[Updated through 2020] Recently there has been a glut of advertisements promoting investment in precious metals. Internet websites, infomercials, radio ads, cold calls and TV ads – many promise quick riches through the investment of gold, silver and platinum. It’s no wonder that with COVID-19 worries roiling the market, many believe that gold and silver are safe havens to ride out the storm. Fraudsters know this too and are quick to capitalize on innocent investors hoping to cash in on the hot metals market.
What prompted this article? An ad I just saw that promised 300% returns in just 30 days and with “virtually no risk”! Is that possible? Theoretically yes, but not likely and with some of the fees charged by these scams, it truly is impossible.
In fact, as this update is written in 2020, I just received a text message from a commodities firm that says with the outbreak of the coronavirus, the markets are poised to “collapse” and therefore I should purchase gold “today.”
Many of these frauds promise to arrange financing for the client’s purchase. They suggest that a client can purchase much more metal by utilizing the finance option and leveraging their investment. It sounds great until you read the fine print (assuming the fees are even disclosed anywhere in writing). Commissions, loan origination fees, interest , security and storage fees.
Storage fees? Yes. Typically these companies charge high fees to safeguard and insure your purchase in their vault. Unfortunately, in many cases these promoters never even take physical delivery of the gold.
Want to have your investment shipped to you so that you can safekeep it? That’s impossible, at least that is what these same promoters will tell you. Frequently they claim that government regulations prohibit shipping or that shipping is cost prohibitive because of the security measures needed. That is just plain nonsense. Jewelers, gold buyers and coin dealers ship precious metals every day.
In most of these precious metals scams, the promoter promises high profits. Legally, commodities brokers should not make such guarantees. How can they? No one knows whether the market for metals will go up or down and by how much. If you are leveraged and the price goes down, you could easily lose everything. Some promoters rely on that to make more profits.
These same companies typically also minimize the risk involved in these transactions. If it is disclosed, it is often found in the tiny print.
If this isn’t bad enough, many of these companies never even take possession of the metal. The investor thinks there are gold bars sitting in a vault, a vault he is paying for. In reality, there is no gold in anyone’s vault.
While some of these companies are located in the US and subject to US laws, many are offshore operators that utilize a local US phone number and a website. Government regulators have little change of helping you recover your investment in such cases.
As with any investment, the cardinal rule applies – if it sounds too good to be true it probably is.
How to Spot Precious Metals Scams
According to the Commodities Futures Trading Commission (CFTC), there are several warning signs of precious metals scams:
- Promotions that lead you to believe you can profit from current news already known to the public.
For example, “Since that mine disaster, you are certain to earn big returns on your deposit….”
- Promotions by people who call themselves “metals dealers” or “merchants”.
- Advertised on radio, television, or online.
- Contacts you asking for personal information such as your name, phone number, and email and home address.
- Calls received from a broker or salesman from the company to promote the precious metals purchase (and we will add SPAM text message promotions).
- And two more from our experience – Promotions that ask you to move retirement savings into volatile metals investments and promotions received through unsolicited texts and phone calls.
We urge extra caution if the company is offshore or doesn’t have anything more than a post office box or UPS store address. If the company is offshore, it can be much more difficult to pursue if your investments is really just a scam.
We also suggest that you check out the company with the CFTC and the National Futures Association.
Texas, Other States Pursue Precious Metals Fraud Claims Against Metals.com
In 2019, regulators from at least two states took action against TMTE inc doing business as metals.com saying the company was involved in a precious metals scam.
According to an emergency cease and desist order filed by the Texas State Securities Board, the company and three affiliated individuals, exploited an account holder who was a vulnerable adult. They say the company assisted and advised an 80 year old woman to liquidate her retirement accounts and transfer almost $850,000 to them in to invest in precious metals.
“Respondent Metals.com is engaging in a scheme to solicit elderly persons through unsolicited’ telephone calls. The tactic is often referred to as “cold-calling.”
“Respondent Metals.com is also soliciting potential investors through an internet website accessible by the public at https://www.metals.com.
“Respondent com is telling the potential investors that investments in precious metals, as opposed to investments in securities, are reliable investments that will preserve value regardless of market fluctuations, and investments in precious metals will better hedge against inflation and the devaluation of the dollar.”
“Most of these investors are elderly persons, as the majority of Respondent Metals.corn’s clients are sixty-five to ninety (65-90) years.”
Metals.com allegedly would complete all the paperwork so that the investor simply had to sign an online form transferring all of their retirement assets to the company. Included in the paperwork is a statement that each potential investor to declares, under the penalty of perjury, that the potential investor either deals in precious metals due to his or her occupation, or as a result of his or her avocations as collector, speculator or investor, he or she has knowledge or skill peculiar to precious metals or the practices involved in the purchase of precious metals.
Of course, there were also waivers in the documents such that the elderly investors waived any claims they had against the company.
Texas and Colorado settled with the company after it agreed to fully refund investors money. Seven other states had pending claims against the company.
In October, 2020 the CFTC charged TMTE, Inc, Barrick Capital, Lucas Asher and Simon Batashvili with ripping off mostly elderly investors. They say the scam involved $185 million in a precious metals scam involving overpriced gold and silver investments. Many victims took all of their retirement savings and redirected them to these highly speculative investments. The company denied all wrongdoing.
In 2018, the CFTC charged the owner of BullionDirect with a precious metals scam involving a phony storage vault.
Regulators said in court that from 2009 to 2015, the money sent to BullionDirect was not used to purchase precious metals on behalf of investors. Instead of buying the bullion purchased by the company’s customers, the money was diverted and spent by the owner of the company, CharlesMcAllister, for his personal use. An estimated $16 million disappeared in just two years.
McAllister was indicted on criminal wire fraud and money laundering charges in 2018. In November of 2019 he was convicted by a jury on all counts. McAllister unsuccessfully attempted to overturn the verdict by claiming he was only guilty of sloppy bookkeeping. Prosecutors noted, however, McAllister formed and organized BullionDirect “without sufficient capital, without an adequate accounting system, without segregating customer funds or metals, and without investing in a company pool of metal… [McAllister] also did not perform any financial analysis of his company or file any tax returns for the first ten years of operations, and that after a financial analysis was performed… refused to share BDI’s financial situation with potential customers.”
On February 18, 2020 he was sentenced to 120 months in prison. McAllister has appealed.
Mahany Law is a national boutique law firm concentrating in fraud recovery. Our stockbroker fraud lawyers can help victims anywhere in the U.S. Our goal is to get back every penny lost through these scams and unscrupulous operators. If you were the victim of a precious metals scam, visit our investor fraud information page. Ready to see if you have a case? Contact Brian Mahany online, by email or by phone 202-800-9791.
*We take cases where investors have lost $100,000 or more and purchased from a legitimate brokerage. In the TMTE case, the CFTC says the company was not licensed. Always check with the CFTC and FINRA’s online tools to make sure the brokerage firm and your broker are legitimate.