When stock prices take a wild ride, or start plummeting, investors often seek out safer and more lucrative places to invest. A precious metals individual retirement account (IRA) may appeal to investors in this situation, as this type of IRA allows investors to hold certain precious metals, such as gold, silver, platinum or palladium as a qualified retirement investment which can be purchased through a broker-dealer or other custodian.1
As with other investments, care should be taken when choosing a precious metals IRA.
On February 1, the Securities and Exchange Commission announced it had brought charges against a company which offered precious metals IRAs — Safeguard Metals, LLC of Woodland Hills, California, — and its owner, Jeffrey Santulan, a/k/a Jeff Hill, for allegedly perpetrating a $68 million precious metals IRA fraud scheme which targeted the elderly.
From December 2017 through at least July 2021, the SEC alleges that Safeguard Metals and its owner, “acted as investment advisers and persuaded investors to sell their existing securities, transfer the proceeds into self-directed Individual Retirement Accounts and invest the proceeds in gold and silver coins by making false and misleading statements about the safety and liquidity of the investors’ securities investments, Safeguard’s business and its compensation.”2
Santulan wrote scripts for salespeople which included false statements which were pitched to potential investors. For example, the salespeople told potential investors that banks and brokerage firms could freeze their retirement accounts in the event of a market downturn based on the “Money Market Reform Law” and that financial experts were predicting that market downturn was eminent, meaning that sometime soon investors wouldn’t be able to get money out of their 401(k) plans or IRAs.
While the Money Market Reform Law does exist, it applies only to money market funds in rare circumstances and couldn’t result in an individual’s entire account being frozen according to the SEC.3
Safeguard targeted investors who were 59 years and older through ads on social media platforms such as Facebook, Google, and LinkedIn, as well as through direct calls to potential investors who clicked on Safeguard’s online ads which touted “retirement funds being at risk.” In those ads the company falsely claimed, according to the SEC, that they had $11 billion in assets under management and offices in London, New York and Beverly Hills, California.
The company’s LinkedIn page contained links to prominent investment / securities professionals, making it appear that they were affiliated with the company even though these professionals were not affiliated with the company. The company misrepresented its size, experience, services, employees and sophistication to investors according to the SEC.
Investors were also mislead about Safeguard’s compensation, with salespeople telling potential investors that they only made a 1 percent commission when the coins were sold, when in reality Safeguard paid sales agents a commission of 8-10 percent of the total amount charged when the coins were purchased. In addition, Safeguard imposed substantial markups averaging 64 percent on the price of silver coins (which made up 97 percent of all coins it sold during the relevant period stated by the SEC).4
The “Precious Metals Shipping and Account Agreement,” which was listed on the Safeguard website, listed the company’s operating margin (the difference between Safeguard’s approximate acquiring cost of the coins and the price the investors paid) as usually between 4 and 23 percent depending on the type of coin sold. The SEC alleges that Safeguard obtain approximately $67 million from the sale of coins to more than 450 mostly elderly retail investors and made a profit on the markups of the coins of $25.5 million.5 The SEC is seeking permanent injunctions against Safeguard and Jeffrey Santulan, the return to investors of ill-gotten gains and interest, and civil penalties.
As with any investment, knowledge of the product is important. Experts recommend that no more than 5-10 percent of retirement funds be invested in precious metals.6 The experts cite the importance of investment diversification, the fact that gold and other metals haven’t historically performed as well as stocks and other asset classes. and the fact that the volatility of precious metals is similar to that of stocks.
If you have been targeted by fraudulent brokers, it is critical in establishing a legal strategy that is effective and protects your investor rights. This means taking action to protect your rights by contacting an experienced investment fraud attorney. If you have questions about investment fraud, financial schemes, broker misconduct, or about your broker’s management of your account, please contact our Securities Fraud Law Firm located in Detroit.
Our securities attorneys have more than 20 years of experience in helping countless individuals recover from investment losses. Call for a Free Case Evaluation today.
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1 What is a Gold IRA? by Julia Kagan, 1/11/2022
Link: https://www.investopedia.com/terms/g/gold-ira.asp
2,3,4 US District Court Central District of California Securities and Exchange Commission vs. Safeguard Metals LLC and Jeffrey S. Santulan, Case 2:22-cv-00693, filed 2/01/2022
Link: https://www.sec.gov/litigation/complaints/2022/comp-pr2022-17.pdf
5 SEC Files Fraud Charges Alleging a Multimillion Dollar Scheme that Targeted Retirement Accounts, 2/2/2022
Link: https://www.sec.gov/news/press-release/2022-17
6Precious Metal IRA: How to Invest for Retirement with Gold and Silver by Kat Tretina and John Schmidt, 12/17/2021
Link: https://www.forbes.com/advisor/retirement/precious-metal-ira-gold-silver/