Commodities and Precious Metal Financing Fraud

Be cautious of promises of easy money from buying commodities and precious metals. Consumers should be aware of companies that sell investments in commodities and other precious metals based on sales presentations claiming that customers can make huge amounts of money, with little or no risk, by buying metal through financing contracts. Some of the time, these companies promote opportunities to speculate on the price direction of precious metals or other commodities such as gasoline, corn, or wheat, without having to take actual delivery of the commodity.

The U.S. Commodity Future Trading Commission (CFTC) is responsible for regulating the trading of options and commodity futures contracts in the United States and fines firms suspected of illegally or fraudulently selling options and commodity futures. In recent years, the CFTC has taken enforcement action against perpetrators who enticed customers to buy intended interests in commodities and precious metals without having to take delivery through several misrepresented claims that they would earn huge profits with little risk.

Some companies advertise in the media or make cold calls to unsuspecting customers to promote the purchase of precious metals such as platinum, silver, or gold. The CFTC views these advertisements as solicitations for get-rich-quick schemes. Companies making these false claims typically request that the customers pay a small portion of the total purchase price and that they will buy and store the metal. These same companies also will falsify the financing for the customer’s metal purchase so that the customer can earn a bigger profit by controlling a larger amount of metal with his paltry down payment. Companies often frown upon customers taking delivery of the metal. These companies many times charge a commission fee for the purchase transaction, a loan origination fee, an interest fee on the existing balance, and fees relative to storage and shipping of the metal they pretend to buy on behalf of the customer. Many times, not every fee is revealed up front.

It has been noted that companies making these sales presentations do the following:

• Lie about or overstate their ability to foresee prices or the direction of the commodities markets.


• Minimize the degree of risk involved in commodities trading.


• Fail to reveal how much the price of commodity must change in order for the customer to break even, since large finance and storage fees and commissions are deducted from the customer’s account before he realizes a profit.


• Fraudulently claim to be buying and storing the commodity, when they have no intention of doing so. For that reason, companies frown upon customers taking delivery of the commodity.


• Charge fictitious storage fees for commodities, when no commodity is bought or stored.


• Charge fictitious interest fees that reduce the customer’s account to the point where the customer must deposit more money to cover his losses or risk having his account closed. Again, the interest fees are fake because no commodity has been bought in accordance with the purchasing contract.


• Fail to disclose that because the customer is buying on “margin” he has to deposit additional money if the price of the commodity moves against him.

Signs of a precious metal or commodity investment scam

Here are the warning signs:

• Be cautious of high pressure sales techniques that coerce you to send in cash right away to the company via overnight delivery services, mail, or internet.


• Avoid any commodities trading company that guarantees huge profits with little or no risk.


• Beware of unsolicited phone calls about investments from international salesmen or companies that you have never heard of.


• Before investing into anything, contact the CFTC, your state’s securities commission, your state’s attorney general’s office, the Better Business Bureau, and the National Futures Association to verify if the company is legitimate.


• Gather as much information about the company whenever possible. If you can, verify the company’s materials with someone whose financial advice you trust.


• Learn about all the fees and commissions they will charge and the justification for each of these charges.



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• If you feel uneasy about a company, do NOT invest. If the company is reluctant to provide you all the information about their company, salesmen, and/or investments, do not risk your money.

Use Extra Caution when Dealing with International Companies

Some companies that solicit your business in purchasing commodities contracts are located outside of the United States even if they do not tell you this fact while soliciting your investment. U.S. government agencies have little or no jurisdiction over companies operating outside the United States. If you put your money into foreign companies, it may be difficult to get all of your hard-earned money back. Storing commodities or metals offshore might make it hard for you to verify your investment.

Request where the company that would handle your money is located, where the phone call you get originates, where your money will be deposited, and where the commodity will be stored. If you can, contact the company yourself.

There are lots of investment fraud schemes out there such as the crooked commodities investment scheme. It is up to you, the consumer, to educate yourself to recognize what is and is not legitimate. By doing so, you can minimize becoming a victim to this crime of investment fraud.

Source by Fabiola Castillo

Commodities and Precious Metal Financing Fraud