Commodities And Precious Metals Fraud Lawyer Russell L. Forkey, Esq.
Certain unscrupulous precious metals companies are become more brazen in their attempts to fleece their clients. It appears that these companies are trying to “grab” as much as they can before potential new rules regulating this industry are adopted by the Commodity Futures Trading Commission, as mandated by the Dodd-Frank legislation recently passed by the U.S. Congress. Consequently, we want to provide the reader with some additional information to consider in any dealing that you might have with a precious metals firm. Please keep in mind that this information is being provided for educational purposes only and is not designed to be complete in all material respects. Moreover, it should not be considered as legal or investment advice. If you have any questions concerning this post, you should contract an experienced legal or investment professional.
The Leveraged Contract
Section 19 of the Commodity Exchange Act (the “Act”), 7 U.S.C. § 23, relates to standardized contracts for certain commodities. It provides that:
(a) Margin accounts or contracts and leveraged accounts or contracts prohibited except as authorized.
Except as authorized under subsection (b) of this section, no person shall offer to enter into, or confirm the execution of, any transaction for the delivery of any commodity under a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leverage contract, or under any contract, account, arrangement, scheme, or device that the commission determines serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract.
(b) Permission to enter into contracts for deliver of silver or gold bullion, bulk silver or gold coins ,or platinum, rules and regulations:
(1) Subject to paragraph (2) no person shall offer to enter into, or confirm the execution of, any transaction for the delivery of silver bullion, gold bullion, bulk silver coins, bulk gold coins, or platinum under a standardized contract described in subsection (a) of this section, contrary to the terms of any rule, regulation, or order that the commission shall prescribe, which may include terms designed to ensure the financial solvency of the transaction or prevent manipulation or fraud.
(2) No person may engage in any activity described in paragraph (1) who is not permitted to engage in such activity.
What section 19 says is that precious metal dealers may only deal in gold, silver and platinum, if leverage is going to be used. If you purchased palladium on a leveraged basis, it would violate section 19. Section 19 also says that a dealer cannot buy or sell the enumerated metals on a leveraged basis if the dealer violates any CFTC rules or regulations. This is important because one of the rules that these dealers cannot violate is CFTC Regulation 31.3 which makes it unlawful for any person, by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly to:
(a) To employ and device, scheme, or artifice to defraud
(b) To make any untrue statement of a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made not misleading
(c) To engage in any act, practice, or course of business which operates or would operate as a fraud and deceit upon any person, in or in connection with (1) an offer to make or the making of , any transaction for the purchase, sale or delivery of silver bullion, gold bullion, bulk silver coins, bulk gold coins, or any other commodity pursuant to a standardized contract commonly known to the trade as a margin account, margin contract, leverage account, or leveraged contract, or pursuant to any contract, account, arrangement, scheme, or device that serves the same function or functions as such a standardized contract, or is marketed or managed in substantially the same manner as such a standardized contract, or (2) the maintenance or carrying of any such contract
Thus, a violation of Regulation 31.3 also violates Section 19 of the Act.
The violation of Section 19 is a tool that if used properly should enhance your probability in recovering your investment losses.
With extensive courtroom, arbitration and mediation experience and an in-depth understanding of commodities and precious metals law, our firm provides all of our clients with the personal service they deserve. Handling cases worth $25,000 or more, we represent clients throughout Florida and across the United States, as well as for foreign individuals that invested in U.S. banks or brokerage firms. Contact us to arrange your free initial consultation.