Report Off-Exchange Precious Metal Transactions Violating Dodd-Frank

The Dodd-Frank Act bars financed, off exchange transactions in precious metals with retail customers that meet one of the exemptions present in Section 742(a).  The CFTC has brought enforcement actions against a number of individuals and companies for violations of the law since it went into effect.

If you have evidence of an illegal, off exchange transaction in gold, silver, platinum or palladium, the attorneys of McEldrew Young can help you report it to the CFTC whistleblower office.  The government’s whistleblower program pays a reward of between 10 and 30 percent to eligible individuals when the commodities regulator is able to recover $1 million or more.

The Dodd-Frank Prohibition on Financed, Extended Delivery, Off-Exchange Transactions in Gold, Silver, Platinum and Palladium.

Dodd-Frank effectively banned most over the counter retail contracts involving gold, silver and other metals. No person is allowed to enter into a commodity transaction using leverage or margin with a person that is not an eligible commercial entity or contract participant, according to section 742(a) of the law. An exception to the law allows metals transactions resulting in actual, physical delivery within 28 days. The law went into effect on July 15, 2011.

The financed transactions must comply with both the Commodity Exchange Act’s on-exchange trading requirement from section 4(a) as well as the anti-fraud section 4b.

The law was passed to cover a gap in the law.  The retail sale of commodities using rolling spot contracts fell outside the regulatory authority of the CFTC.  A Seventh Circuit ruling in CFTC v. Zelener held that the agreements were not futures contracts under the statute.  Congress responded in 2008 by extending the CFTC authority over retail foreign currency transactions.  In Dodd-Frank, Congress extended the authority of the agency to include retail commodity transactions as well.

Fraud in the Precious Metals Market

CFTC Report

The CFTC issued a Commission Advisory warning of promises of easy profits from buying precious metals and other commodities.  The regulator warned about the cold calls and advertisements promising quick riches at lows risk.  It noted the various fees, some of which may not be disclosed up front, including a commission on the purchase transaction, loan origination fee, interest charges and storage/delivery fees.

It also warned about the inability of the agency to protect against certain foreign firms operating in the United States. It warned about the problems with recovering money transferred overseas and difficulties verifying storage of metal located offshore in a country with secrecy laws.

Senate Report

The Special Committee on Aging for the United States Senate conducted a staff investigation and published a report titled, Exploring the Perils of the Precious Metals Market.  The investigation concluded that seniors were an “overwhelming number of victims” and they were targeted by firms selling precious metals.

The reported warned about telemarketing firms using seedy suppliers to defraud consumers, troublesome financial arrangements using expensive in-house credit, and high pressure sales tactics.  An estimated 10,000 Americans lost approximately $300 million from fraud in the precious metals market.

The Benefits of Reporting

The Right Thing to Do

Whistleblowers have become animportant tool for law enforcement agencies.  Without tips from individuals with non-public information, a company’s violation of the Commodity Exchange Act and CFTC Rules might go unnoticed for years.  In order to facilitate disclosures, the CFTC allows anonymous reporting and takes measures to protect the identity of its whistleblowers.

Whistleblower Rewards

The CFTC will pay eligible whistleblowers an award of between 10 and 30 percent of the amount recovered from enforcement actions over $1 million.  The reward was authorized by Congress and the President in the Dodd-Frank Act.  It is administered by the CFTC Whistleblower Office.

Retaliation Protections

The CFTC protects whistleblowers against retaliation by their employer.  These protections were put in place by Dodd-Frank.  They start once an individual has filed Form TCR with the commodities regulator.

If you have evidence of a violation of the Commodity Exchange Act or CFTC rules, call 1-800-590-4116 for a free, confidential initial consultation with one of our CFTC whistleblower lawyers concerning reporting the suspected misconduct.

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