Gold Scams Rise On High Prices And Investor Anxiety
NEW YORK -- Last year, Brian Gurl spent some time reading about the state of the U.S. economy.
He kept hearing about the gargantuan size of the federal debt and the threat of inflation on TV. Gurl is approaching retirement age, so he and his wife needed safe investments. The couple decided on gold.
"We approached several companies. But it was American Precious Metals who were the most aggressive," said Gurl, who invested about $100,000 with the company last Fall. "They just sounded very expert."
In the span of a few months, the couple lost about $60,000, Gurl said.
Last week, a Florida U.S. District Court issued a temporary injunction barring American Precious Metals from doing business, freezing its assets and putting the company in the hands of a court-appointed receiver.
The case against American Precious Metals marks the third gold-related case brought by the U.S. Commodities Futures Trading Commission since March. The agency has also issued a fraud advisory for investors interested in precious metals.
2011, it seems, is the year of commodities and companies prepared to capitalize on investor anxiety.
The soaring prices of all sorts of commodities, uncertainty about the broader economy and the low interest rates banks are paying on savings has drawn both companies and investors to precious metals, said Brad Barber, a professor of finance at the University of California Davis.
"It's always easy to sell an investment -- real or fraudulent -- when it's earned really high returns recently,” Barber said. "People tend to think they are getting in on the ground floor, but in fact the elevator may have already gone up and may be on its way down."
Institutional and individual investors hungry to make up losses suffered during the recession, people looking for a safe investment with potentially large returns and those concerned about the economy's stability have all scrambled to join the gold profit party. Together they have created what many analysts insist is a bubble sure to burst. Gold prices -- which reached about $1,495 an ounce on Wednesday -- have hit and nearly returned to record highs this year.
Yet with public interest in gold remaining high, precious metals scams have begun to proliferate.
In March the South Florida Sun-Sentinel reported that in the last three years nearly 50 companies selling precious metals investments have opened in just two Florida counties.
This month, the Minneapolis Star Tribune reported that companies targeting Minnesota seniors persuaded gold coin investors to pay for their purchases with reverse mortgages.
Last year, Goldline, a company that advertised during the "Glenn Beck Show" -- and had the good fortune of Beck suggesting on air that gold was a good investment -- also became the subject of two state-level investigations. Beck has described the investigations as government efforts to eliminate opportunities to buy gold.
In a pair of companion cases, the CFTC and FTC have accused American Precious Metals of targeting investors -- particularly senior citizens -- across the country with a combination of high-pressure and illegal sales tactics and misleading and fraudulent claims.
"What these telemarketers said in general is ... you can't lose, you're going to make money,” said Sana Chriss, an FTC attorney working on the case. "Well that just isn't true. The value of everything can change. At one point it was real estate that was the hot and infallible area and then we had the bust there. Before that it was tech stocks.”
At American Precious Metals, the sales pitch usually began with a world event, Chriss said.
Peruvian miners were on strike, rendering the world's silver supply suddenly short of demand. Silver prices would skyrocket tomorrow, went one pitch.
The value of the U.S. dollar was sliding. But gold bar and uncirculated coins will always retain their value. In fact, gold prices are flirting with record highs and were certain to keep climbing, said another.
American Precious Metals telemarketers rounded out each story with the same high-pressure sales pitch, according to court documents. Only the utterly unwise would pass on the company's super-safe precious metals investments, the telemarketers claimed.
The approach worked well enough to bilk as much as $37 million from investors, according to court documents filed this month in U.S. District Court by the FTC. A hearing that could lead to the permanent closure of American Precious Metals is scheduled for next week.
Andrea and Harry Tanner Jr., the husband and wife owner-manager team behind American Precious Metals, did not respond to a request for comment left at their home. The company's other owner, Sammy Goldman, could not be reached for comment.
Both Goldman and Harry Tanner have been the targets of previous regulatory action.
Between 1982 and 2006, Goldman was listed as a principal or an executive at companies that were the subject of regulatory action bought by the CFTC and National Futures Association, an industry trade group and self-regulatory body, according to court documents.
In 2000, the NFA charged Tanner with making false and deceptive sales solicitations. Tanner agreed to a $5,000 fine and a requirement that he record his conversations with customers over a six month period, according to court documents. In 2006, the trade group expelled Tanner permanently and fined him $100,000. The NFA had found Tanner made misleading and deceptive sales calls to potential investors.
Just months after his NFA expulsion, Tanner set up American Precious Metals and hired several sales people who had also been disciplined for deceiving customers about investments, according to court documents. By early January 2010, American Precious Metals had nearly 400 customers who thought they owned gold, silver, platinum and palladium.
Gurl can not speak in detail about his interactions with American Precious Metals because he and his wife filed suit against the company in December. He did say they thought their money would be used to buy gold and other precious metals.
But the federal agencies that shut down American Precious Metals this month say that the company never purchased any physical quantities of any precious metal, according to court documents. Instead, the company moved investor funds between a series of accounts in the United States and the United Kingdom. American Precious Metals also allegedly converted a large portion of each customer's investment into a loan.
Customers were then charged fees, commissions and interest that totaled about 40 percent of their total investment, according to court documents. Investors were encouraged to keep contributing. If they refused, their accounts were closed. And if an investor asked to take possession of the gold or other metals, he or she was assured the goods were safely stored. Shipping, security and other costs associated with delivery would simply chip away at the customer's account balance, the company said, according to court documents.
"What that really meant is that people invested large sums of money, paid all sorts of fees and interest and got very small amounts back when the accounts were closed,” said Chriss. "One consumer put in maybe $40,000. I think she got back $100 in the end."
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First Posted: 05/18/11 07:58 PM ET Updated: 07/18/11 06:12 AM ET