons out of $6,250 each for worthless dirt from an inactive mine.

According to NAASA officials, MacManus was moved to solitary confinement in the state penitentiary last fall, after he was accused of promoting yet another gold-in-the-ground scheme--this time from inside prison walls.

NAASA figures that in 1988, tens of thousands of American investors lost an estimated $250 million to gold-in-the-ground schemes alone. That number doesn’t even begin to factor in the other precious metals scams: rare coins, strategic metals, gold and silver futures, bullion.

It was these Western precious metals problems, highlighted by the rapid growth of Operation Goldbrick, that led Leviticus to add precious metals fraud to its list of targets.