It’s no wonder that the financial crisis of 2008 left many Americans leery of the volatility of the stock market and in search of less risky investment options. Thus, firms and brokers that offer investment alternatives such as precious metals attracted the interest of investors. Investment in metals, such as gold, silver, platinum, and palladium, can offer investors an alternative to the stock market, albeit not necessarily safer, and there are some legitimate precious metal investment companies. Unfortunately, what have also emerged are con artists who operate precious metal investment scams that prey upon senior citizens in particular.
These scams are the subject of a year-long investigation conducted by the Senate Special Committee on Aging, where I serve as Ranking Member. During a recent hearing, the Committee released a document summarizing our investigation titled, “Exploring the Perils of the Precious Metals Market.” What our Committee discovered was appalling.
We looked at 34 federal cases involving more than 9,100 victims who lost a total of $300 million! Even though state and federal regulators have worked to penalize those who operate these scams, precious metal fraud in the U.S. remains the sixth most significant form of financial fraud.
This scam involves the so-called “sale” of precious metals to seniors who are eager to avoid the dangers of the stock market, trying to find a safe haven for their life savings, seeking to protect their financial independence, and wanting to pass some portion of their nest egg along to their children and grandchildren. We discovered in our investigation that a key feature of the scam is to get the customer to pay real money for metals that the scammer never delivers and often doesn’t even own. In addition, investors are often subjected to exorbitantly high and hidden transaction fees that can all but evaporate the investment.
One such victim of this unscrupulous scam is Joe Melomo, a retired physicist living in Texas, who testified at our hearing. Mr. Melomo described how he was contacted by one of these scam companies that employed extremely high-pressure sales tactics to convince him that an investment in precious metals was a safe and secure way to ensure his financial security in retirement. He testified that he ultimately paid this company $170,000. As the price of metals dropped, the company tried to continue bilking him out of additional funds, while charging him administrative fees that totaled $165,000. When Mr. Melomo tried to liquidate his investment, he was told that it had all been lost. With his retirement savings depleted and realizing that he had been scammed, he hired an attorney, but was able to recover only $25,000 of his loses. Unfortunately, we learned of many cases similar to that of Mr. Melomo.
The ruthless sales tactics used by these fraudsters are particularly appalling. Testimony from one witness, who worked for a scam precious metals company in Florida and has since been convicted of fraud, offered a chilling insight into how these companies operate. He described a complex scheme where would-be victims were contacted multiple times by numerous individuals within the company. Very high-pressure sales tactics were employed by highly skilled con artists, who were eventually able to earn the trust of the investors to convince them that not only were their investments safe, but that company employees were working hard behind the scenes to ensure the best investment price and highest profit for them. In fact, the company was simply stealing large sums of money from its victims.
As we learned through our investigation, over the past several years, federal and state prosecutors around the country have been pushing back against this type of fraud, and I am pleased that they have met some success.
Maine has been fortunate to have avoided the worse of these precious metals cases. The Maine Office of Securities, which I oversaw during the time I served as Maine’s Commissioner of Professional and Financial Regulation, is led by Administrator Judith Shaw. She explains that aggressive enforcement of Maine’s Commodities law and Transient Sales law may be the reason for fewer precious metal scam cases in our state. She warns, however, that scammers may have neglected Maine due to the fact that our elderly population is less wealthy than those of other states.
It is clear that agencies at all levels of government must do more to prosecute these outrageous scams, but more must also be done to educate would-be victims about how to avoid them.
Maine’s Office of Securities has published an educational brochure titled, “Gold: What Every Investor Needs to Know.” This brochure explains the risks of investing in gold, as well as warnings of how to identify a scam. For example, investors should avoid sellers who offer to sell gold bullion and then “secure” it in a vault. In too many instances, the gold does not exist. In addition, investors should avoid sellers that encourage them to cash out of their investments to purchase gold. The investor can end up with a large bag of gold-colored coins with no monetary value. Individuals should also hang up on companies claiming to sell previous metal investments.
When presented with a copy of this brochure during the recent Aging Committee hearing, Mr. Melomo said that had he seen such an informative publication years ago, he might not have fallen for the scam that cost him his life’s savings.
Most important, the Maine Office of Securities advises investors to “always check before you invest.” In Maine, questions about investment companies can be directed to 877-624-8551, or the agency website is: www.investors.maine.gov.
The best weapon against these unscrupulous scam artists who prey upon seniors is an informed investor.
