Rapidly rising oil prices have spawned a new breed of commodity confidence men who are being investigated by the Commodity Futures Trading Commission and authorities in at least three states.
Sometimes claiming to have a direct pipeline to the Organization of Petroleum Exporting Countries, the oil swindlers are promising customers they can order oil now -- before prices go up -- and make huge profits when the oil is delivered six months later.
But oil prices will have to jump another $8 a barrel just to pay the commissions charged on the sales, say investigators.
And oil that the firms are selling, "may or may not exist," New York State Attorney General Robert Abrams warned yesterday in a lawsuit filed against 9 companies and 17 individuals.
The New York case is the biggest development so far in an investigation that also involves federal authorities as well as the states of Massachusetts and Florida.
Targets of the probes include persons previously involved in schemes to sell phony gold and silver investments. Some of them, authorities say, were linked to the Lloyd Carr & Co. case two years ago in which investors were bilked out of millions of dollars in a gold investment scheme that has become known as the biggest commodity fraud ever.
"The same people keep popping up out of the swamps," said Michael Unger, who heads an investigation by the Massachusetts Secretary of State's office. w
Two months ago, Massachusetts filed the first known complaint involving oil investment deals and is investigating some of the same companies named in yesterday's New York state complaint.
A New York court yesterday issued a temporary restraining order freezing the assets of the nine companies named in the complaint and effectively halting their operations. New York officials said one of the companies alone had taken in more than $700,000 in the last two months.
The New York complaint said oil investment sellers often used names similar to those of prominent oil business entities. One was Ramco Petroleum, similar in sound to Aramco, the consortium of oil companies in the Middle East.
Also named in the New York case were American Petroleum Exchange, Bartex Petroleum, Eastern States Petroleum Exchange, International Petroleum Exchange, Pan Eastern Petroleum Exchange, Universal Petroleum, United States Petroleum Exchange and Commercial Petrolera International, a company based in Panama.
None of the firms using the name "exchange" is a registered commodity exchange with legal authority to sell futures contracts, CFTC officials said. The federal agency contends the oil futures contracts, which can be traded only on exchanges, or commodity options, which are illegal under federal law. State authorities are prosecuting cases under consumer fraud laws and securities regulations.
State and federal authorities said they have found several companies using a similar telephone sales pitch to sell investments in home heating oil.
For a fee of $6,000 to $7,000 the investor gets the right to future delivery of 1,000 barrels of oil, usually at the current market price. If the price of oil increases by $6 to $7 a barrel before delivery, the customer profits.
Many of the sellers also charge a fee for reselling the oil for the customer, adding $1,200 to $1,400 to the fee and requiring an $8-a-barrel increase just to break even.
In contrast, a heating oil futures contract on the New York Mercantile Exchange -- the only place such contracts are sold legally -- requires a $1,500 down payment from the investor.
Investigators said the full extent of the oil frauds is not known because the firms have been in business only two or three months and, in most cases, have promised to deliver oil after six months.
"When people start asking for their oil, we'll know how big this is," said one New York official.