Fool’s gold? CFTC says 12 firms sell phantom metals

2008 file photo of actual gold. AP

The CFTC is cracking down on firms playing up demand for metals during these uncertain economic times.

The U.S. Commodity Futures Trading Commission announced Wednesday, it filed a civil injunctive enforcement action in the U.S. District Court for the Southern District of Florida against 12 firms and their executives for fraudulently marketing illegal, off exchange retail commodity contracts.
The firms and individuals are: Hunter Wise Commodities, LLC; Hunter Wise Services, LLC; Hunter Wise Credit, LLC; Hunter Wise Trading, LLC; Lloyds Commodities, LLC; Lloyds Commodities Credit Company, LLC; Lloyds Services, LLC; C.D. Hopkins Financial, LLC; Hard Asset Lending Group, LLC; Blackstone Metals Group, LLC; Newbridge Alliance, Inc.; United States Capital Trust, LLC; Harold Edward Martin, Jr.; Fred Jager; James Burbage; Frank Gaudino; Baris Keser; Chadewick Hopkins; John King; and David A. Moore.

According to the CFTC complaint, the defendants claim to sell physical metals, including gold, silver, platinum, palladium, and copper, to retail customers in retail commodity transactions. Under the defendants’ retail commodity transactions investment contract, customers allegedly make a down payment on certain quantities of physical metals, usually 25 percent of the total purchase price. Defendants allegedly claim to arrange loans for the balance of the purchase price, and advise customers that their physical metals will be stored in a secure depository.

But the CFTC alleged that the defendants do not purchase any physical metals, arrange loans for their customers to purchase physical metals, or arrange for storage of physical metals for any customers participating in their retail commodity transactions. Instead, all the transactions are just paper transactions, according to the complaint. Defendants allegedly do not own or sell metals to customers; customers are charged storage and insurance fees on metals that do not exist; and are charged interest on loans, which are never made by the defendants.

Hunter Wise Commodities, the orchestrator of the alleged fraud according to the CFTC , has taken in at least $46 million in customer funds since July 2011.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 expanded the CFTC’s jurisdiction over transactions like these, and requires that such transactions be executed on or subject to the rules of a board of trade, exchange or commodity market, according to the complaint. This new requirement took effect on July 16, 2011. The complaint alleges that all of the defendants’ financed commodity transactions after July 16, 2011, were illegal. The complaint also alleges that the defendants defrauded customers in all of these financed commodity transactions.

David Meister, the CFTC’s Director of Enforcement stated: “Here is a prime example of how the Dodd-Frank Act provided the Commission with additional strong authority to go after wrong-doers, such as, as alleged in the complaint, individuals who prey on people looking to make retail investments in commodities like gold and silver. We will use this new authority to the fullest extent possible.”

Source: CFTC announcement.

Rob Varnon

7 Responses

  1. Julius says:

    Im all for regulation in this area, no question. For instance, if you have been “kicked out” of a partiuclar licensed industry, commodidities or stocks for instance,then in my opinion you should not be on the phone raising money. Next, for those of whom were “kicked out” of like industries should not be able to associate in any capacity with a business raising $ from investors. Next, unfortuantely due to shrinking federal budgets, this may be a strectch. I have been in this industry and can attest to the “sketch” that brokers these transactions. Not all of them of course. So what is the answer? REGULATION and Transparency. Who, what, when, where, why, and how? Time will tell.

  2. Richard says:

    Never fear! There is always some lesser fraud on the bottom that our elected saviors can protect us from! The big stuff, on the other hand, is where they get their money. Don’t worry about the big players ever getting busted.

  3. Homer thegreat says:

    Hey now.. if your a gold or silver bug then you know this is a move in the right direction. Should shake the knees of the JPM people a bit. they could be next. So stop poo-hooing and be glad some one is doing thier job.. Thank You Mr. Meister!

  4. Tom S. says:

    First thing that hit me is just what the previous commenters are saying, so here’s my variation:
    So, what?…. The CFTC is trying to show how tough they are, for one; and then that we are all wrong about what the big bullion banks are doing—or else why wouldn’t the big tough guys at CFTC go after JP and HSBC? So, there!

  5. Daniel says:

    Sounds just like the paper markets to me … don’t see why what they’re doing vs JP Morgan, Comex, Etc is any different than this. They are all criminals in my mind, but to isolate a few lower forms of them and not look at all of them and their criminal practices is BS.

  6. JPSerino says:

    Is this a joke?! Its OK to naked short in the paper markets with zero
    chance of delivering all of the ‘represented’ metal, as long as your name is JP Morgan or HSBC. If you actually sell physical on margin and are a small time player, you get hanged. THEY ALL SHOULD GET HANGED!

  7. This sounds just like how the COMEX operates .Why don’t you do something about that Bart.