Investment Scams Using
Precious Metals and Oil & Gas Exploration
Looks Good - Sounds Good
S & H Oil and Gas Exploration took $130 million from 700 investors
with an investment in oil wells that didn't even exist. The owner
didn't advertise or distribute prospectuses, but word got around
that it was an exclusive club that produced 60% returns. Soon he
couldn't keep people away.
Using lingo he picked up during a summer job he would show detailed
maps of geological formations to explain the assets and potential
for growth. His local bank loaned millions of dollars to investors
for their participation.
When the bank or investors needed reassurances, he would simply
produce boxes of documents "proving" the reserves. He bribed
workers at actual drilling sites, belonging to other companies, to
greet him as the owner on investigative visits. He would make over-flights
of oil field operations by helicopter with mapped diversions to different
areas pointing out "his" wells to those aboard.
He eventually brought in so much money that he could buy a few active
drilling facilities, but they never produced oil in the record amounts
he boasted. When it finally caught up to him he swore his innocence
and promised reimbursement, to 'his good and trusting friends",
once the misunderstanding was cleared up.
The Gold and Y2K Bugs 
You are phoned and are offered an opportunity to buy unregistered
stock in Selket Precious Metals, Inc. They say that they are seeking
to raise $1,375,000, to finance equipment necessary to bring the
Herculean Mine into commercial operation. They require a $10,000
minimum stock purchase per investor.
They tout investments in Selket by claiming that the opportunity
offers low risk and high returns in a short time. They base this
claim, in part, on the anticipated increase in demand for tangible
assets resulting from fears about the impending disaster and financial
collapse that the Y2K computer bug would allegedly cause on January
1, 2000.
Illustrative of the their claims about the profitability and low
risk of an investment in their mining ventures and gold certificates
are the following written and oral claims:
(a) "Gold and Silver is being bought in record amounts. The
reason is the worrisome subject of the 'Y2K computer bug.' It matters
little whether it is going to be catastrophic or comparatively mild,
the price of gold and silver is going to climb at an exponential
rate as we approach the year 2000 because of peoples' fear of a calamity!"
(b) "We have made a conservative evaluation of the precious
metals content of the ore reserves available to us and have determined
that the total amount to be gained, before taxes, is $200,000,000.
This is the amount on which our company stock evaluation is made."
(c) "The gold is there and processing equipment is available
and it would take only about two months to start pouring out gold.
. . and you can't beat that."
(d) "Our weekly production schedule should yield about 334
Troy ounces of gold. At $300 per ounce this is about $100,000 per
week or $400,000 per month. Part of this will be expenses but the
net should be quite impressive."
The promoters also sell "gold certificates" ( redeemable
for gold obtained from the Herculean Mine ) to people across the
country over the Internet, via a web site, and through written promotional
materials and telephone sales presentations.
"WARNING Read the enclosed
file concerning the millennium bug. The only defense you have is
to have something that is spendable like gold, silver, gold certificates,
tradable merchandise or human labor. There will be a tremendous
rise in armed robbery, looting, food raids and many other types
of 'survival crimes'. When people get hungry, ethics, morality
and sportsmanship go out the window."
"These certificates are just like money . . . they cannot
be stolen or confiscated as gold could be. If this happens we will
cancel the ones which were stolen or confiscated and they become
worthless. They can be redeemed for real gold at your discretion.
These certificates are in effect REAL MONEY."
"NOW FOR THE GOOD PART! . . .We will give as a bonus an
amount of gold equal to the amount of your original purchase!!
That is a 100% gain! That is exactly what every broker and venture
capitalist that I approached wanted! I would much rather give it
to you, my friends and customers than I would to them!"
In fact, it turns out that an investment in Selket or its gold certificates
is not likely to yield a substantial short term return with minimal
risk as the Herculean mine will not be fully operational within a
few months and is unlikely to profitably produce at least 300 troy
ounces of gold per week at any foreseeable time in the future, if
ever.
A "Toto" Loss
In search of investments for working capital, an oil company sends
you surveys of a property that suggests their land is oil-rich so,
as to get you to invest in oil wells in western Kansas — the OZ and
Dorothy Projects.
The company's sales rep
tells you that top oil experts project the fields will yield thousands
of barrels of oil a day and a tidy return to investors within a year.
They state an investment
in the Kansas venture is risk-free because you will receive all of
your principal investment plus 50 percent even if the wells do not
produce oil because of an agreement they have with the Threadneedle
Trust Company, a British firm.
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"A
lot of oil and gas has been found in an adjacent field
and a tip from a reputable geologist has given us a unique
opportunity to make this venture a success." |
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"We've
hit oil or gas on every other well previously drilled and
a large reputable oil company is planning to operate near
our leased property." |
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"A
decision must be made immediately to invest in order to
assure the purchase of one of the few interests remaining
to be sold. " |
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"The
deal is only available to a few lucky and specially chosen
investors because there is very little risk involved." |
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"I'm
so sure that this oil well "can't miss" that
I've personally invested in the venture myself." |
The oil surveys are fake. The land owned by the company has not
been drilled for oil, and in a legitimate deal, much more capital
is required to determine if oil could be produced from the land
at all. The shell company Threadneedle does not have sufficient
assets to support such a cash-back guarantee and is therefore just
an empty promise of security.
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