Cracking Open a Crude Scandal

Tripped in an old-new switch

The yearlong investigations have been clouded in mystery, covered with top-secret code words and confused by accusations of corruption and foot dragging on the part of some of the investigators. But last week the Texas oil-price scandal broke open a bit when a federal grand jury in Houston handed up criminal indictments charging two small oil companies and five of their executives with a multimillion-dollar rip-off "This is just the tip of the iceberg," said a delighted J.A. ("Tony") Canales, the U.S. Attorney in Houston. "This is not a one-shot deal. It's just the first case, and there will be others, maybe as soon as next month."

The indictments, and the continuing investigations, center on violations of the Government's six-year-old, two-tier price structure for domestic crude. This sets a low rate (now an average $5.65 per bbl.) for "old" oil already in production and, as an incentive for more exploration, a higher price (now $12.53) for "new" finds. The fraud involves false certification and sale of the cheaper "old" oil as expensive "new," an easy matter of fixing papers to hide origins, since all the crude looks the same.

The grand jury charges of conspiracy and fraud were filed under the federal antiracketeering statutes, which provide for stiff penalties, a long statute of limitations and recovery of illegal gains Those named as defendants are Uni Oil Inc. of Texas and three of its executives: President Thomas M. Hajecate, his father Thomas H. Hajecate, who is secretary-treasurer of the company, and Vice President Charles Akin. Charges were also filed against James Fisher, a former Uni vice president and part owner of Armada Oil Co., as well as against Ball Marketing Enterprise of Lafayette, La., and one of its oil brokers, Charles Goss. All who have commented have said they will plead not guilty. If convicted, they could be sentenced to as much as 20 years in prison.

The Government's case rests in part on information received from Albert B. Alkek, 68, an elusive Texas oil baron who was named by FORTUNE as one of America's invisible rich, worth about $200 million. Although a star suspect who was described by a federal investigator as in it up to his neck," Alkek avoided criminal charges by cooperating with the authorities and pleading a weak heart (a condition that did not prevent a dove-hunting trip in Mexico). Alkek admitted knowing about and not reporting the fraud and destroying a letter that would have documented the crime. After plea bargaining, he was given only a three-year suspended sentence and ordered to refund $3.2 million of his excessive profits. The refunds will probably be deductible from his income taxes, say IRS authorities.

Partly on Alkek's testimony, the grand jury alleged that Uni was the linchpin of a yearlong swindle. Specifically, the jury charged that M&A Petroleum, a small company founded by Alkek, and Ball Marketing had conspired in 1976 to sell Uni nearly 740,000 bbl. of certified old oil at prices from $5.17 to $5.48 per bbl. This oil was then illicitly recertified as new and sold to refineries at $9.55 to $ 14.45. The illegal profits came to as much as $6 million.

These cases will not come to trial soon, but the multiple investigations into the oilprice scandal by the FBI and the Department of Energy will continue, as will a probe by a subcommittee of the House Interstate and Foreign Commerce Committee into charges that some companies bribed federal investigators in Houston to go slow. Deputy Energy Secretary John O'Leary has estimated that the total value of old-new oil rip-offs could be $500 million. Another DOE official said that one huge oil-price case "that dwarfs all previous cases" had just been handed over for criminal prosecution. Added DOE'S chief spokesman, James Bishop: "The [two-tier] regulations invite chicanery. They are virtually an invitation to put old wine in new bottles.''

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