The operators of a precious metals scam that duped elderly investors into buying overpriced coins from the Royal Canadian Mint have been banned and ordered to pay over US$56 million by a U.S. court.
The U.S. Commodity Futures Trading Commission (CFTC) sanctioned Red Rock Secured LLC, a precious metals dealer, the firm’s CEO and its senior sales rep in a consent order entered by a U.S. district court judge. The order found the parties made fraudulent misrepresentations to investors and handed out unlawful investment advice in connection with the sales of Canadian gold and silver coins.
According to the order, prospective investors were told the firm charged 1% to 5% fees on the sales of bullion. However, the firm actually sold the investors “premium” coins that were marked up by over 100%.
Investors paid over US$69 million for coins worth only about US$30 million, regulators alleged.
Most of the investors cashed out retirement funds and savings to buy the overpriced coins, the CFTC said. “The defendants preyed upon elderly victims to liquidate their retirement savings to invest in a precious metals scam,” said Ian McGinley, director of enforcement at the CFTC, in a release.
According to the order, Red Rock made various misrepresentations to investors, including claims that it had a direct relationship with the Royal Canadian Mint that enabled them to get better prices. The coins were actually purchased from wholesalers.
Red Rock also claimed that the supply of coins was limited, when in fact there was no production limit, regulators said.
The order requires the parties to pay US$39.0 million in restitution to investors, to disgorge US$5.1 million in ill-gotten gains and to pay $12.25 million in civil penalties. It also imposes permanent trading and registration bans against them.
The CFTC and the U.S. Securities and Exchange Commission filed parallel actions against the firm and its principals in May 2023.