2 Beverly Hills Firms Raided in Investment Fraud Probe : Finance: FBI agents cart off records and computers in alleged $38-million scheme that targeted elderly people.
Dozens of FBI agents raided a pair of Beverly Hills offices Wednesday, carting off financial records and computers from companies alleged to have been running a fraudulent $38-million investment scheme that tapped 2,083 unsuspecting investors--most of them elderly people.
After months of investigation, federal agents descended on the Beverly Hills offices of KS Resources and Lazar Frederick and Co. about 8 a.m. By midmorning, FBI agents were loading up dollies with seized materials. A few feet away, Christmas shoppers rushed by, their arms loaded with packages as they made their way along Rodeo Drive.
There were no arrests. Assistant U.S. Atty. Barbara Schepper said authorities would scrutinize the seized material before deciding what to do next. The phones at KS Resources went unanswered Wednesday afternoon. Irving Einhorn, the lawyer for Lazar Frederick and its president, Betty Rubin, said his client had done nothing wrong and merely acted as a broker for KS Resources.
Although Schepper declined to comment on some of the specifics of the allegations regarding the two Beverly Hills firms, she said many groups hawking fraudulent investments target older people.
“They do it because they are more vulnerable,” she said, adding that older people also generally have more money to spend and thus make more attractive targets for perpetrators of fraudulent schemes.
According to a copy of the affidavit used to secure the search warrants served Wednesday, Lazar Frederick and Co., a Beverly Hills registered broker, has raised nearly $38 million by selling limited partnerships in KS Resources, described as a gas and oil well acquisition company. But federal agents concluded that the investments were solicited under false pretenses and that new investors were aggressively sought out so that their money could be used to pay off other clients.
The average age of the investors, according to the affidavit, was 70.
“Based upon the facts . . . and on my experience and expertise, I have concluded that there is probable cause to believe that KS and Lazar are operating a Ponzi scheme,” FBI Special Agent Robert Ellis said in the affidavit, referring to a type of scheme in which new investors are recruited to pay debts owed to earlier investors.
“KS and Lazar,” the affidavit added, “have induced individuals to invest in KS limited partnerships by fraudulently representing, among other things, that 51% of the investment funds would be used to acquire oil and gas properties and/or pay expenses associated with drilling for oil and gas when, in fact, very little if any of the money was actually used in this manner.”
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The affidavit also accuses two principals of another firm of misrepresenting their credentials in official literature of the companies, overlooking past securities violations that resulted in fines and other penalties.
Mark D. Seigel is the former owner of KS Resources, and is now a consultant to the firm. He also is vice president and director of Weststar, an affiliated company. According to the affidavit, Seigel’s company biography “emphasizes his family’s involvement in the oil and gas industries since the 1920s, his current involvement in wholesale and retail sales of oil and gas, and his membership in numerous oil and gas associations. This biography does not disclose [Mark] Seigel’s 1986 consent to an injunction and administrative bar . . . for violating the anti-fraud provisions of the securities laws.”
Seigel’s lawyer was not immediately available for comment.
Einhorn said his client “was just devastated this morning.”
The lawyer stressed that Lazar Frederick’s role was merely to sell investments in KS Resources.
“It’s always been represented to us that these funds were going for oil and gas investments,” he said. “We believed that they had integrity, and I’m not going to be judge and jury, but it’s certainly not real comfortable today.”
Einhorn said Lazar Frederick sold investments in a number of firms but that its principal product was the one offered by KS Resources. Einhorn emphasized that although authorities had frozen the assets of KS Resources, they had not taken a similar step with respect to Lazar Frederick--evidence, he said, that officials were treating the two firms differently in their probe.
Schepper said authorities had reason to believe that some of Lazar Frederick’s business was aboveboard and that not all its investments were suspect.
