5 Accused of Running Precious Metals ‘Boiler Room’ in Irvine

A federal grand jury in Los Angeles Tuesday indicted five executives of an Irvine investment concern called Capital Trust Inc. on suspicion of bilking investors out of more than $11 million in a precious metals “boiler room” scam.

In a process they called “churn and burn,” the five generated commissions by urging customers to switch investments frequently “with no regard to whether the trades were in the clients’ best interests,” the indictment said.

The five executives were indicted on 33 counts of fraud and one count of interstate transportation of property obtained by fraud. If convicted, they face a maximum sentence of five years in prison and a $250,000 fine for each of the 33 counts of fraud.

The five are: Richard O. Kelly Sr., 55, of Munford, Ala.; James Herbert Harvey Jr., 45, Woodland; Randle William Villa, 34, Costa Mesa; Alexander D. McCord, 45, Laguna Beach, and Dorthea Tomczyk, 45, Fountain Valley.

The indictments came after what prosecutors said was a lengthy investigation against Capital Trust and related entities by a task force that included the Newport Beach Police Department, the U.S. Postal Inspection Service, the Internal Revenue Service and the Orange County district attorney’s office.

The task force was formed to combat boiler rooms--phony investment firms which do most of their business by phone--in Southern California and particularly in Orange County, which law enforcement officials say has attracted more such operations than any place else in the country.

The Capital Trust case involves promises made from 1984 to 1987 to investors that the company would buy and sell contracts for them on the futures markets. Instead, the indictment said, Kelly and Harvey diverted the funds to other companies in which they had interests. Kelly was president and chairman of Capital Trust; Harvey was vice president and a director.

Villa, McCord and Tomczyk were account executives who, the indictment alleges, used high-pressure sales tactics on unsophisticated investors. In fact, the indictment said, the account executives knew little about precious metals and read their presentations to customers over the phone using written sales pitches.

Capital Trust advertised in reputable publications such as the Los Angeles Times, the New York Times and the Wall Street Journal.

Once the firm had a customer, the indictment alleged, the five executives would “lull and deceive” by sending him or her phony transaction statements and profit-and-loss statements. When a client “lost” money in the futures market, the indictment charged, Capital Trust would require more cash to keep the customer’s account open.

When a client wanted out, the operators told him that his cash was tied up in investments; or the company was caught temporarily short of cash; or that his account executive was out of town, or that his check was in the mail, the indictment said.

Capital Trust, which operated out of offices on Rockfield Boulevard in Irvine, later informed its clients that it had become Capital Coin and Bullion Inc., which operated out of offices on San Miguel Road in Newport Beach.

The companies filed for bankruptcy in 1986, although the account executives continued to sell, telling customers that their investments were protected by the bankruptcy court, according to the indictment.

Tomczyk was in custody Tuesday night, and officers were trying to arrest the others.

In addition to the 34 counts, McCord was charged in a separate indictment with filing false income tax returns.