5 Seized in Raids on ‘Boiler Rooms’
Nearly a dozen California “boiler-room” investment operations, suspected of fleecing victims nationwide out of more than $50 million, have been raided in what authorities Thursday called the nation’s biggest multi-state telemarketing crackdown.
Five fraud suspects were arrested in the sweep, which lasted nine days. Securities agents from seven states said they have gathered more than a ton of evidence so far in the investigation.
The firms are suspected of swindling an estimated 10,000 victims in 50 states by soliciting investments in bogus precious metals and oil and gas schemes, said G.W. McDonald, chief of enforcement for the California Department of Corporations. Most of the boiler rooms raided were in Los Angeles and Orange counties.
Those arrested in the sweeps face a variety of charges, including grand theft, securities fraud, commodities fraud, unlicensed activity and violations of the California telemarketing registration law, McDonald said. Six others were arrested on charges of drug possession or on outstanding warrants.
The allegations were made at a Los Angeles press conference attended by more than a dozen law enforcement officials, including representatives from the Los Angeles and Orange County district attorney’s offices and securities officials from several states.
Salesmen for the companies used slick spiels and high-pressure telephone tactics to sweet-talk their way into their victims’ bank accounts, McDonald said.
Said one unlucky investor who cooperated with authorities: “You just get caught up in it. It snowballs. The kind of money (I lost) hurts very much. There’s a lot of things I can’t do any more.”
The victims--mostly middle-income, retired workers with scant investment experience--lost nest eggs ranging from $1,000 to as much as $600,000 each, officials said.
The Southern California Fraud Task Force estimates that telemarketers dialing out of the Southland defraud investors nationwide out of $3 billion to $4 billion annually, giving Los Angeles and Orange counties “the unchallenged reputation as the investment scam capital and ‘Cote de Fraud’ of the entire United States,” McDonald said.
More than 100 other California boiler rooms are under scrutiny in the ongoing investigation, said Doug Mays, Kansas securities commissioner and chairman of enforcement for the North American Securities Administrators Assn.
The raids were coordinated under a recently expanded federal program called the Leviticus Project, named after the third book of the Bible, in which it is stated, “Thou shalt not defraud thy neighbor.”
The project offers information and grants--in this case $175,000--to boiler-room bashers in 20 states. California joined the project last September and immediately began the seven-month investigation that led to the raids.
Starting on April 11, securities agents--as many as 30 at a time--from California, Texas, Kansas, Missouri, Oklahoma, Georgia and New Mexico served search and arrest warrants at 12 homes and businesses. They carted away 140 boxes of boiler-room records and evidence that now must be analyzed to form the basis of criminal charges in the seven states.
Nine of the sites raided were involved in fraudulent oil and gas lease schemes, Department of Corporations officials said. For example, salesmen at Cambridge Energy Ltd. in Century City allegedly told investors that if they kept their money in the company’s energy program for 12 years, their investments would yield a sevenfold return.
Others were told that the opportunity posed little or no risk to the principal invested, which was guaranteed to increase 17% in the first year, according to Scott Stapf, spokesman for the North American Securities Administrators Assn. In reality, one woman who invested $25,000 reported that she received $44 in income payments, Stapf said.
The remainder of the sites raided allegedly were involved in so-called “gold-in-the-ground” schemes, the current fraud of choice among precious metals swindlers.
Frontier Energy of Santa Ana and Carson City, Nev., which was also raided during the sweep, allegedly sold $7.2 million in unmined gold interests to 400 investors in 41 states and two foreign countries.
Title to Dirt
In gold-in-the-ground schemes, swindlers use official-looking mineral assay tests to persuade investors that 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, say, 100 tons of unprocessed dirt.
The con men then tell the investors that the gold found in the dirt will be sold to them at as low as one-third of the world spot market price. In reality, there is usually no mine, no ore, no gold.
The Leviticus Project officially began operating in 1980, with funding from the Department of Justice. But it was born in the Appalachian coal fields in 1977, when regulatory and law enforcement agents from New York and six coal-area states got together to battle criminal activity in the coal fields.
Its jurisdiction was broadened in 1985 to include oil and gas fraud. Precious metals fraud, a Southern California specialty, was added last June. Three months later, the California Department of Corporations joined up, embarking on the seven-month investigation that led to the past week’s arrests.
Through Leviticus, investigating agencies are reimbursed for such costs as hiring expert witnesses and transporting victims and investigators from state to state to prosecute perpetrators of fraud.
“What we’ve always needed (to fight telemarketing fraud) is more resources,” said David Katz, assistant U.S. attorney and head of the Southern California Fraud Task Force. “Precious metals is the big game here. With Leviticus money available to us now, we’re really going to kick some behind.”
Other sites raided were: Midwest Petroleum of Los Angeles; S&S; Petroleum, Lake Arrowhead; Vulcan Mining and Development, also known as Esmeralda Mining, Escondido; Vulcan’s Georgetown, Calif., mine site; Westar International, Thousand Oaks; Capital International Trading, Santa Ana; Oxford Oil and Gas, Century City; W. Scott and Associates, Carlsbad, and W. Scott’s Carlsbad home.
The fraud suspects, all of whom were released on bail, were identified as: Steve Scott Moleski, 29, of Lake Arrowhead; Todd Thomas Roberts, 28, Woodland Hills; two officials with S&S; Petroleum; Vulcan Mining’s marketing director, John Treat Zimmerman, about 35, Escondido; Richard Bensacon, 53, Corona, a supervisor for the Karrington Group, which was not raided, and Hiromichi Hiro Hirahara, 37, Laguna Hills, vice president of the defunct West Cumberland Oil & Gas.
William Graysen, attorney for Midwest Petroleum, said the firm is a legitimate business that sells working interests in four Oklahoma oil wells--three that have struck oil and one that is paying dividends.
“What they (authorities) will find out is that we have a legitimate business,” Graysen said. “I don’t know what these other people have been doing, but I know my client is honest. It usually happens when they make a sweep that they catch the good and the bad, the black, the white and the gray.”