Precious metals dealers charged in $185 million elder fraud scheme

State securities regulators and the Commodity Futures Trading Commission have charged two precious metals dealers with running a scheme that defrauded elderly investors of $185 million, the groups announced Friday.

The CFTC and 30 states filed a joint civil action on Sept. 22 in a Dallas federal court against TMTE Inc., which does business as Metals.com, and Barrick Capital as well as firm principals Lucas Asher and Simon Batashvili. Tower Equity was charged as a relief defendant. The firms are based in Los Angeles.

In their complaint, the state regulators and the CFTC charged that since September 2017 the defendants deceived at least 1,600 people, most of them retired or elderly, into buying grossly overpriced gold and silver bullion.

“Defendants’ scam is particularly egregious because they preyed on persons between 60 and 90 years of age and swindled them out of their retirement funds by charging them fraudulent prices to purchase precious metals bullion,” the complaint stated.

Judge David C. Godbey of the U.S. District Court for the Northern District of Texas Texas issued a restraining order on Sept. 22 freezing the defendants’ assets, appointing a receiver to take control of them and allowing the CFTC and state regulators to inspect the firms’ records. 

The CFTC and states will seek restitution and civil monetary penalties.

Metals.com, through TMTE, defended its pricing practices, saying that it has among the lowest spreads on retail and wholesale prices as well as a price match policy. It also said it only sells products made by U.S. and Canadian government mints.

“We look forward to defending our right to fully ship physical retail products in under 28 days in both the physical industrial metals and precious metals markets," TMTE said in a statement.

The defendants convinced at least 1,300 elderly investors across the country to transfer retirement funds, including liquidating securities in them, and opening self-directed individual retirement accounts from which they purchased the precious metals, according to the complaint. They also persuaded over the telephone about 300 elderly investors to buy metals through cash accounts, according to the complaint.

The victims were targeted based in part on their conservative political outlook and their Christian beliefs, regulators said.

The sales staff for the firms were not registered as financial advisers but nonetheless ripped off their customers by offering investment advice that portrayed metals as a safe haven, especially during market volatility, according to regulators.

The customers were told the stock market was going to crash and that they were at risk of losing their retirement savings if they were invested in anything other than precious metals, said Joseph Borg, director of the Alabama Securities Commission and chair of the North American Securities Administrators Association's enforcement section.

“They have combined commodities operations with securities and investment advice to basically fleece all our elderly investors into liquidating and basically transferring those funds into metals without telling them of the losses they would incur,” Borg told reporters on a conference call.

Concerns over the way precious metals were being sold first arose from a report of suspected financial exploitation by a regulated financial firm with a Texas client, said Texas Securities Commissioner Travis Iles.

Targeting senior financial abuse is a NASAA priority, and more than 28 jurisdictions have adopted its model rule.

“Bad actors eviscerate the savings intended to provide financial security from a lifetime of work,” Iles said. “They prey on fear and economic uncertainty and now the isolation so many have endured. Too many of the victims are elderly who can ill afford to suffer their losses.”

State regulators will continue to monitor the market for metals scams.

“We think there’s more out there,” Borg said. “As we’ve always done, now that we’ve got a great partner with the CFTC, we’re going to be looking at these going forward.”

The case represents the largest joint filing with state regulators in CFTC history.

“I fundamentally believe that we can most effectively protect our markets when working together with our colleagues in the enforcement and regulatory community,” James McDonald, CFTC director of enforcement, said in a statement. “While much attention has been paid to our parallel enforcement efforts with federal partners, we are also committed to working closely with state authorities to hold bad actors accountable. This case highlights the best of parallel civil enforcement.”