As the rising price of precious metals outpaces most other investments it’s inevitable that scammers will take advantage of unsuspecting and uninformed investors.
We’ve previously highlighted the dangers in purchasing physical gold and silver from auction web sites, fly-by-night internet dealers and even local coin shops, as well as provided some advice for how to spot counterfeit metals. We’ve also discussed the threat faced by investors who purchase ‘paper’ gold assets exclusively, especially ETFs that purport to be backed by physical metals and companies that claim to store your allocated precious metals in their vaults.
We’ve maintained for quite a while that precious metals will rise for a variety of reasons, a couple of which include inflationary pressure caused by monetary easing and as a hedge against government instability. For many, gold is a safe haven asset of last resort. Gold and silver investors are putting away precious metals to use in a worst case scenario – if and when a paper currency collapse wipes out the purchasing power of traditional units of monetary exchange. In this respect, we can’t stress enough that before you buy you must do your research, especially if you are investing large portions of your retirement savings, lest you lose everything.
Last year, Brian Gurl spent some time reading about the state of the U.S. economy.
He kept hearing about the gargantuan size of the federal debt and the threat of inflation on TV. Gurl is approaching retirement age, so he and his wife needed safe investments. The couple decided on gold.
“We approached several companies. But it was American Precious Metals who were the most aggressive,” said Gurl, who invested about $100,000 with the company last Fall. “They just sounded very expert.”
In the span of a few months, the couple lost about $60,000, Gurl said.
American Precious Metals, allegedly a boiler room telemarketing firm, purportedly purchased more than $23 million of precious metals for customers of their leveraged precious metals purchase program, but allegedly never purchased any metal for customers.
Specifically, the complaint alleges that the defendants “engaged in a massive fraudulent scheme” and, from at least July 1, 2007, APM, through its agents and employees, acting at the direction of Tanner and Goldman, purportedly purchased more than $23 million of precious metals for customers in their “leverage program.” The program allegedly requires customers to make a down payment of as little as $5,000 to APM for certain quantities of physical precious metals. APM also allegedly claims to finance up to 80 percent of customers’ purchases and store customers’ physical metals in a secure depository.
According to the complaint, these statements are false. In reality, APM allegedly does not purchase or sell any precious metals for customers, does not arrange loans for customers to purchase physical metals and does not arrange for storage in any depository. Instead, after charging customers commissions of approximately 40 percent of their initial investment, APM allegedly pools the remaining funds and sends a portion of that money to a third party. The third party does not purchase any physical precious metals, provide loans or arrange for metals storage on behalf of any APM customer, according to the complaint. The complaint also charges APM with making misrepresentations and omissions of material fact related to the profitability of and risks associated with the leverage program.
This is the problem with many gold ‘paper’ investments. American Precious Metals LLC, not to be confused with the reputable online physical metals dealer American Precious Metals Exchange (APMEX), was contacting potential customers via direct marketing calls (though Mr. Gurl initiated contact in this case), applying pressure through the use of fear based marketing, and selling a product that confused investors and didn’t disclose risks. They were likely utilizing APMEX’s well known reputation in the business to help promote their own products. The difference, of course, is that APMEX (www.apmex.com) is a physical metals dealer, while the APM, LLC. firm dealt strictly with paper investments.
In our view, there are very few paper related precious metals assets worth the parchment they’re printed on, but depending on your specific investment needs it may not be practical or possible for you to hold your entire PM portfolio in physical form.
Here are some steps you can take to help ensure you’re not being scammed or deceived:
- Check out the firm. Rule #1: Trust but verify. Just because it says something on a dealer’s web site or they tell you something on the phone doesn’t make it true. In this day and age it is quite simple to do your research on any company in the world. Utilizing simple search queries you can find forums, consumer reports, personal experiences, business organizations, fraud alerts, and licensing information with relative ease. Consumers will often spend hours reading reviews for products like cell phones, or televisions, or cars. It should be no different when buying gold/silver related assets, especially if you’re spending thousands of dollars.
