Precious metals may be precious but that doesn't automatically make them a good investment, as many consumers have learned after succumbing to a slick sales pitch.
One such pitch came from Sterling Precious Metals LLC, the Federal Trade Commission (FTC) alleges. The agency today charged Sterling with running a deceptive investment scheme that took in at least $10 million from predominantly elderly consumers, many of whom invested their retirement savings buying precious metals on credit without knowing the significant costs and risks.
According to the FTC's complaint, Sterling and its principals promised consumers they could earn large profits quickly by investing in precious metals with very little risk, without telling customers of the likelihood that they would have to pay more money later or lose their investment.
The investments were typically not profitable and carried a high risk of loss.
As alleged in the complaint, the defendants failed to clearly disclose the investments' total cost, and often failed to disclose that about 80 percent of the purchase would be financed through a loan with interest. The defendants also allegedly misrepresented or failed to clearly disclose fees and commissions, such as a $200 account opening fee and that consumers would be charged as much as 39 percent of their investments in commissions.
The defendants also failed to tell consumers they were likely to receive equity calls on their accounts. When a consumer's equity decreased to a certain level, an equity call was issued, and the consumer had to invest more money or allow the investment to be liquidated at a loss. In some instances, consumers were not told their accounts were liquidated.
The FTC alleges that most of the defendants' customers lost money. Likewise, consumers lost the equity in their investments through the accumulation of fees and commissions, including storage fees and interest charges on the leveraged portion of their accounts. The FTC charged the defendants with violating the FTC Act and the FTC's Telemarketing Sales Rule.