Precious Metals Fraud

Many people invest in precious metals hoping it can provide a relatively safe way of diversifying a portfolio, as well as a partial hedge against securities. Yet, this interest in investing in precious metals has also caused many people to be the subject of fraudulent behavior. The risk is significant enough that the Commodity Futures Trading Commission (CFTC) issued an investor warning related to precious metals fraud.

Precious metals, which include gold, silver, platinum, and palladium, are considered commodities. A commodity is a good used in commerce that contains minimal differences from the same good that is made from another producer. In other words, a good that can be produced by two different manufacturers and be substantially the same. For example, a gold bar is the same regardless of the producer of the bar. Other examples of commodities include, but are not limited to, oil, natural gas, and grains. Transactions in commodities typically occur through the use of futures contracts on exchanges that provide standardization of the quantity and minimum quality of the commodity that is the subject of the sale or purchase.

The price of precious metals has steadily increased over the past several years as a result of increased demand. These metals are commonly used in jewelry and coins, but also have several other uses. For example, gold is a frequent component in electronics, and platinum is often used in medical equipment, computers, and automotive parts.

There are numerous ways in which investment can be made in precious metals, including:

1. Through stocks and mutual funds that hold shares in mining companies;
2. Directly, through investment in specific metals; or
3. Purchasing bullion bars produced by government mints or private companies.

Precious metals fraud occurs when an individual makes false or misleading statements in relation to the sale of commodities or commodities options. Often, these fraudulent schemes take the form of a sham precious metals firm or investment program. Companies purporting to be selling investments in precious metals may advertise on television, radio, or the internet. Additionally, some companies use cold-calling to connect with potential investors.

During these advertisements or communications, companies may promise returns on investments without disclosing the material risks that are associated with investing in precious metals. In some circumstances, firms may not actually own the metals that they promise to deliver to investors in exchange for money.

There are numerous signs of potential fraud, including if a salesperson:

1. Informs an investor that profit can be gained from current news that is already publicly available;
2. Represents him or herself as a metals dealer; or
3. Cold-calls purporting to represent a company promoting the purchase of precious metals.

Often times, investments in precious metals are made because some believe they are safer than other forms of investment. Unfortunately, investments in precious metals can also be susceptible to fraudulent sales practices that can cause investors to suffer significant losses. For more information about investment fraud, contact an experienced attorney today. At the Silver Law Group, we are proud to help victims of fraudulent precious metals transactions.