A court-appointed receiver for Mustang Development Co. accused former operators of the oil and gas investment firm of running "at minimum" a Ponzi scheme that cannot account for up to $85 million in investor money.
The Beverly Hills company, part of a group of oil and gas firms that federal authorities are investigating, has only about $2 million worth of oil and gas interests remaining, according to the receiver, Richard Marshack of Santa Ana.
About 6,000 small investors--mainly elderly Southern Californians--invested a total of $139 million to $150 million in 65 partnerships, according to the receiver.
The report, filed in U.S. District Court in Los Angeles, can't account for up to $85 million of the money, said Costa Mesa lawyer Theodor C. Albert, who filed a class action last month for investors.
The report, the first one filed since the receiver was appointed three weeks ago, contends that Mustang's owner, Neal Stein, and others used funds from new investors to pay off earlier clients in a classic Ponzi scheme.
But the report is "extremely incomplete," said Richard Green, the lawyer for Mustang and its owner, Neal Stein. Green pointed out that by Marshack's own admission in the report, the receiver couldn't gain access to more than 800 boxes of records--including Stein's checkbooks and other personal records--that authorities seized.
"The conclusion about a Ponzi scheme went above and beyond his charge as a receiver," Green said. "I'm not saying there was or there wasn't one. I'm saying the receiver didn't have a great deal of information, and his conclusion is a bit of an abuse of discretion."
Albert said that Stein and his criminal defense attorney, Terry Bird of Los Angeles, have blocked the receiver's access to the records thus far. Bird could not be reached for comment Wednesday.
Stein and Mustang have not yet been served with the investors' class-action lawsuit. Albert said Stein has avoided service by remaining behind the walls of his Malibu beach community.
The lawsuit accuses Mustang, Stein and others of swindling investors out of millions of dollars through fraud, conspiracy and racketeering. It asserts that Stein and his top aides siphoned investment money to support lavish lifestyles and of operating a Ponzi scheme.
The lawsuit also links Mustang to the operation of two Beverly Hills companies that federal authorities raided just before Christmas. The Securities and Exchange Commission is suing those firms, KS Resources and Lazar, Frederick & Co., to recoup $35 million allegedly taken from investors in a similar Ponzi scheme. Both of those firms have denied any wrongdoing.
"When all the records are looked at and the dust settles, Stein will have less culpability than is being alleged now," Green said.
Fraudulent investment scams, especially those involving oil and gas leases, have been on the rise in Southern California in recent years, said SEC officials in Los Angeles.
The schemes prey on the elderly in affluent areas such as Woodland Hills, Sherman Oaks and the Leisure World retirement community in Laguna Hills.