Contact us
CALL US NOW 1-888-GOLD-160
(1-888-465-3160)

Feds File Suit in One of the Largest Precious Metal Fraud Cases in History

  by    0   0

The US Commodity Futures Trading Commission (CFTC) has filed a civil lawsuit against California-based gold dealer Monex Deposit Co. in what officials call one of the largest precious metals fraud cases in the history of the commission.

The CFTC alleges Monex defrauded thousands of retail customers nationwide out of hundreds of millions of dollars, while executing illegal, off-exchange, leveraged commodity transactions.

As alleged, the Defendants defrauded thousands of retail customers—many of whom are elderly—out of hundreds of millions of dollars as part of a multi-year scheme. Fraud in our markets, like that alleged here, undermines confidence, reduces transparency, and harms competition. As this investigation shows, we’ll work tirelessly to detect and prosecute fraud of the sort that’s alleged here.”

The allegations revolve around leveraged trading in gold, silver, platinum and palladium through the company’s “Atlas” program. Leveraged trading simply means the investor borrows money in order to invest in precious metals. If the investment pans out, the metal will increase in value enough to repay the loan, cover commissions and interest, and generate a positive return.

For example, a customer could invests $5,000 to purchase $25,000 in gold. The company lends the investor the $20,000 balance and charges interest. The company also charges a commission on the entire $25,000. Commissions and fees can add up fast. If they are high, it can make it nearly impossible to earn a return on the investment.

The CFTC alleges that Atlas program was a huge money-loser for clients.

Nearly everyone who placed leveraged trades in an Atlas account between July of 2011 and March of 2017 lost money, the Complaint alleges. According to the Complaint, over 12,000 trading accounts were used to place leveraged precious metals trades resulting in more than $290 million in customer losses between July 16, 2011 and March 31, 2017.”

It’s important to note gold prices fell during most of the time period covered by the CFTC investigation. Leverage is inherently riskiest during periods of falling prices. Monex customers certainly made money on leveraged accounts in the years of rising precious metals prices prior to the time covered by the investigation, and actually would have had better returns than if they had not used leverage.

The Complaint alleges that Monex brokers used high-pressure sales tactics, downplayed the risks associated with leveraged transaction, and falsely promised customers that Monex would act as the customers’ fiduciary and would always act in their best interests.

CFTC also alleges the transactions were illegal because they were not executed on a regulated exchange, and weren’t subject certain rules as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

It’s easy to run afoul of obtuse federal regulations. It remains unclear if Monex technically did anything wrong. Of bigger concern are the charges of fraud and high pressure sales tactics. Still, it’s important to remember government agencies often overstate and grandstand to increase publicity for their cases. We don’t know for certain how much of the loss customers suffered can be attributed to the fact they took a gamble and lost, and how much stems from Monex sales tactics. That key question is whether or not customers had all the information they needed to adequately assess the risk and make an informed decision.

Buying gold and silver historically provides investors with a safe, long-term store of value. Leverage and high commissions can turn it into a highly speculative investment with a high level of risk. Leveraged trading is not necessarily a bad thing for the savvy investor, but customers should understand the risks. If a dealer does not adequately explain the product to its customers, reveal how much risk they are assuming, and disclose full costs, you should be wary of doing business with them.

Also beware of dealers who claim leveraged accounts are “fully physically allocated.” There should be no guarantee of physical delivery for leveraged accounts if the account is physically allocated.

Unfortunately, there are many deceptive physical dealers that give the industry a black eye. For every honest dealer out there, there a dozen other dishonest ones,” SchiffGold managing director Jonathan Sosnay said. “We primarily specialize in physical coins and bars for delivery as there is no substitute for having physical precious metals in your possession. However, if storing in a vault, first make sure it’s fully allocated or segregated without any margin if you want any guarantee of future delivery.”

scam-2-sm

Get Peter Schiff’s latest gold market analysis – click here for a free subscription to his exclusive monthly Gold Videocast.
Interested in learning how to buy gold and buy silver?
Call 1-888-GOLD-160 and speak with a Precious Metals Specialist today!

[Total: 12    Average: 4.3/5]

Related Posts

Is Janet Yellen Playing a Game of Monetary Chicken?

The Federal Reserve took a hawkish stance at its latest Open Market Committee meeting, announcing plans to begin unwinding its balance sheet next month. Fed chair Janet Yellen also indicated she plans to raise interest rates one more time this year. Here’s the question: Is this a viable path forward, or is the central bank […]

READ MORE →

US Threat to Cut China Off from the International Dollar May Be Empty

china flagEarlier this month, the US threatened to lock China out of the dollar system if it doesn’t follow UN sanctions on North Korea. Treasury Secretary Steven Mnuchin threatened this economic nuclear option during a conference broadcast on CNBC. If China doesn’t follow these sanctions, we will put additional sanctions on them and prevent them from accessing the […]

READ MORE →

Toys R Us Bankruptcy: It’s Not All About Amazon

Toys R Us filed for bankruptcy earlier this week, a wicked head-shot to a retail sector that’s been reeling for months. The TRU filing ranks as the second-largest US retail bankruptcy ever, according to S&P Global Market Intelligence. Toys R Us had $6.6 billion in assets at the time of filing. Only Kmart was bigger. It […]

READ MORE →

Cryptocurrency Website Says Now Is a Good Time for Gold

Even some of the biggest supporters of Bitcoin and other cryptocurrencies recognize the stability of gold. Last week was a bad week for Bitcoin. It’s price dropped significantly in the wake of a Chinese government crackdown on cryptocurrency exchanges in the country. Bitcoin’s price has recovered a bit this week, but a recent article published by […]

READ MORE →

Russia and China’s Golden Plan to Shift Economic Power East

Russia and China seem to be betting their monetary futures on gold. Their long-term maneuverings could seriously undermine the dominance of the US dollar and shift the world’s economic center of power from West to East. Russia and China buy more gold than any other countries in the world, with Russia leading the way. Over the […]

READ MORE →

Comments are closed.

close

Enjoy this blog? Please spread the word :)

Free Newsletter & Notification of Special Deals
RSS Feed
LINKEDIN
YouTube Channel
YouTube Channel
Google+
Google+
https://schiffgold.com/key-gold-news/feds-file-suit-one-largest-precious-metal-fraud-cases-history
Call Now