Watch out for precious metals swindles

As I write this article the price of gold is reaching historic highs. Silver is also up substantially. Investors who never owned precious metals are adding gold or silver to their portfolios as an alternative to poor stock market performance and ridiculously low bank CD rates. In this article I’ll explain how crooks took advantage of a past bull market in precious metals and provide some tips on how to protect yourself from becoming a victim.

A major gold scheme occurred in the late 1970s during an economic recession. Two brothers ran a precious metals brokerage business in Fort Lauderdale. They published colorful sales brochures, hired telemarketers and sold precious metals investments to the public. The concept was simple. Buy gold or silver today at attractive prices and sell your metals later, after the stock market started moving up.

This idea made so much sense that 25,000 investors purchased metals through the company. The gold merchants made it easy to buy the metals and protect your investment. At least that’s what they said.

Let’s say you wanted to buy $10,000 worth of gold bullion. You contacted the company and placed an order. The broker promised to buy the metals for you in the open market and ship the metals to you. But wait, the broker had a better idea. Instead of taking possession of the gold why not leave it with them for safekeeping? The broker would store your gold under lock and key in the company vault in Fort Lauderdale. That way, when you were ready to sell you just telephoned the company and they would sell your holdings in the open market and mail you a check.

To prove you actually owned precious metals the gold broker mailed you a “certificate of ownership.” It was suggested that you deposit this paper certificate in your safe deposit box until you were ready to sell.

A few years passed and the stock market started rising. It was time to sell gold and reinvest in the stock market.

The telephones on the desks of the gold broker in Ft. Lauderdale began ringing … and ringing ... and ringing. Then, the telephones at the State Comptroller’s Office began ringing. Nervous investors wanted to know what happed to the gold broker and their gold?

An investigation commenced. It was concluded that the company was a fraudulent enterprise and investors lost $140 million. There was no gold in the vault and most of the investors’ money was gone. The brokers were sentenced to long jail terms. The moral of this story? With gold and silver prices soaring the market is ripe for new precious metals rip-offs. Consider these red flags if you are thinking about investing in precious metals.

• Be leery of promises that you can buy precious metals below the current market price.

• Take possession of your precious metals or be certain they are stored by a reputable bank, in your name.

• If you buy precious metals through the mail, use a safe method of payment for such as a bank draft. Instruct your bank not to release the funds until the bullion is in your hands or in your safe deposit box.

• Know who you are doing business with. Consider dealing with businesses that have a solid reputation for delivering what they promise. With local dealers you can pay for your precious metals and take possession almost immediately.

• Don’t fall for high pressure sales tactics, especially from boiler room sales reps calling you on the phone.

If you become a victim of a precious metals fraud contact the Commodity Futures Trading Commission (CFTC) and/or the securities/investment regulator in your state. One of these offices should be able to help. If not, they can direct you to the appropriate local, state of federal agency that can.

Mark Mathosian of Tallahassee, Fla., is a financial fraud investigator for the State of Florida.
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