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received large payments which were supposedly proceeds from the oil drilling program. In truth, however, very little oil was being produced. The payments came from money paid for units by later investors. And, as a tax shelter, Home-Stake was useless. Even with the Ponzi payments, there were some investors who complained that their returns did not match Home-Stake’s promises. This was due in part to the fact that Home-Stake was going broke from the day it started. Since there was no real profit from oil operations, each succeeding year reaped less bogus profit for investors than the salespeople had promised.

The dwindling return on investment (to use that term loosely, since no real investments were ever made) led to a number of complaints to Home-Stake management. Various efforts were made to deal with those complaints. In some cases, Home-Stake repurchased program units from dissatisfied investors; in others, it offered investors the opportunity to “roll over” their units, typically exchanging units in a past program for units in a program that was currently being marketed.

Nevertheless, these efforts couldn’t keep up with the growing number of complaints. In March 1973, two investors who were dissatisfied with their investment returns and one who’d been told that the IRS was going to disallow his intangible drilling deductions filed a lawsuit in California on behalf of all participants in the Home-Stake programs.

These investors alleged that Home-Stake management and its professional advisers engaged in “an unlawful combination, conspiracy and course of conduct that operated as a fraud and deceit.” They also charged that Trippet and his salespeople made untrue statements and failed to disclose material facts.

By July 1973, the investors sought to inspect Home-Stake’s documents. The federal court in California ordered that they be allowed to begin discovery. At this point, the collapse of Home-Stake accelerated. Within weeks, new management had taken over Home-Stake and discharged Trippet, investigators from the SEC had arrived at Home-Stake’s offices in Tulsa, and Home-Stake had filed bankruptcy. After the collapse of Home-Stake in September 1973, numerous other lawsuits were filed in federal courts around the country.1

1For more details on these Home-Stake lawsuits, see Chapter 19.

Home-Stake had done many of the things that a Ponzi scheme often does at various points in its life cycle. These included:

• paying illegal commissions to various persons in connection with the sale of participation units;

• entering a management contract with Trippet that granted him 50 percent of Home-Stake’s interest in any oil and gas drilling programs sponsored by Home-Stake;

• financing equipment receivables which were listed as assets when there was no reasonable probability that this asset would be realized; and

• including various loans receivable when there was no reasonable probability that the loans would be collected.

However, because the Home-Stake scheme was so complicated...and involved so many investors...it would take more than 20 years to litigate all of the issues surrounding the mess.

In the mid-1990s, Trippet had an opportunity to invest again in several companies related to Home-Stake but he passed. The 77-year old said, “I have a bad reputation in Tulsa, and it would not have been good for me to surface” in the deal.

You could say that.

CHAPTER 6

Chapter 6: Sure-thing Investments and Sweetheart Loans

Managing financial investments is a complicated mix of science and art. Regulatory standards take this complexity into account—the SEC, IRS and state investment rules allow a fair amount for leeway in which good faith and trust are supposed to rule. So, investments remain an appealing market to con men and Ponzi perpetrators. After all, it’s the market that attracted Carlo Ponzi in the first place.

According to the North American Securities Administrators Association, which conducts surveys of fraud in the financial planning business, some 22,000 investors lost about $400 million in financial planning