South Florida Arbitration & Litigation Lawyer Blog
The Neverending Story of Fraudulent Precious Metals Scams
For quite sometime, we have attempted to bring to the attention of the investing public, especially seniors, the pitfalls that an investor is exposed to when investing in precious metals of all kinds. The primary area of abuse that retail investors is exposed relates to the sale and purchase of gold and silver bullion and coins. This post relates to a case involving bullion. On September 25, 2020, the Commodity Futures Trading Commission (CFTC) and 30 state regulators that are members of the North American Securities Administrators Association filed a joint civil enforcement action against two precious metals dealers and their companies for perpetrating an alleged $185 million fraudulent scheme.
The complaint charges TMTE, Inc., d/b/a Metals.com, Chase Metals, LLC., Chase Metals, Inc. (collectively Metals.com) Barrick Capital, Inc. and its principals, Lucas Asher a/k/a Lucas Thomas Erb a/k/a Luke Asher and Simon Batashvilli with an ongoing nationwide fraud. According to the complaint, from at least September 1, 2017 to the date of the filing of the action, the defendants fraudulently solicited and received over $185 million in customer funds, including more than $140 million in retirement savings, from at least 1,600 persons throughout the United States for the purpose of purchasing precious metals bullion.
One of the largest areas of abuses in retail precious metals transactions relate to the markup on purchases and the markdown on sales (the commission) of bullion and coins. In the Metals.com case, it is alleged that the prices charged customers had no bearing on the true value of the purchases. It is alleged by the government that the markup charged to the investor bore no relationship to the then prevailing market price. Metals.com charged markups of anywhere between 100 percent to more than 300 percent. Just to put this into perspective, this means that in order for the investor to approach breakeven an investor would have to make back the full amount of the markup and enough to pay the markdown on the sale. It is no wonder that nearly every customer lost the vast majority of their funds with the defendants.
According to the complaint, what makes this situation even more egregious is that to perpetuate their fraud, when questioned by a customer about the value of the precious metals they purchased, the defendants falsely claimed that the precious metals bullion was rare and carried a premium far above the base melt value of the metal, which was not true.
What is the melt value of metal? It really does not have anything to do with the value of quality bullion. It has a lot to do with the value of coins, which is another bad story. The melt value of bullion or coins is basically what the metal of the bullion or coin is worth if you were to melt the bullion or coin down. Even if you have a totally ruined coin, it’s metal content is still worth something, especially if it is made out of precious rare metals like gold, silver and platinum.
If you are contemplating investing in bullion, you can due some level of due diligence yourself. By going to Kitco.com you can research the spot value of the metal you are looking to purchase or sell. The difference between the spot price and what you are quoted by the broker would be the markup. The spot price is of gold or silver is the current price in the precious metals marketplace at which a raw ounce of gold or silver can be bought or sold for immediate delivery. The spot price fluctuates constantly.
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