4 Arrested, 3 Sought in Boiler Room Fraud That U.S. Says Took $5 Million : Telemarketing: The Orange County-based precious-metals operation is called one of the biggest cases of its kind in the Southland in recent years.

Warrants were issued Wednesday for the arrest of six Southern California men and a Florida man in connection with an indictment alleging a nationwide precious-metals telemarketing fraud scheme involving two Orange County boiler rooms.

A federal grand jury in Los Angeles issued the indictments on Tuesday. But the charges, which detail 35 alleged violations among the seven men, were sealed pending the issuing of arrest warrants, the prosecutor said.

The alleged scam took place in 1985 and 1986 and resulted in a loss “in the range of $5 million” for hundreds of victims nationwide, putting it among the largest telemarketing scams uncovered in recent years in Southern California, said Assistant U.S. Atty. David A. Sklansky. He said individual losses ranged from $1,000 to $150,000.

Sklansky said four defendants were arrested Wednesday: Gary James Kummer, 30, of Laguna Hills; Lester Charles Thompson, 45, of Riverside; Matthew Edwin Lothian, 28, of Newport Beach; and Mark Stephen Ott, 23, of Sunrise, Fla. All but Ott were released Wednesday by a federal judge in Los Angeles after posting $25,000 bail. Ott, who was arrested in Florida, is being held pending a bail hearing Friday.

Sklansky said that three of the defendants are still being sought. They include Barry Neil Goldberg, 37, of Laguna Niguel; Blaine Merlin Riley, 27, of Mission Viejo; and Lawrence Scott Hartmann, 25, of Huntington Beach.

The defendants were described in the indictment as owners, supervisors and sales agents at two firms, B.N. Goldberg & Associates in Laguna Hills and its successor, M.S. Sawyer & Co. in Irvine.

The indictment alleges that both firms defrauded victims by telling them that their money would be used to buy precious metals or the rights to future delivery of metals. But the companies actually spent most of the investors’ money on sales commissions, overhead, personal expenses and paying back earlier investors, the indictment alleged.

In addition, the indictment charges that sales agents at the two companies misrepresented the investment being offered and grossly exaggerated their knowledge and experience in the field.

The seven defendants are charged with multiple counts of mail fraud, wire fraud and causing the interstate transportation of property obtained by fraud. Also, Goldberg is charged in the indictment with income tax evasion in 1985 and 1986. Thompson is charged with income tax evasion in 1984 through 1986 and filing a false tax return in 1985, and Lothian and Ott are charged with failure to file an income tax return for 1986.

The defendants who were arrested Wednesday are expected to enter their response to the federal charges at an arraignment scheduled Monday.

Jan Lawrence Handzlik, attorney for Lothian, said his client, a former sales manager at B.N. Goldberg & Associates, “denies the charges and expects to be found not guilty at trial.” Thompson’s attorney, Leonard Sharenow, said that Thompson, also formerly telephone sales manager at B.N. Goldberg & Associates, also denies any guilt.

Lawyers for the other defendants could not be reached for comment.

The indictment alleges that in July, 1985, Goldberg and Lothian acquired office space in Laguna Hills and began to assemble a staff of 20 telephone sales agents. It alleges that partly because customers’ money was not used as promised to hedge orders of precious metals, “by late summer, 1986, (the company) was “unable to honor its financial commitments, including the requests of customers who wished to sell their metals back to the company.”

The indictment further contends that Goldberg “hid the company’s financial problems from customers, and then, in an effort to escape blame for squandering the customers’ money, sold BNGA (B.N. Goldberg & Associates) to Ott, who then relocated the business to Irvine, operated under the name Sawyer until late September, 1986.”

When speaking over the telephone to customers or potential customers, the indictment charges, officers and sales agents frequently used false names.

Sklansky said the indictments stem from an investigation by the U.S. Postal Service and the Internal Revenue Service. These agencies, he said, are part of a Southern California boiler-room task force, which has obtained criminal convictions of more than 200 boiler-room operators and sales agents since 1985.