Precious Metal Fraud

Precious metal fraud has been on the rise with the historical increase in the price of gold, silver, and other precious metals. The number of con artists has grown who scheme by setting up bogus precious metals firms and investment programs designed to steal money from unsuspecting investors looking to cash in on the strength of precious metals trading. Although there are many ways to speculate in precious metals, the Commodity Futures Trading Commission (“CFTC”) issued an investor advisory warning about precious metals fraud. Many companies advertise on television, the Internet, or make cold calls promoting the sale of precious metals and the promise of riches without disclosing the material risks of investing in precious metals including, gold, silver and platinum. The most dubious of these firms fail to disclose that they do not even own any metals to deliver to customers. Investors should be on alert for companies that sell investments in precious metals and other commodities based on sales pitches claiming that customers can make a lot of money, such as double or triple their initial investment, with little to no risk.

According to the Commodities Futures Trading Commission investors should be wary of the following precious metals fraud warnings signs:

• Unexpected telephone or email solicitations;
• Projected returns with little or no financial risk;
• Guaranteed principal and profits;
• Small deposits control large amounts of precious metals.

The companies that market precious metals to investors frequently refer to themselves as “metal dealers” or “merchants.” The proposed investment transactions are often structured so that investors only pay a small percentage of the purchase price of the investments, typically between 15 and 25 percent. The salesperson claims they will arrange a loan for the investor’s purchase of the remainder and assert that that the investor can make large profits by controlling a large amount of precious metals with a relatively small down payment. Investors are discouraged from taking delivery of the metal, with the precious metals companies claiming to store the metals. These companies typically charge a commission for the purchase transaction, a margin or loan origination fee, interest and fees relating to storage and shipping of the precious metal they claim to purchase on the investor’s behalf. Oftentimes all of these fees are not disclosed up front and frequently for fictitious transactions.

According to the Commodities Futures Trading Commission (CFTC) and National Futures Association (NFA) investors should ask the following questions to determine the legitimacy of the precious metals company:

• Ask about for confirmation and membership status of company with the CFTC and NFA;
• Ask for identity and verification of the financial institution lending the money for the purchase;
• Ask for documentation verifying location of the precious metals;
• Ask how the salesperson is compensated; and
• Ask how the precious metals investments meet you financial objectives.

Silver Law Group has experience representing investors in precious metal transactions similar to those described above, and according to the CFTC – these precious metal companies are often scams and investors never see the promised profits and usually lose all or a significant portion of their investment. The companies never actually purchase the precious metals. Further, even if some actual precious metals were purchased, the investments are so highly leveraged that they are vulnerable to equity calls with even a modest decrease in precious metals prices resulting in a complete loss of the investment. Moreover, because consumers’ equity levels are constantly eroded by interest charges on the leveraged balances, consumers can be subject to equity calls even when precious metals prices remain constant. The fees, commissions, and interest charges negatively affect investors’ ability to break-even or profit on the precious metals investments.

Our lawyers have significant experience representing investors who have lost money in precious metals scams, numismatic (rare) coin frauds, and in claims against National Futures Association (“NFA”) member firms for the unsuitable sale of precious metals and futures. Silver Law Group also has served as counsel in Commodity Futures Trading Commission court appointed receivership actions involving fraudulent commodities and metals companies. If you invested with a precious metals company and have questions or concerns about your investment, we can help determine whether you have a viable claim for the recovery of investment losses that are the result of violations of CFTC and NFA rules and regulations.