Gold IRA Scams: How Gold Investors Can Avoid Getting Burned
If there’s anything that history has taught us, it’s that there will always be individuals and organizations looking to take advantage of others through scams.
This is especially true in the world of investing, where people are often looking for an easy way to make a quick buck.
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As an investment vehicle, gold has been particularly popular in recent years, making it a prime target for scammers taking advantage of those that don’t understand various concepts – including what drives the price of gold.
To protect yourself from being taken advantage of, it’s essential to be aware of the most common gold scams and how to avoid them.
In addition, using the right investment apps to monitor the markets and stay on top of your investments can also help you avoid being scammed.
In this article, I’ll go over some of the most common gold scams known in the investment world and provide you with tips on staying safe while investing in gold.
Before I get started, if you’re interested in learning all about the lies that Gold IRA dealers tell (and what to do about them), here’s a free report that you might find helpful.
This is the same information used by American former football quarterback Joe Montana to make an investment in gold.
Several banking and shadow-banking institutions in mainland China were duped by a massive counterfeit gold scandal centered in – you guessed it– Wuhan.
A jewelry company called Kingold, once big enough to have been listed on the Nasdaq, deposited billions of gold bars as collateral with 14 different banks and borrowed $2.8 billion against them to invest in the Chinese real estate bubble.
The problem: About 83 tons of that gold collateral was apparently fake.
The fraud was discovered when one of their lenders – Dongguan Trust – ran into financial trouble and had to call in their loan.
Kingold didn’t have the cash – not least because as many as 65 million recently-built homes are still sitting unoccupied, and not generating rental income for investors. So the bank moved to liquidate gold collateral.
Upon inspection, the bank discovered that many of the gold bars on deposit were made from gilded copper.
No individual gold investors were directly harmed in this scandal.
But the scale of the fraud – 83 tons of metal – shows just how much capital and resources are directed at fraud.
If 14 established banks could be so easily duped, what chance does the individual retail gold buyer or investor have?
Well, it turns out that there is quite a lot you can do to protect yourself.
But you can’t be lazy or gullible.
Financial advisors commonly recommend at least some exposure to gold and precious metals in your retirement plan.
Held in combination with mutual funds, annuities, retirement funds, cash and retirement savings and pensions, and other assets, physical gold, and other precious metals represent a way to diversify your portfolio against stock market risk, inflation, currency risk, and other hazards.
The first step to protecting yourself against gold scams, precious metals fraud, and counterfeit rings is to understand these criminals’ various techniques and approaches to further their investment scams.
China is home to some of the world’s biggest and most sophisticated gold scams and counterfeit operations.
Many gold scams take the form of a Ponzi scheme, in which scammers pocket their investors’ money instead of investing it as promised – paying out just enough to keep the fraud going.
In one such case, Northwest Territorial Mint’s owners took in millions in orders to deliver gold bullion coins.
But they defrauded their buyers by lying about shipping times, while they used the money to expand the fraud to other states and for their lifestyles.
They used the money from new orders to pay off older customers.
According to the Justice Department, Northwestern Mint defrauded over 2,500 customers, resulting in total losses of more than $25 million – and 14 felony convictions.
In another similar case, Hannes Tulving of Newport Beach, California, was president of The Tulving Company, which sold coins, bullion, and other precious metals over the Internet.
Again, Tulving’s scheme started with failing to deliver the gold and precious metals promised to customers.
Instead, Tulving used their money to fund his lifestyle and keep the scam going for as long as he could.
When customers demanded to know why their shipments hadn’t arrived, Tulving made various excuses and delivered the metal or refunded customers’ money only when they threatened legal action.
By the time the Justice Department got involved, Tulving had already stolen over $15 million from some 380 different victims.
Make noise early.
Yes, there are occasional delivery issues, even with legitimate dealers.
But if you feel like you’re getting strung along, it’s much better to demand a refund early – even if you have to threaten legal action – rather than be one of the last people in the Ponzi scheme holding the bag.
In this widespread scam, unscrupulous coin dealers may convince buyers to purchase “rare,” “proof,” “uncirculated” or collectors’ coins at very high markups over spot price.
Sometimes the gold dealer delivers a similar coin of lesser value.
The ordinary consumer is unable to spot the difference.
In one case, a retired widow in her 70s received an offer from a dealer to buy her collection of Swiss gold coins for $10,000.
She agreed, and sent the coins to the dealer. But the dealer told her the price of gold had fallen, and he could only give her $8,500.
She smelled a rat, refused, and demanded her coins back.
