SEC Files Civil Fraud Suit Against Defunct Oil Firm

The Securities and Exchange Commission on Thursday threw its weight behind the prosecution of defunct oil-and-gas partnership marketer Mustang Development Corp., alleging massive fraud by the Beverly Hills-based company and its principals.

In a civil suit filed in federal court in Los Angeles, the SEC charged that Mustang, Tower Operating Co. and their principals, Neal B. Stein, Cary S. Greene and Samuel Embras Jr., defrauded thousands of elderly investors in raising $139 million via partnership sales between December 1987 and March 1995.

The SEC termed Mustang “a massive Ponzi scheme.”

A class-action suit was brought against Mustang and Stein a year ago, alleging that the principals illegally used investors’ funds to support lavish lifestyles and kept the scheme going by paying interest to early investors with later investors’ funds.

The SEC’s involvement may help the 9,000 class-action plaintiffs seeking to recover their investments from Mustang. Richard Marshack, court-appointed receiver for Mustang, said 120 brokers who sold the partnership units through now-defunct Fortress Securities and Columbus Financial--both of which had ties to Stein--also are named in the class-action suit.

But whether investors will get much, if anything, back remains uncertain. Marshack said he has so far identified less than $2 million worth of actual oil and gas leases among Mustang’s assets.

Stein, 39, pleaded guilty to criminal charges of securities fraud and tax evasion Dec. 16. Mustang’s geologist, 40-year-old Embras, who allegedly phonied-up oil and gas production reports to abet the scheme, also pleaded guilty to criminal fraud charges.

In the SEC’s case, both men have agreed to permanent injunctions enjoining them from violating securities laws. But the SEC’s suit to force Stein to disgorge assets and pay civil penalties still is pending. The SEC’s entire action against Greene, 36, still is pending.

The principals and their attorneys could not be reached Thursday.