Senators Bill Nelson and Susan Collins Release Summary of year-long
WASHINGTON, DC- The U.S. Senate Special Committee on Aging, led by Chairman Bill Nelson and Ranking Member Susan Collins, today held a hearing to examine precious metal investment scams that have in recent years defrauded thousands of consumers, including many senior citizens, out of their hard-earned savings. The hearing, which is the culmination of a year-long committee staff investigation into unscrupulous precious metals firms, featured testimony from regulators as well as a scam victim and a scam perpetrator. Senators Nelson and Collins also released a document summarizing the conclusions of the Committee staff investigation.
As part of its investigation, the Committee looked at 34 federal cases involving more than 9,100 victims who lost an estimated total of nearly 300 million dollars—as estimate that investigators describe as “conservative.” Even though federal and state regulators have worked to penalize those who operate these scams, precious metal fraud in the U.S. remains the sixth most significant form of financial fraud.
Senator Collins said that precious medal scams are “particularly appalling” because they prey on seniors who are eager to avoid the dangers of the stock market, trying to find a safe haven for their life savings. She explained that a key feature of the scam is to get a customer to pay real money for precious metals—gold, silver, platinum, or palladium—that the scammer never delivers and often doesn’t even own. In addition, investors are often subjected to exorbitantly high transaction fees that can all but evaporate the investment.
One of the witnesses at today’s hearing, Joe Melomo, who is a retired physicist living in Texas, described how he was bilked out of $170,000 by a company that convinced him that his investment was not only safe, but would be profitable within a short period of time. Unbeknownst to him, the company made all of his transactions on leverage, with only a tiny portion of the investment going toward the actual purchase of metals. Approximately 97 percent of his funds went to fees, transaction charges and interest, resulting in a loss of most of his investment.
Other witnesses, including Karl Spicer, who worked for a company that defrauded investors and has since been convicted of fraud, provided Committee members with some insight into how the complex investment scams are operated. He described high-pressure sales tactics as well as the uncanny ability of sales persons to gain the trust of potential investors.
Federal regulators described public education efforts to help consumers avoid fraud, although Committee Members, including Senator Collins, agreed that more must be done to educate the public about investment scams. Senator Collins also questioned whether federal regulators should consider requiring precious metal investment companies to provide stronger disclosure about the real risks associated with investing.
In written testimony that was submitted for the hearing, Maine Office of Securities Administrator Judith Shaw wrote, “The creativity and guile of fraudsters is limitless. Always on the watch for the next opening, scam artists monitor the markets to watch for trends that can create a chance to target investors, particularly seniors. The crash of the markets and devastating economic downturn presented just such an opportunity for con artists interested in capitalizing on investor’s fears and uncertainty.” She further wrote, “It is my belief that the most effective weapon against any scam artist is an informed investor.” She thanked Senators Nelson and Collins for raising awareness on the issue.
Today’s hearing witnesses included: Joe Melomo, Precious Metal Fraud Victim from Texas; Dama Brown, Director, Southwest Region, Federal Trade Commission; Rosemary Hollinger, Regional Administrator and Deputy Director, Division of Enforcement for the Central Region, Commodity Futures Trading Commission; and Karl Spicer, Former Precious Metals Telemarketer from South Florida.