The dealer delayed returning her coins until she threatened legal action.
Finally, the dealer sent her a different set of coins.
When she had them appraised, she found the replacement coins were worth only $1,100.
According to the Minnesota Attorney General’s office, she was never able to recover her lost coins or her money.
Most ordinary consumers and retail investors should focus on bullion: Coins and bars are explicitly manufactured for their precious metal content and sell for very close to their spot price.
Non-experts should avoid rare coin speculation, proofs, and collectors’ items.
By sticking to ordinary bullion products and paying very close to the spot price for precious metal content, consumers and investors leave minimal opportunity for scammers to exploit their ignorance in a valuation scam.
Suppose you’re looking to buy gold to hold in your precious metals IRA.
In that case, it’s a good idea to deal with a gold IRA company that deals specifically with IRAs and other retirement accounts regularly.
There are multiple reasons for this:
First, Congress and the IRS have placed significant limitations on the types of gold and precious metals allowable within an IRA:
- You can’t buy gems, jewelry, or collectibles other than specific types of bullion coins for your IRA investment.
- All your precious metals holdings must be bullion coins, bars, or rounds of sufficient fineness and purity: Gold must be 99.5% pure, silver must be 99.9% pure, and platinum and palladium must both be 99.95% pure.
- Precious metals IRA assets must be produced by a national government mint or an assayer, refiner, or manufacturer that is accredited or certified by NYMEX, COMEX, NYSE/Liffe, LME, LBMA, LPPM, TOCOM, or ISO 9000.
- Proof coins must be in complete, original mint packaging, and in excellent condition. They must also include a certificate of authenticity.
- Small bullion bars (other than 400-ounce gold, 100-ounce gold, 1000-ounce silver, 50-ounce platinum, and 100-ounce palladium bars) must be manufactured to exact weight specifications.
- Non-proof (bullion) coins must be free from damage and in brilliant uncirculated condition.
Some unscrupulous or uneducated precious metals dealers and salespeople may try to give you sales pitches and sell you numismatic collectible coins, bars, or rounds for your individual retirement account – even though the law disallows collectibles and numismatic products in IRAs.
These salespeople are just out for their commission.
Suppose you try to hold numismatics, collectibles, or unauthorized coins within your individual retirement account.
In that case, the IRS may disallow the entire IRA and force you to take a taxable distribution of the full amount.
This may lead to substantial income tax liability and penalties.
The IRS requires that any physical gold, silver, platinum, or palladium held within an IRA or other retirement account be kept in possession of an IRS-approved custodian, such as a third-party vault or depository facility.
You cannot take personal possession of your gold IRA assets.
You can’t store them in a home safe or even a safety deposit box under your control.
Some precious metals dealers have engaged in careless or misleading advertising for something called a “home storage IRA.”
They imply that you can buy gold bullion, palladium, platinum, and other forms of precious metals and take home delivery, rather than storing them at a third-party depository vault facility that acts as an IRA custodian.
A recent court case makes it clear, however: Attempting to store precious metal IRA assets at home is illegal.
You can store all the gold bullion and other metals you like at home if you hold it in your own name, outside of a retirement account.
But if you want to hold the physical gold or other precious metals in your self-directed IRA, 401(k), SEP or SIMPLE IRA, or other retirement accounts, you must not take possession of them even for a moment.
Instead, you have your precious metals dealer send the physical gold or silver IRA assets to a third-party depository facility until you sell the asset or take a distribution.
In an affiliate scam, the criminal exploits shared affiliation to build trust and then exploits the mark.
Often, the scammer takes advantage of other members of a church, synagogue, or veterans organization.
People tend to trust others who are like them – and are therefore especially vulnerable to con men and scammers.
For example, Larry Bates, together with his wife and two sons, heavily promoted his precious metals business, First American Monetary Consultants, through Christian and Jewish television and radio stations.
He held conferences and seminars across the U.S., promoted to religious audiences, sowing fear of an imminent economic collapse, and sold the need to invest in precious metals.
He was a good salesman: Between 2007 and 2013, his customers gave him and his firm more than $87 million.
But he wasn’t a good steward of their money: According to the Justice Department, he diverted their money to fund his own lifestyle and commodities trading.
He spent four million dollars creating a Christian media organization, the International Radio Network, to further promote his family’s schemes, and built a 10,000-square-foot house on 300 acres in Tennessee.
By 2009, the company had already bilked investors with $26 million in unfilled orders for gold and precious metals.
The family was eventually sentenced to a combined 627 months in federal prison.
