Gold Marketer Faces Federal Fraud Charges

Over the last year few years, the worse the economic news got the more commercials you saw on cable TV for companies selling gold and silver. Now, the Federal Trade Commission (FTC) says at least one of those companies hawking gold tricked senior citizens into investing in gold on credit.

The FTC says it has obtained a court order forcing American Precious Metals LLC to shut down its telemarketing sales operation. According to court documents, the sales campaign has raked in $37 million from consumers, many of whom the FTC says didn't understand the transaction.

Get rich quick

The FTC says the company's sales personnel promised consumers they could earn large profits quickly by investing in precious metals such as silver, gold, platinum, and palladium. Using high-pressure sales tactics, telemarketers allegedly led consumers to believe that they were offering low-risk investments that would double or triple in value in a short time.

The company told consumers that precious metals are low-risk investments because they are tangible, physical assets – bars, bullion and coins. While that might be stretching the truth, it's a fact that many people have seen their money grow over the last two or three years be investing in precious metals.

However, the FTC maintains American Precious Metals did not use consumers’ money to buy precious metals. Instead, after taking fees and commissions that were not clearly disclosed to consumers, they deposited consumers’ money in the account of a clearinghouse that recorded the investments but did not buy or handle metals.

Buying on margin

The make matters worse, the FTC says the consumers were often not told their investments were leveraged, that is, that they were agreeing to take out a loan and pay interest for up to 80 percent of the purchase price of the metal investment. They didn't know that, if the price of gold fell, they would be forced to put up even more money to prevent their positions from being liquidated.

Because consumers’ leveraged investments were opened with low equity levels and incurred hefty interest charges, the investments were vulnerable to equity calls even if prices remained constant.

The Commodity Futures Trading Commission (CFTC) also charged American Precious Metal with violating federal law by using the mails and other means of interstate commerce as part of a scheme to defraud consumers in the sale of precious metals contracts.

The FTC and CFTC are part of the South Florida Securities and Investment Fraud Initiative, a multi-agency task force spearheaded by the U.S. Attorney’s Office for the Southern District of Florida to combat white collar fraud.

The court has ordered a stop to the defendants’ allegedly deceptive practices pending a trial, and has frozen their assets and appointed a receiver to oversee the business.