By Commodity Futures Trading Commission….
On Thursday, September 17, the U.S. Commodity Futures Trading Commission (CFTC) announced the filing of a civil enforcement Complaint in the U.S. District Court for the Southern District of Florida against Mintco LLC of Delray Beach, Florida, and its principals Stuart Rubin of Fort Lauderdale and Richard Q. Zimmerman of Wellington, Florida. The CFTC Complaint charges the Defendants with engaging in illegal and fraudulent off-exchange transactions in precious metals with retail customers. The Complaint further alleges that Rubin and Zimmerman controlled Mintco and are liable as controlling persons for Mintco’s violations of the Commodity Exchange Act (CEA).
According to the Complaint, from July 16, 2011 to the present, Mintco, by and through its employees, agents, or officers, including Rubin and Zimmerman, unlawfully solicited low net worth retail customers through telemarketing and Mintco’s website to buy or sell stored precious metals such as gold, silver, platinum, and palladium on a fully paid or leveraged, margined, or financed basis.
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (Dodd-Frank Act), transactions of this nature are unlawful unless they result in actual delivery of metals within 28 days of the purchase or sale, and unless the retail customers have sufficient net worth to be considered eligible contract participants (ECPs). According to the Complaint, Mintco’s customers did not qualify as ECPs; Mintco did not itself acquire, deliver, and store any financed metal on behalf of its customers; and the transactions did not result in actual delivery of metal to Mintco customers within the 28-day time-frame required by the Dodd-Frank Act. As a result, the Complaint alleges that the Defendants’ precious metals transactions constituted unlawful off-exchange retail commodity transactions. The Complaint also alleges that Mintco was not registered as a Futures Commission Merchant, as required under the CEA to offer those transactions.
The Complaint further alleges that Mintco defrauded retail customers by misrepresenting and omitting to disclose material facts regarding 1) the past performance of the precious metals it marketed, 2) the price that the metals would need to reach for the customers to break even on their purchases, and 3) the nature of the relationship between Mintco and retail customers. According to the Complaint, Mintco charged customers commissions and fees that totaled as much as 37.5 percent of the customer’s investment and failed to inform customers that in excess of 80 percent of customers who purchased stored precious metal from it failed to cover their storage costs, interest charges, and other fees and earn a profit on their investments.
Finally, the Complaint alleges that Mintco contracted with a third party, Worth Group Inc., to manage its obligations. However, according to the Complaint, those financed precious metals transactions marketed by Mintco did not result in actual delivery within the prescribed 28-day window. The CFTC sued Worth in the U.S. District Court for the Southern District of Florida in August 2013, charging Worth with engaging in illegal, off-exchange precious metals transactions and other violations. On January 23, 2014, the District Court entered a Consent Order of Preliminary Injunction enjoining Worth from violating anti-fraud provisions of the CEA.
In its continuing litigation against Mintco, Rubin, and Zimmerman, the CFTC seeks disgorgement of ill-gotten gains, restitution for the benefit of customers, civil monetary penalties, permanent registration and trading bans, and a permanent injunction from future violations of the CEA, as charged.
CFTC Division of Enforcement staff members responsible for this case are Jon J. Kramer, Susan B. Padove, Joy H. McCormack, Jeffrey Gomberg, Elizabeth M. Streit, David A. Terrell, Scott R. Williamson, and Rosemary Hollinger.
CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.