A smart reader on Investor Uprising recently noted that it's only a matter of time before tragedies become opportunities. And the inverse is true, too: It doesn't take long for people with questionable intent to transform opportunities to misfortune.
Gold prices are up, and so are related frauds and scams, according to the Financial Industry Regulatory Authority. FINRA, the largest independent regulator for securities firms doing business in the US, just issued an alert about aggressive marketing and advertising of gold investments, including gold stocks.
Gold hit a record of $1921.15 on September 6. And it's still climbing. Just today, UK-based hedge fund manager Tony Hall predicted gold may climb 21% to a record $2,200 an ounce by the end of the year, mainly because of uncertainty surrounding global sovereign debt and the corresponding devaluation of currencies.
But as gold fever spreads, securities regulators and investigators warn that the risks of fraud are increasing with it.
Some of the gold stocks and opportunities being promoted have little value, FINRA warns, and others are outright cons. Earlier this year, for example, the Commodity Futures Trading Commission (CFTC) took three separate actions against precious metals firms engaged in various schemes involving investments in gold, silver, and other precious metals. In one action, the CFTC charged a precious metals firm in Florida with running a boiler room fraud that bilked investors out of more than $23 million.
And just last month, Jamie Campany, the founder of South Florida-based Gold Bullion Exchange, pled guilty to fraud charges in a Ponzi scheme involving more than 1,400 investors who lost $29.5 million. Investors were solicited through telemarketing calls to buy bullion with margin-type financing, paying a small part of the cost upfront. After commissions and fees of up to 18%, state and federal investigators determined that no bullion was ever purchased.
Now, Internet spammers claim investors can get a share of some of the more than $1 billion in gold that former Libyan leader Col Muammar Gaddafi sold during the final days of his regime. Circulating as an email allegedly from the leader's wife, the gold appeal is a new variation on the long running Nigerian scheme.
In this version, unsuspecting investors receive a message saying several tons of gold need to be offloaded and only they can help. Recipients are promised a share of the riches as long as they help move the deposed leader's gold out of Africa... and send a lot of personal information and a transaction fee to the sender of the email.
How do you protect yourself? Well, it's hard to separate fact from fiction without understanding which is which. So start by reading The Gold Update, an easy-to-understand distillation of the gold market that IU Editor in Chief R. Scott Raynovich wrote after several months of analysis.
Then, understand the warning signs. FINRA warns many gold-related investment scams involve the stocks of gold mining and/or exploration companies, especially those involving unverified claims of gold reserves. FINRA warns investors to be skeptical about companies that:
- Tout price targets or predictions of swift and exponential growth.
- Boast about being buyout targets for other mining companies.
- Claim that their stock performance is tied to the general rise in gold prices.
- Use scare tactics such as the threat of inflation or an economic meltdown.
- Make speculative claims based on a new reserve's proximity to an existing reserve.
- Change their corporate name or trading symbol to align it more closely with gold. FINRA warns one company that currently claims it's involved in gold mining and exploration was originally incorporated to establish health spas in urban areas. Name changes are reported through SEC Form 8-K, which you can find by using the SEC's EDGAR database.
While you're checking those SEC files, take the time to read the reports and verify any information you have heard about the company. Just remember that a company can file with SEC or register its securities and still be a bad investment.
If you opt to buy gold coins, be aware of three crucial things: The actual cost per ounce of precious metals; bullion value versus collector value; and timely delivery of the merchandise. And where you buy is as important as what you buy.
Three coin industry trade organizations -- the American Numismatic Association, the Industry Council for Tangible Assets, and the Professional Numismatists Guild -- put it like this in a joint statement: "If you don't know gold coins, you'd better know your gold coin dealer."
Check the dealer's rating with the Better Business Bureau. All you need to do to find a company's rating is type its name into the BBB's national search tool.
And see if the dealer is a member of the Professional Numismatists Guild or the American Numismatic Association. Both organizations require members to abide by certain codes of conduct and can be kicked out if they don't resolve legitimate disputes.