MY FAVORITE FRAUDS

“Vanity, vanity, all is vanity…and there is no new thing under the sun.” While Ecclesiates never read the King James Version of the Bible, his observation is certainly true about natural resources frauds. In 21 years as a geologist for the Securities and Exchange Commission and subsequently as a consultant, I kept seeing the same types of cases arising again and again. Even the same properties are recycled from one fraud to the next. Fraud, in the words of the SEC's Rule 10b-5, is, among other things, “to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading.” Or more simply, fraud is theft by lying. An oil and gas case provides an example of the omission of material information. The statement that “the well's initial production is estimated to be 500 bbl per day” when not immediately accompanied by the statement that production declines with time and an estimate of the decline rate has omitted material information about the well's production. The use of secret processes to recover precious metals is a common mining scam. The promoter's must keep these processes secret or they will be stolen by the mining industry. Americans love rooting for the underdog. Using one such “secret process,” the US nickel coin assays Pt: 11.5 oz/ton (opt), Pd: 5.63 opt, and Ir: 5,314 opt. “Dirt pile” cases are common scams in which the investor is offered a specified quantity of “ore” that is guaranteed to contain a minimum amount of valuable minerals. The investor can mine and process his own pile, or this can be done by an “independent” contractor. The purported tax advantage of mineral development is touted as part of the scheme. The Glory Hole or “Patch” property west of Central City, CO is has figured in several cases I've encountered over the years. Mormon Mesa, near Overton, NV, the cinders at the San Francisco Peaks, AZ, and the dry lakebeds of Nevada are other repeatedly touted properties. My favorite example of “pulling a rabbit out of a hat” trick was being able to demonstrate that a scam promoter had not improved a road five years previously. Air photos, a field check, and an alder trunk's growth rings proved that the road had not been improved for many years.