Leverage Investments of Precious Metals

Facts for Consumers from the Federal Trade Commission

Leveraged Investments of Precious Metals -- March 1994*

Every year consumers lose billions of dollars to fraudulent telemarketing investments. Under one scheme, telemarketing companies may use high-pressure sales tactics to persuade consumers to make leveraged investments in precious metals, such as silver, gold and platinum. The companies may falsely claim such investments carry low risk and can be expected to generate high profits. However, the price of precious metals is volatile and an investment in these commodities is speculative and risky.

And by leveraging, borrowing money to make the investment, the degree of risk is magnified. During recent years, many consumers who have invested in these programs have lost a high percentage of their investments.

Before you agree to make a leveraged purchase of precious metals, read this brochure.

How the Scams Works

A salesperson may call urging you to invest in precious metals. The caller may predict that the market price of metals is about to skyrocket during the next few days or weeks and that if you don't act now, your investment opportunity may be lost. Claims may be made that your investment can be expected to generate substantial profits, with little risk, in as little as six months.

The salesperson may explain that, under their investment plan, you are to pay a portion of the cost of the metal in cash, often 20 percent, and a financial institution will loan you the balance. The financial institution will arrange for your metal to be held as collateral for the loan.

During the sales pitch, you also may be given information about program fees and commissions. But, in fact, FTC cases against such telemarketers suggest that many of the fees and commissions charged were misrepresented or concealed and that fees ate up the majority of the money that the consumers actually paid into the program. In addition, consumers often do not receive written account statements that completely disclose program fees.

Besides potentially losing your initial cash outlay to commissions and fees, a highly leveraged investment increases the risk of an equity call. An equity call occurs when changes in the price of the metals or program fees causes the value of your investment to fall to where the financing company considers your metal insufficient collateral to secure the loan. Upon receiving an equity call, you must decide whether to put more money into the investment or have the financing company sell the metal in order to pay off the loan. Either way, you are likely to lose some or all of your investment.

How to Avoid Losing Your Money

Consider the following precautions if you receive an investment solicitation.

• Be skeptical about any unsolicited phone calls about investments. You may be on a list that contains the names, addresses, phone numbers, and descriptions of people who have responded before to telephone solicitations regarding questionable schemes.
• Avoid high-pressure sales tactics. Sales presentations that urge you to buy now or you'll lose your investment opportunity are clues to a possible fraud. If you feel pressured, simply hang up the phone.
• Ask the caller to send you information about the company and its operation and verify the data. Check out the company's offer with someone whose financial advice you trust.
• Contact the consumer protection agency, Attorney General, and Better Business Bureau in your state and in the state where the company is located to learn if they know of any consumer complaints against the firm.

What to Do If You Feel Victimized

If you believe you are a victim of a fraudulent precious metals investment, first contact the company and try to get your money back. Write a complaint letter to the company that sold you the metal and to the company that financed the transaction. If possible, direct your complaint personally to the highest ranking officials in the company. Also, report your problem to your local consumer protection agency, state Attorney General, and the Better Business Bureau.

In addition, you may wish to contact the National Fraud Information Center (NFIC), Consumer Assistance Hotline at 1-800-876-7060, 9 a.m. - 5:30 p.m. EST, Monday - Friday, to report the company. The NFIC is a private, non-profit organization that operates a hotline to provide services and assistance in filing complaints.

You also may file a complaint with the FTC by writing to: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. Although the FTC generally does not intervene in individual disputes, the information you provide may help to indicate a pattern of possible law violations requiring action by the Commission.

Where to Go For More Information

The FTC has a series of Facts for Consumers that explain fraudulent sales practices and precautions you can take to avoid becoming a victim. Titles include: Art Fraud, Canadian Gemstone Scams, Dirt-Pile Scams: Mining for Gold, Gemstone Investing, Investing in Rare Coins, Investing in Wireless Cable TV, Swindlers Are Calling Telephone Investment Fraud.

*Leveraged Investments of Precious Metals has been reprinted without permission of The Federal Trade Commission. Please be sure to visit their site. You can find a link to The Federal Trade Commission and many other links about gold and bullion coins on our Links page.

The World Gold Council is a non-profit association of gold producers world-wide, with headquarters in Geneva and offices in major markets around the world. World Gold Council, 1 rue de la Rotisserie, CH-1204 Geneva 1, Switzerland.