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Another Day, Another Oil & Gas Scam…

In rereading a news release issued by the United States Attorney for the Eastern District of Kentucky, I was struck again by how much money is taken in by oil and gas scam artists. The news release recounted that a California man named John G. Westine, Jr. was convicted of 26 counts of mail fraud and a count each of conspiracy to launder funds and securities fraud.

This scam had all the usual hallmarks of a fraud. First, he targeted people in a state other than where he resided. This makes it harder for defrauded investors to track him down. Secondly, he guaranteed returns to his investors. Nobody in the oil and gas industry who is legitimate will ever guarantee returns. Third, Westine created a number of bogus oil companies who “owned” a number of producing oil wells. He offered people shares in these oil wells and guaranteed royalties to the investors. He scammed 200 people out of more than $3 million!

Of course, the investors funds didn’t go to purchase shares in oil wells. Instead, Westine and his half-brother were living the high life in California. The U.S. Postal Inspectors, who initiated the investigation into this scam, seized four of his vehicles in the Los Angeles area. One was a Mercedes Benz and the other three were Bentleys.

The supreme irony is that Westine was actually on probation from another federal conviction for the same kind of scam in the 1990s. In February 2016, Westine was sentenced to 40 years in federal prison. He was also ordered to pay over $3 million in restitution. It is doubtful that any of the restitution will ever be paid.

This is a tragedy for the investors, but they could have avoided this outcome. First, a simple public records search probably would have shown Westine’s prior federal conviction for fraud. Secondly, the investors could have sought the assistance of an oil and gas attorney, who would have seen through the “guaranteed royalties” promise immediately. Thirdly, an experienced oil and gas attorney would have done  simple due diligence research on this guy and discovered not only the prior federal conviction, but also, the fact that the oil companies and the oil wells were all bogus.

While I have not done any scientific research, my impression is that these scams occur more often when the economy is struggling. People see poor returns from their investments and so are attracted to the “guaranteed” high returns offered by the scam artists. I’m glad to see Westine put behind bars where he belongs, but for every con man that is caught, there are many more out there trying to get your money.