Reach Out and Bilk Someone

By Charles P. Alexander

Prosecutors say telephone oil-lease pitchmen swindled 66,000

The earnest voice on the telephone described the offer as a sure thing. By sending $8,784 to the U.S. Oil and Gas Corp. in Coral Gables, Fla., the customer would be guaranteed--in writing--to win a lease worth $25,000 for the oil and gas rights on a parcel of U.S. Government land. Between September 1982 and June 1983, some 66,000 people drew down savings and took out loans to send the company money.

According to the U.S. Attorney's office in Miami, the customers were caught in an elaborate telephone trap designed to lure the greedy and the gullible. Of the 66,000, only 60 people got leases, making the "sure thing" a one-in-a-thousand shot. John Aboudara, a San Francisco engineer, and his wife Susan were victims. Says Susan: "We have two young kids, and that money could have been spent much better than giving it to someone we didn't know. It hurts to be dumb."

A grand jury has indicted 24 people connected with U.S. Oil and Gas, including Gurdon Wolfson, the company's owner and president, and Larry Waxman, its executive director, for fraud and conspiracy. All pleaded not guilty; if convicted, they face possible fines of $10,000 and three years in prison. In addition, Federal District Judge William Hoeveler, acting on a civil suit filed by the Federal Trade Commission, last week issued an injunction to prevent U.S. Oil and Gas from continuing its fraudulent sales. He froze the company's assets and in effect put it out of business. Said the judge: "The profit to the company was enormous, and the chance for reward to customers was almost nonexistent."

Testimony by former employees of U.S. Oil and Gas provided a fascinating, behind-the-scenes glimpse of what law enforcement officials call a "boiler room" operation. Such telephone-sales scams are springing up in South Florida faster than authorities can shut them down. Testified James Bennett, a U.S. Oil and Gas salesman who quit because his conscience bothered him: "These were crass people. They'd sell their own mother. And if their mother was already sold, they'd go out and buy another mother and sell her at a profit."

The scheme revolved around the lotteries that the U.S. Bureau of Land Management holds every two months for oil and gas leases on about 1,200 tracts of Western land. This terrain is not the Government's most valuable property. Says Kathy Cooney, a Bureau of Land Management official in Wyoming, where most of the federal land is located: "About 98% of this land has been leased before, and no oil or gas was found."

U.S. Oil and Gas told customers that for $8,784 they could buy chances to get leases on 48 different parcels of land, competing against only six to eight people per tract. None of those other six or eight, the telephone salesmen promised, would be clients of U.S. Oil and Gas. In reality, 1,000 people or more were pitted against one another in the lotteries for most tracts, and in at least one case, two-thirds of the competitors were clients of U.S. Oil and Gas. Of each $8,784 investment that the company took in, $3,600 was used for Government filing fees, $1,600 was the salesman's commission, and the remaining $3,584 went to U.S. Oil and Gas.

The Bureau of Land Management announced last week that it would suspend the lotteries for six weeks to correct abuses. Said Democratic Senator Dale Bumpers of Arkansas, who is sponsoring a bill to abolish the lottery system: "The moratorium is a move in the right direction, but it is not enough. The lottery system lends itself to fraud."

Ironically, U.S. Oil and Gas was backed by the Better Business Bureau of South Florida. But the U.S. Attorney's office alleges that the endorsement was part of the scheme. Henry Harris, president of the South Florida B.B.B., was indicted for taking bribes from U.S. Oil and Gas to "eliminate or alter" telltale information about the company in his files. Said the indictment: "Harris suppressed a listing of complaints and a history of numerous federal and state judicial 'cease and desist orders.' " Harris, who pleaded not guilty, was fired last week by the directors of the South Florida B.B.B.

U.S. Oil and Gas operated out of a large dingy room on the second floor of a Coral Gables office building. Seated in two dozen Plexiglas cubicles, salesmen called people all over the U.S. and made their pitches from prepared scripts. If they were not persuasive enough, supervisors listening in on the calls would interrupt and try to nail down the sale. Salesmen told customers that the company's pool of trained geologists--"considered the Rolls-Royce of our industry"--would select the land most likely to have oil and gas. In fact, the company spent only $1,052 a month for geological services. Mark Douglas, a former U.S. Oil and Gas employee, testified that he earned $500,000 in commissions by using several different sales ploys, one of which he called the "Reagan pitch." He told potential customers that his company had contributed $1 million in cash to the Reagan Administration in return for the Government's rigging 10% of its lotteries for oil and gas leases.

Former Salesman Bennett described his colleagues as a "collection of sleaze bags--cigar chomping, foul smelling. They were physically so unattractive they had to work by telephone. No one would have even opened the door to them face to face." Bennett recalled the first sale he made: "It was a Kentucky family that was going to cash in its insurance to make the payment. We tried to stay away from the sophisticated Northeast. We were targeting people who could never afford to recover the loss, and this family was just the type we wanted." After he had made three sales, Bennett said, "something just clicked. I thought there must be a better way to make money than just to take it from people. So I called all three families back and told them not to send their money." He resigned the following day.

Hundreds of similar operations still flourish in the Miami area, known for being the "boiler-room capital of the world." Says Norris Penland, a U.S. postal inspector: "Besides the oil-lease scam, we have insurance, precious metals, banking and even ballpoint pen rip-offs." Yet the police are understandably more concerned about Miami's high rate of murder, robbery and drug smuggling. Complains Robert Kalin of the Miami consumer protection office: "There is so much felonious crime here that the authorities have no time to deal with many white-collar crimes."

With reporting by Joseph McQuay This file is automatically generated by a robot program, so viewer discretion is required.