The Commodity Futures Trading Commission (CFTC) has filed an enforcement action against one of the largest precious metals fraud cases in its history. In light of that action, we thought it important to remind victims and industry professionals about the CFTC whistleblower program, which offers rewards for nonpublic information about violations of the Commodity Exchange Act.
In total, the CFTC says the companies scammed thousands of retail customers out of more than $290 million. The entities based in Newport Beach, California, are charged with failure to register as a Futures Commission Merchant (FCM) and defrauding retail customers by pitching leveraged trading in precious metals as a safe, secure and profitable investment.
As part of the Dodd-Frank Act, Congress required certain leveraged commodity transactions to be traded on a regulated exchange. One exception provided by the law is for metals transactions that result in actual, physical delivery within 28 days. For the most part though, Dodd-Frank banned most over the counter (OTC) retail contracts involving gold, silver and other metals. Because the companies were not registered and were not engaging in transactions on a regulated exchange, the CFTC alleges that they were in violation of the Dodd-Frank Act.
The complaint also alleged that the entities were defrauding customers through misleading statements and taking advantage of customers through extraordinarily large spreads for transactions (sometimes as much as 100 times what would be found on a regulated exchange).
The CFTC complaint seeks a preliminary injunction to stop marketing of the program, disgorgement of the profits of the venture and the return of the investor funds (restitution).
Off exchange precious metals fraud has been an active area of enforcement for the CFTC over the past five years, although the typical case is more frequently in the several million dollar range. The CFTC offers whistleblowers in this area rewards of between 10 and 30 percent of the amount recovered under the terms of its Dodd-Frank whistleblower program if the amount recovered is in excess of $1 million.
If you have evidence of the operation of a precious metals fraud, please call 1-800-590-4116 to speak confidentially to Eric Young or one of our other CFTC whistleblower lawyers about reporting it.