WV GEOLOGIST INDICTED FOR ROLE IN ALLEGED SCAM - Ritchie Oil And Gas Production Part Of Deal

(01/05/2009)
W.Va. geologist indicted for role in alleged scam

Ray Garton is one of six charged with defrauding investors for oil, gas shares

by Jake Stump

Daily Mail Capitol Reporter

DAILY MAIL NOW MORNING PAPER

BARRACKVILLE, W.Va.--An established West Virginia geologist is one of six men who have been federally charged with defrauding investors of more than $3 million.

Ray Garton, 58, of Barrackville, was indicted and arraigned in U.S. District Court in Lexington, Ky. after investigators uncovered an alleged scheme that cheated investors who bought shares in oil and gas drilling programs.

Garton is the curator of the West Virginia Geological and Economic Survey Museum in Morgantown. He also operates a company in Barrackville called Mammoth Geophysical, which provides geophysical and scientific services to oil and gas explorers.

Last year, Garton helped craft a legislative resolution that made the Megalonyx jeffersonii the official state fossil of West Virginia.

Garton and the five other suspects, who work for oil and gas companies in Kentucky, have pleaded not guilty.

Each man was charged with one count of conspiracy, 20 counts of mail fraud and two counts of wire fraud.

According to a federal indictment, Garton prepared geological surveys and brochures for Target Oil and Gas, of Albany, Ky., and Kentucky and Indiana Oil and Gas, of Danville, Ky.

Garton did not return phone calls or e-mails from the Daily Mail.

One of the people listed in the indictment as a victim of fraud says Garton showed him and his wife a supposed drilling site in West Virginia in January 2006.

Vincent Guerrieri, of Kensington, Md., said Garton met the couple at the Middletown Mall parking lot in Fairmont and then drove them to an oil well in Ritchie County in which they were investing.

Guerrieri told the Daily Mail that Garton took them to a site that had pipes sticking out of the ground. He said he wasn't sure if it was an actual well or not.

"We got to the well site and he showed me pipes," Guerrieri said. "I didn't know what to expect, anyway. In the old movies, there's oil gushing out of these tall superstructures built out of wood.

"For all I know, that piece of pipe might have went down into the ground six feet and there was nothing underneath."

The indictment states that Garton wrote phony geological surveys for sites selected by the companies. Garton is not a licensed geologist in Kentucky.

Guerrieri, a semi-retired business management consultant, said he invested more than $42,000 into the alleged scheme.

He was first contacted in 2005 by telephone from Christopher Smith, 48, vice president of Target Oil and one of the six indicted men.

"I was originally contacted by a cold call from this one fellow," Guerrieri said. "He was the salesman. At the time, he was touting a gas exploration operation in Ritchie County."

According to the indictment, officials solicited money from private investors to fund drilling projects in West Virginia, Kentucky, Tennessee and Texas beginning in 2003. If drilling struck oil or gas, the investors of those sites would receive royalties.

While the defendants collected $3.1 million in investors' money, they paid out less than $37,882 in royalties to the same investors, the indictment says. The indictment states the companies were not licensed to sell securities.

Guerrieri said he treated Smith's call as legitimate and was sold on his financial promises. He said Smith had "the kind of drawl that made you feel this is the kind of guy who's pulling himself up of a lesser life by his own hard efforts."

Guerrieri said he even checked out the company, Target Oil and Gas, with the West Virginia Attorney General's Office and didn't find complaints against it, so he decided to invest.

By May 2005, he had invested $11,000 in West Virginia wells.

He said Smith called him that December and congratulated him on investing in a successful gas-producing well.

"He was telling me it was one of the best gas wells seen in West Virginia and that I could count on $1,900 a month in royalties," Guerrieri said. "I thought it'd be a nice little pension and pay off my initial investment quickly."

But Guerrieri never received any checks until months later, and they were usually for only $30 or $50.

Guerrieri's wife, in the meantime, was skeptical. She asked her husband, "How do you know there's even an oil well?"

That question led to the couple meeting with Garton, who identified himself to them as an independent geologist who did not benefit from the success of the companies' wells, Guerrieri said.

That was the only time they had met, and Garton gave off a respectable impression, he said.

"Mr. Garton looked and acted just like you would expect a professional to look and act," Guerrieri said. "We've all dealt with people who are suspicious. You go into a used car lot and a dealer says, 'Here's a car that's only been driven to church on Sundays by a little old lady,' and you don't believe that.

Neither Chris Smith nor Ray Garton was like that.

"He was not an independent geologist like he said and was in with the scam," Guerrieri said. "That was a big surprise. He seemed so straightforward and honest."

Guerrieri said that after showing them the well, Garton suggested the couple invest in other sites in the area.

Guerrieri said he figured out he'd been burned when an inspector with the U.S. Postal Service called and quizzed him about Target Oil and Gas in the fall of 2006.

Garton and the other defendants are free on their own recognizance.

A court appearance is scheduled for Feb. 10.

The men face up to 20 years in prison for each count if convicted.

Garton has carved a niche for himself in West Virginia as a geologist and fossil researcher. Since the 1970s, he has discovered and conducted research at fossil sites throughout the country.

He has published two books and is a research associate at the Carnegie Museum of Natural History.

In addition to Garton and Christopher Smith, the others charged are Michael Smith, 53, of Lancaster, Ky., president of Target Oil, controlling interest holder of Kentucky Indiana, and brother of Chris Smith; Shaun Smith, 27, of Cookeville, Tenn., the son of Michael Smith and employee for both companies; Mark Irwin, 26, of Cookeville, Tenn., and Joshua Harris, 23, of Hustonville, Ky., both employees for the companies.

Denny Harton, an independent operator who owns GasSearch Corp. in Parkersburg, said he's known Garton for 20 years, since his company contracted with a firm with which Garton consulted.

"I don't know a thing about this particular deal, but I would be very surprised if he was involved in anything like that," Harton said. He said there are "hundreds of ways" for independent oil and gas operators to find financing and investors, and there are many ways, as well, for such deals to go sour. "If you have a decent well that pays your money back, you don't hear anybody complain," Harton said. "If it doesn't work out so well, that's a different story.

"Any time you have a decent industry that's uphill and climbing, you have people getting involved in it that aren't qualified," Harton said. "Sometimes, there is no intent to harm anyone. But they don't know what they're doing and they shouldn't be in the business."

"I have people who come to me and beg me to put them in the program," he said. "They don't know anything about it, but they know I have had multiple successes and they want to be a part of it."

Charlie Burd, executive director of the state Independent Oil and Gas Association, said most operators are likely to rely on investors they've dealt with previously and who have at least some knowledge of how the industry works.

"In today's world, with the amount of data that is available and the due diligence most investors ask these operators to produce, (these kind of schemes) are just not common," Burd said. "Most operators don't want to solicit investors who aren't familiar with the industry, because these are the kind of things that could happen."

Burd said he does not know Garton.

Guerrieri, one of the alleged victims, said he's had difficulty over the past several months reaching the Kentucky company about his investment and was ecstatic to hear the men were indicted.

He's said he hopes to regain the more than $42,000 he invested. "It would be awfully nice if the government or the prosecutors could get the money and distribute it back to those who were cheated by these guys," he said. "I'm embarrassed about this whole thing. It was a tremendous amount of money for me."

Contact writer Jake Stump at jakest...@dailymail.com or 304-348-4842