The affiliate scheme isn’t limited to religious affiliations. The Federal Trade Commission reports that African Americans and Latin Americans are also vulnerable to being exploited by criminals seeking to take advantage of their trust in fellow minorities.
There are multiple large-scale, sophisticated counterfeit rings operating with the assistance of corrupt state and banking officials in both China and Africa.
But the problem is by no means limited to those areas: Counterfeiters operate nearly everywhere in the world. Gold and silver buyers need to be on constant alert.
34-year-old Jonathan Kirschner of Morristown, New Jersey, was convicted of importing and selling counterfeit silver “Morgan dollars.”
He also admitted to selling fake gold bars to another buyer for $11,000 in cash.
The twist: Kirschner was also convicted of impersonating a federal agent. When meeting with buyers, he would wear a fake Bureau of Alcohol, Tobacco, and Firearms badge to lower buyer suspicion and resistance to the scam.
Other well-capitalized criminals are actually making counterfeit bars using real gold. Only the markings are faked.
The scheme allows criminals to circumvent sanctions and launder large amounts of money.
China, in particular, is the source of many counterfeit gold coins and bars. Criminals have made hundreds of thousands of fakes out of lead, tungsten, or copper and apply a thin plating of gold for color.
Most of these coins are sold via the Internet, rather than in person.
Experienced gold buyers can usually quickly spot fakes from experience by the look and feel of the coin.
Where that fails, savvy buyers routinely use scales and calipers to gauge the exact weight and thickness of the coins they buy, which is extremely difficult to duplicate, even for the most sophisticated counterfeiters.
However, criminals who sell fake coins to consumers over the Internet don’t have that problem. It’s hard to tell fakes over the Internet.
And the photo from the site may not be the coin you receive – if you receive the coin at all.
Many people buy very convincing fake coins over the Internet and don’t realize they’ve been tricked for years – when they try to sell the coin.
They find out it’s fake from their neighborhood dealer just when they need the money.
- Buy only from established and reputable dealers.
- Check online reviews from verified sources.
- Invest in a scale and calipers, which should quickly identify all but the most obvious fakes.
- Be very suspicious of any coins or bars selling for less than the spot price.
- If you are financing your precious metal purchase and not physically receiving the metal (e.g., the metal is to be stored in a depository or vault facility), make sure the firm is registered with the National Futures Association.
- Invest in a scale and calipers. Know the exact weight and thickness of every coin you consider buying. For example:
- One-ounce 24k gold coins, such as Canadian gold maple leaf coins, should weigh precisely 31.1 grams.
- 22k gold coins, such as American Gold Eagles and South African gold Krugerrands, made of a “crown gold” alloy of 91.67% gold, 5.33% silver, and 3% copper, should weigh 33.93 grams.
- Beware of anyone who tells you gold investing isn’t risky. It is. Gold market prices fluctuate. There is no bank or government guarantee in gold investing. You can lose money.
- Don’t believe anyone who claims they can “guarantee” returns in the precious metals market.
- Be cautious about buying in direct response to radio, television, or Internet advertisements.
- Be cautious about anyone selling gold or silver at below the spot price. If precious metals are selling for much less than spot prices per ounce, something is almost always wrong.
- U.S. readers should be careful about sending money to overseas dealers, merchants, or anyone outside the reach of U.S. law enforcement.
- Be wary of ‘boiler room’ pitches – unsolicited phone calls or emails from precious metals brokers.
- Be careful of anyone who claims the supply of gold or silver coins is limited. “There are only five of these coins left in the inventory; you’d better buy now.” If you stick to investing in bullion, there are many American Gold Eagles, Gold Buffalos, and Canadian Maple Leaf coins. You will be able to buy it tomorrow after doing your due diligence.
If you believe you’ve fallen victim to gold ira companies (or any other type of gold scam), you can contact various federal and state regulators.
You can contact your state attorney general’s office or the Federal Bureau of Investigation’s local field office.
You can also report suspected fraud to the Federal Trade Commission.
To report suspected mail fraud, contact the United States Postal Inspection Service:
Criminal Investigations Service Center
1745 Stout Street, Suite 900
Denver, CO 80299-3034
There’s also the Commodity Futures Trading Commission (CFTC) that can help out as needed.
Want to learn more about Gold IRA dealer lies and how to avoid them?
Further reading on AdamEnfroy.com: Want to learn more about what you can do with a gold IRA?
Here’s a guide on how to rollover a gold IRA.
Moreover, here are some of the most recent retirement statistics if you’re interested in learning more about this.