Man Accused of Fraud, Theft in Securities Scam

A Costa Mesa man has been arrested and charged with bilking investors by selling worthless securities in a Pennsylvania oil and gas company, Newport Beach police said Tuesday.

David E. Arnold, 38, was arraigned Monday in Harbor Municipal Court in Newport Beach and charged with 25 counts of grand theft, telemarketing fraud, securities fraud and the sale of unregistered securities.

Arnold is accused of running a so-called boiler room operation known as the St. James Financial Group from a small office in Newport Beach, police said. The firm is alleged to have used telephone solicitors to sell an investment known as the PennGas Insured Drilling Program, Police Sgt. Andy Gonis said.

Gonis said Arnold was arrested Friday at his Costa Mesa home. He is being held in Orange County Jail with bail set at $25,000, a court clerk said.

Arnold could not be reached for comment Tuesday.

Thirteen investors allegedly lost a total of $238,000 while St. James Financial was in operation in 1987 and 1988, Gonis said.

The majority of the investments were for $14,000, said Police Detective Doug Parmentier, who investigated the case. He said investors were told that they were buying interests in oil and gas wells in a proven field and that their investment was insured for repayment.

Investors allegedly were told by St. James that the wells were insured by its general partner in Texas, which was doing the actual drilling, Parmentier said. He refused to name the Texas partner, which he said is the subject of a federal investigation.

Parmentier said one St. James customer told him that he decided to invest because of potential tax writeoffs and because the program seemed to be of minimal risk.

Some of the investors received occasional checks for $100 to reassure them of their investment, Parmentier said.

In late 1987, Newport Beach police began receiving phone calls from worried investors who said they couldn’t reach St. James Financial, Parmentier said. The company closed in the spring of 1988, he said, and police began an investigation in June, 1988.

The company, which was incorporated in the U.S. Virgin Islands, had been open for business for less than two years, Parmentier said. He said he does not know why it closed.

Testifying in hearings before Congress last week, law enforcement officials called Southern California, especially Orange County, the “boiler room fraud capital” of the United States.