Avoid Gold Investment Scams Posted by Adam King on August 31, 2012
Gold is a great investment. But why is it being advertised as nauseam by television ads and telemarketers?
The price of gold is rising steadily with an acknowledgement of its status in this market. But, before choosing investment houses, the Federal Trade Commission advises to beware of fraudulent sellers looking to profit at your expense.
Over the past three years, complaints pertaining to investment frauds, including precious metals, have increased sharply. In 2011, the FTC responded to 7,657 complaints directly related to investment fraud after only 6,490 such complaints in 2009.
FTC attorney Dama Brown points out that consumers are vulnerable because other investments are not panning out for them. In their search for something different, precious metals are presented as a winning situation.
Con artists began capitalizing on rising gold prices following the financial crisis in 2008, taking advantage of the economic climate by using people’s fears, according to Brown.
Fraudulent telemarketers sold precious metals as safe investments, but they are in fact very high-risk transactions, according to testimony by brokers.
Brown said that consumers ultimately lose money with fraudulent investment houses. It can be several thousand dollars or their entire retirement. Some are even encouraged to cash out their IRA’s, according to Brown, and can lose the money in a matter of months.
Brown is a part of the Federal Security Investment Task Force, which is involved in many precious metal scam investigations. As a part of that work, she has uncovered deceptive sales scripts that bill precious metals as a safe-haven investment or call it as safe as keeping metal in your mattress.
These fraudulent businesses cold call consumers and deliver very strong sales pitches that include saying precious metals will rise significantly, doubling or tripling in as little as 30 days, so investors must send in money in order to not miss out on the opportunity, Brown elaborates.
A US Commodity Futures Trading Commission fraud alert released earlier this year indicates studies have shown the number of companies offering consumers the opportunity in buy or invest in precious metals has increased.
“However, many of these companies do not actually purchase or store any metal for their customers,” the report said.
Luis Ferreira, released from federal prison and barred from fundraising, managed to incorporate Spyker Consulting, a precious metals telemarketing firm, in 2008 under his mother’s name. Spyker supposedly contracted a London-based “clearing firm to buy, sell, and store the precious metals. But the company was a completely fraudulent enterprise, with the FBI obtaining a confession from Ferreira.
Steve Starr, owner of a Tampa Bay, Florida RV dealership received a phone call in 2008 when sales at his dealership were at an all-time low. He was convinced to invest $5,000 in silver by a fast telemarketer. After silver’s rise of the following months, Starr received another call convincing him to invest in palladium. He scraped together $20,000 to invest.
By 2009, he knew there was a problem. Statements ceased to come and he was told he would have to wait to liquidate his account. Starr took a home equity loan in order to pay taxes on a previously paid for home.
Ferreira wasn’t purchasing any precious metals on behalf on clients, but rather pocketing the money, according to the FBI. Starr lost his entire investment outlay and was saddled with debt.
In order to protect yourself from fraudulent investment schemes, it’s important to understand a few simple precautions. Investors need to know that people who sell “physical” precious metals are not required to obtain licensing or training from the National Futures Association. Some companies call their brokers licensed, but they are referring to a telemarketing license. If they were licensed in commodities, they would be brokers.
Brown advises that potential investors search the NFA database to check the regulatory history of the broker. It provides information about whether they are licensed and their NFA history as a broker.
Additionally, you can do a general search of the company, including using the database at the Better Business Bureau.
Read for information beyond what a telemarketer tells you, including excessive service and storage fees and high interest rates.
Find a physical address for the company and drive by, if possible.
Consider taking delivery of your precious metals, such as gold and silver bullion, and storing it yourself instead of entrusting a company to do so.
Above all, watch out for overzealous sales pitches.