South Florida becomes a national center for bullion firms operating in virtual regulatory limbo
With the price of gold at near or all-time highs, South Florida has become a national hotbed for companies operating in a largely unregulated niche of the precious metals industry, where some customers have reported losses in the tens of millions of dollars, a Sun Sentinel investigation has found.
In Broward and Palm Beach counties alone, more than 45 firms have opened since 2007, offering clients the chance to buy gold and other precious metals via heavily financed transactions.
In an environment devoid of federal licensing or reporting requirements, convicted felons and people with checkered regulatory pasts have been among those setting up shop.
"They took every dime I had," said Richard Ray, a Georgia man who lost $46,300 with Spyker Consulting, a Deerfield Beach-based precious metals firm supervised by two convicted felons. No criminal charges have been filed against Spyker officials over investors' losses, but one of the company's founders is now facing prison time after a FBI sting revealed he lied to his probation officer about his role in Spyker and two other metals firms.
The Florida Office of Financial Regulation has ongoing investigations into at least 23 area companies marketing opportunities to buy bullion and have it stored at a secure location. Hundreds — if not thousands — of Americans have entrusted their money to South Florida precious metals companies.
In the past 18 months, clients and creditors of seven local precious metals businesses have claimed losses of more than $54 million, a Sun Sentinel review of more than 2,000 pages of court documents shows. Among the developments cited:
The collapse of Lake Worth-based Global Bullion Exchange with 1,400 investors losing more than $29.5 million. Owner Jamie Campany has admitted in a sworn statement that money "distributed to customers came from funds provided by other customers," and metals weren't purchased as promised. Campany is being sued by the company's receiver for fraud. He has not been criminally charged.
A Broward judge froze the bank account of Pompano Beach-based JDC United Metals Inc. after a 70-year-old California retiree filed a lawsuit accusing the company of defrauding him of more than $627,500 in six months.
The bankruptcy of three related Miami companies — Certified Inc., Global Bullion Trading Group Inc. and WJS Funding — with more than $22 million in claims filed against them, court records show.
Industry defended
Defenders of this segment of the precious metals industry maintain it offers the public a chance to buy gold and silver as tangible hedges against uncertain economic times and a deflating dollar.
"We have a terrific program and, like anything else, it depends on who you are doing business with," said Robert Acocella, president of Monolith Bullion, a Boca Raton-based precious metals firm. "I personally will speak to every client that comes on board and we custom tailor a strategy to meet their needs."
Jeffrey Schuler, co-founder of Liberty International Financial Services of Fort Lauderdale, said his clients receive full explanations about how the metals are purchased. He said he prefers that clients have the bullion delivered to their homes.
"All of the firms that don't have complaints, no one hears about them," he said.
Monolith Bullion and Liberty International Financial Services are not being investigated by the Office of Financial Regulation.
Acocella and Schuler were the only two industry executives who agreed to be interviewed after the Sun Sentinel contacted 20 South Florida firms selling precious metals through financed transactions. Other companies declined comment or did not return phone calls.
How firms work
The metals firms have been opening at a rate of nearly one per month, setting up in office suites from Hollywood to Jupiter and relying on websites and telemarketing to draw in customers.
Many of the firms operate this way: Clients are offered a chance to buy precious metals and have them delivered to their homes or stored in a secure location. Most choose storage. Customers are also told they can buy "on leverage" — meaning they can obtain financing so they can purchase more metal.
For example, a customer could put down $1,000 to buy $5,000 worth of gold. The financing comes from separate businesses called "clearing firms" or "clearing houses," that have pre-existing relationships with the precious metals firms.
Under such leveraged arrangements, if metal prices fall by a certain amount, clients are subject to a "margin call," meaning they must pony up more cash — or risk losing their money.
A Federal Trade Commission official testified before Congress last year that the agency has seen a rise in unscrupulous telemarketers pitching highly leveraged precious metals sales to consumers who don't understand how the deals work or the risks involved.
"The telemarketers charge hefty commissions and other fees that significantly reduce or completely eliminate the value of the consumers' initial investments," Lois Greisman, an associate director in the FTC's Bureau of Consumer Protection, told the House Subcommittee on Commerce, Trade and Consumer Protection.
Frank Widmann, director of securities for Florida's Office of Financial Regulation, told the Sun Sentinel that the volatility of this market can make it treacherous territory for inexperienced gold buyers.