- Don’t Bow to Pressure. A legitimate firm may make discount offers if you’re a regular customer or purchasing in bulk, but if you get the feeling you’re being persistently pressured by a dealer through the use of fear or guilt, hang up the phone or close your browser window. A reputable dealer will never pressure you. They may provide investment information and make recommendations based on market conditions, but they’ll never make you feel guilty about not purchasing enough.
- Fuzzy Math. Buying physical metals is easy. You determine a price, make the purchase, transfer funds and get a package in the mail (or buy direct from a dealer). When you deal with brokers who have specialized products, however, things can get confusing really quickly. If you feel like you don’t understand exactly what it is you are investing in or how the calculations are being done, then don’t do it. It’s really is that simple. When you hear words like ‘leverage,’ or ‘buying on margin,’ or ‘down payment,’ then it’s probably time to find a different dealer unless you are well versed in the specific precious metals instrument that you’re dealing with.
- Compare Prices and Premiums. Look at the open market price and compare that to the retail sales price being charged by the dealer. The spot price is the open market price. The ‘premium’ is the amount the dealer charges above the spot price. Most reputable dealers will charge anywhere from a few percentage points up to 10% to complete your transaction. Generally, the higher end premiums occur when there are perceived shortages, extreme volatility in the markets, or when you’re dealing with specialty coins (American Eagles, etc.). It’s always a good idea to compare premiums across several reputable online dealers to make sure that the premium you’re being charged is on par with other firms. Goldline, an online firm that came under fire last year, was charging exorbitant premiums of over 60% for many of their products and was being touted on various conservative media outlets. Just because it’s on the radio, on television or being recommended by your favorite talk show host doesn’t mean it’s fair. Do your research.
- Know Your Costs. If you’re dead set on allocated or unallocated storage always get information about storage fees, insurance costs, delivery fees and interest information BEFORE you buy. And get it in writing.
- Record Conversations. If legal in your state, record all conversations with the dealer/broker. The fact is, you’re likely investing tens of thousands of dollars – it doesn’t hurt to spend $50 or so on a tele-recording device (or simply use your computer’s built in recording application and speak with dealers on speaker phone). In states where recording of phone calls requires all parties to consent, advise your broker the call is being recorded. If they are a legitimate dealer, they won’t care because it is likely they are recording the call to make sure everything is on the up-and-up. A scammer, however, will be hesitant and may even hang up. That should tell you exactly what kind of firm they are.
- Ask the firm if they can deliver physical metals. If so, purchase a limited quantity of metals to start (and don’t reveal how much you plan on investing). Once received, take those metals to a local coin shop and have them inspected. Most local dealers will do that for free. If the metals are legitimate, you can contact the firm again and buy a larger amount.
- Convert Paper Metals to Physical Metals. If the firm claims they store the metals, and that’s your preferred method of investment, we’d recommend purchasing a limited amount of stored metals. Wait 30 days and request delivery. If the firm meets up to the expectations they set, then you can use them again. If they give you problems…
- Take Immediate Action At the First Sign of a Scam. Better safe than sorry. Most scammers ‘get away with it’ because victims are embarrassed or afraid to say something. Don’t be afraid – put the fear into the scammers. If the firm gives you excuses at the time you’ve requested delivery, don’t beat around the bush. Take immediate action by letting the firm know if they do not deliver your metals or return your purchase price you will contact your State’s Attorney General, the Federal Trade Commission, the CFTC, the police and online consumer reporting agencies. Also, rather than making these threats on the phone, send a certified letter with return receipt – this will let them know you’re serious. Most consumer protection laws allow a firm 30 days to deliver products that they have sold – you can give them 7 days to make good or you’ll start taking action. Don’t give a potential scammer any time to get away or steal from others.
Disclosure: We found it necessary in this article to point out the difference between American Precious Metals, LLC (the company charged with fraud) and American Precious Metals Exchange (APMEX) due to the similarity in names. We have utilized the services of the American Precious Metals Exchange (APMEX) over the past several years, have recommended them to family, friends and readers, and have only positive things to say about our experiences. In the interest of full disclosure, please note that SHTFplan.com is an authorized affiliate of the American Precious Metals Exchange (APMEX) through limited text and/or banner advertisements. We’ll also note that the majority of advertisements on our web site network, except for those automatically delivered by Google.com, are hand selected for quality and relevance.