"This is an area where it's real easy to mess with investors," he said.
Minimal regulations
Customers of some South Florida companies question whether their money was ever even used to buy precious metals. Campany, head of Global Bullion Exchange, acknowledged in his sworn statement that not only were metals never bought, but that the "clearing firm" being used — Diversified Investment Group — was a shell company that he created himself.
Four men who worked for The Bullion Trading Group, which had offices in West Palm Beach and Stuart, were indicted last year on federal charges of defrauding clients out of about $1 million by allegedly forging documents that falsely showed money was being invested in metals. Two of the defendants have each pleaded guilty to a fraud charge, while the other two have pleaded not guilty.
Since these gold companies advertise they buy and sell actual bullion — rather than do paper transactions — they have fallen outside the jurisdiction of the Commodity Futures Trading Commission, the federal agency that oversees the commodity and financial futures market.
The metals firms don't need to register with any federal agency to do business and employees don't require licensing other than state approval to engage in telemarketing. That means someone with no financial background or training can start soliciting customers to buy gold and silver. (A conviction for a financial crime can bar a felon from getting a telemarketing license.)
Within the last year, seven precious metals businesses in South Florida have been forced by the state to apply for telemarketing licenses after inspectors issued cease-and-desist orders to end unregistered phone solicitations, said Sterling Ivey, spokesman for the state Department of Agriculture & Consumer Services.
One of the companies that was registered to engage in telemarketing was Spyker Consulting, which was founded by two men who met in federal prison while serving time in separate white-collar criminal cases, court records show. Luis Ferreira and Eugene Cabrera ran the firm with Ferreira's mother listed on state documents as the president, court records show. Ferreira admitted in court papers that he used a variety of aliases in dealing with customers at Spyker and two other precious metals firms he helped start.
Ferreira pleaded guilty last month to conspiracy to commit witness tampering, acknowledging he lied about his role in the companies to his probation officer. He likely faces no more than three years in prison when he is sentenced May 20.
More federal oversight of the gold firms appears to be on the horizon when a new law takes effect in July. Companies that sell precious metals in leveraged deals will have to deliver the gold within 28 days to the customer or a location where the metals are easily accessible so the buyer can verify that they actually exist. If the gold isn't physically delivered, the transactions will fall under CFTC jurisdiction, and companies and their brokers will need to be federally licensed to work in commodities.
Daniel Roth, president of the National Futures Association, a self-regulating trade organization for the U.S. futures industry, said he hopes the new law will close loopholes that have allowed metals companies offering leveraged purchases to operate without strong oversight.
"We've been advocating this for a long time," he said.
Schuler, of Liberty International Financial Services, said he also welcomes greater regulation.
"If there is leverage involved, the CFTC should be involved," he said.
Retirees hit hard
The court documents obtained by the Sun Sentinel show senior citizens have suffered some of the biggest losses when it comes to area precious metals firms. In the case of Global Bullion Exchange, of the 20 clients who reported losses greater than $225,000, 10 are older than 60 and three others have died.
James Haston, a 70-year-old California retiree, confided more than $627,500 to JDC United Metals, believing he was capitalizing on the rising price of gold, said his attorney, Heather Rutecki. JDC United Metals chief executive officer Danny Reynolds repeatedly visited Haston, even staying at his house and calling him "Dad," according to a Broward Circuit Court lawsuit filed by Haston in December.
When Haston sought to pull money out, the lawsuit claims, Reynolds disconnected his phone and couldn't be found.
A person responding to the email address posted on JDC United Metals' website wrote the Sun Sentinel that Haston's lawsuit was frivolous and misleading. Broward Circuit Judge Victor Tobin ordered a JDC United bank account frozen in December, but the company has not filed a legal response to Haston's suit.
Two other retirees, Esther MacDonald-Gurl and Brian Gurl of North Carolina, sued Deerfield Beach-based American Precious Metals in February, alleging they lost more than $105,000 in a month with the company. One of the company's founders previously was sanctioned by the National Futures Association for running an investment business where employees made misleading sales pitches, according to the Gurls' lawsuit.
Attempts by the Sun Sentinel to speak to a representative from American Precious Metals were unsuccessful. The company reports on its Website that "85 percent of our business is repeat business and referrals."
Gurl, 74, said he and his wife have been in shock since losing so much money.
"This was our nest egg," he said.
jburstein at tribune.com or 954-356-4491
