There have been SHORT problems!
From the BBB(note 1995 date):
In general, the deferred delivery plan works like this: a company offers the public gold (or silver) at or below "spot" (market) prices, without the normal commission charged by most dealers. Customers pay up front for their coins or bullion and are promised delivery within a specified time -- up to fifteen weeks. When the delivery date nears, expectant buyers may be offered a 1.5% to 2.5% per month return on the money they have already sent the company if they will put off taking delivery of their gold.
10. Be aware that deferred delivery contracts for gold and silver are not regulated by federal, state or provincial governments and that many coin and bullion dealers similarly are not subject to regulatory oversight.
Gold And Silver Investments
Consumer Information Sponsored by Member Businesses
Historically gold and silver have been investments with a mystique, beautiful metals with intrinsic value that will remain stable investments through wars, inflation and troubled times. Unfortunately, some unscrupulous dealers in precious metals prey on this fascination.
In recent months numerous firms across the United States and Canada have run advertising campaigns on television and in major newspapers to attract investors to gold and silver bullion and coins at or below "spot" prices. While there are many legitimate ways of investing in gold and other precious metals, NASAA and the CBBB warn that many of the firms offering them are not subject to any licensing by state or federal authorities and have been using high pressure sales tactics, including the misrepresentation of expected returns on investments in gold or silver.
HOW SOME DEALERS OPERATE
In the past questionable investment schemes have involved commodity options, London options, leverage contracts and forward contracts. A current popular mode of operation involves agreements for deferred delivery of gold and silver. The recent bankruptcy proceedings of a Florida precious metals dealer involving claims for millions of dollars from up to 25,000 creditors in the U.S. and Canada, most of whom were deferred delivery buyers of gold or silver, points up the international scope of this problem.
Investors throughout the U.S. and Canada were solicited by the firm through national publications, prime time television and over the telephone. A NASAA-CBBB survey confirmed investors in the following states: Alaska, Colorado, Connecticut, Delaware, Illinois, Indiana, Iowa, Kentucky, Maryland, Massachusetts, Missouri, Montana, New Jersey, New York, North Dakota, Oregon, South Dakota, Texas, Virginia, Washington, Wisconsin and Wyoming; And in Canada, the Province of British Columbia.
The NASAA-CBBB survey also showed that other companies still are offering by telephone deferred delivery and other gold and silver investments and that some of them have been subject to court actions stemming from irregularities in their firms.
In general, the deferred delivery plan works like this: a company offers the public gold (or silver) at or below "spot" (market) prices, without the normal commission charged by most dealers. Customers pay up front for their coins or bullion and are promised delivery within a specified time -- up to fifteen weeks. When the delivery date nears, expectant buyers may be offered a 1.5% to 2.5% per month return on the money they have already sent the company if they will put off taking delivery of their gold.
In the recent Florida bankruptcy, thousands of investors chose to leave their gold with the firm, and many were also urged to send gold and silver bought from other sources to the company for storage or to invest more money with the firm in exchange for a monthly rebate check. If the company gets into trouble, e.g., if the price of gold goes up and the company can't cover its commitments, it may keep stalling delivery of purchases by such inducements as offers of astronomical interest payments in lieu of the gold. If the company goes under, customers stand to lose substantial portions, if not all, of their investments.
FORMS OF GOLD AND SILVER INVESTMENT
Gold and silver investments take many forms, which can be confusing to the investor. They include:
Ingot or bullion
Coins, including those minted by Canada, South Africa, Mexico, and the United States.
Futures contracts
Certificates
Warehouse receipts
Options on coins
Options on gold futures
Options on gold bullion
NASAA and CBBB do not recommend any particular form of investment in precious metals, or for that matter, do they recommend any investments, because the choice depends on one's circumstances and objectives.
If you do decide to invest in precious metals, however, it is always a good idea to consult with a reputable financial adviser and deal through a recognized merchant, broker of financial institution.
STEPS INVESTORS CAN TAKE TO PROTECT THEMSELVES
To minimize the risks involved with investing in precious metals, NASAA and CBBB recommend prospective investors heed the following warnings:
Don't buy precious metals advertised at "below spot prices." Spot prices mean today's prices fixed on major exchanges. Dealers selling gold or silver below spot are selling below market. This is a danger sign. Experience has shown that these dealers often do not buy the ordered metals hoping that the market will go down. Although they tell customers that gold is going up, the only way dealers selling below spot can make money is if the price drops so that they can later buy the ordered metal at a price lower than they sold it top the public.
Be cautious of buying precious metals where the dealer pays a percentage of your investment as some sort of "rebate" for the right to hold your purchase. This is an indication of a possible fraud. Since the gold or silver bears no interest sitting in a vault (unless the dealer is in another income producing venture) the only way the dealer can pay a percentage or interest for holding onto your gold or silver is from the investments of other customers: The classic Ponzi scheme.
If you choose to have someone hold your gold, check into their reputation and integrity. A real red flag is the refusal of a dealer to timely deliver your gold after your request.
Make sure the dealer segregates funds. Find out if investment funds are kept separate from operating funds of the company in some sort of trust agreement. If the salesperson won't confirm that funds are segregated or you can't find out some other way, steer clear of the dealer. If investment funds are not segregated and the company goes out of business, your chances of getting any money back are greatly diminished.
Do not send money in the mail to a dealer by certified check. A safe method of payment, used by many legitimate dealers, is delivery of the bullion or coins to your bank against your bank draft. The bank will not release the money until the gold or silver is in its hands or in your safe deposit box.
Protecting oneself from counterfeit gold and silver is another problem. Coins such as Krugerrands, Canadian Maple Leafs, and U.S. and Mexican gold coins are harder to counterfeit than gold bars or ingots. However, gold bars issued by major U.S. and European companies with their marks affixed are virtually as safe as coins. As with all investments, the purchase of gold or silver is as safe as the reputation of the seller; it is wise to deal with established companies with good reputations.
Check the legitimacy of the dealer. Ask for bank references and follow up with a call to the bank. Don't be afraid to ask questions about segregation of funds, the company's balance sheet or its line of credit. Call your local Better Business Bureau for a reliability report on a company you are thinking of dealing with. Check with your state or provincial securities commission. These members of NASAA investigate for fraud and may be aware of a pending action against an entity you are thinking of buying from. Another source of help is the consumer protection office in your state or province, often part of the Attorney General's office.
When buying warehouse receipts for gold, silver or other metals be cautious; remember, the receipts are only as good as the name of the seller. Be sure to buy from a major bank or bullion dealer that is government regulated. Similarly in buying gold or silver certificates you should deal through reputable brokerage firms or banks.
Trading in futures contracts for gold and silver in the United States and Canada through exchanges is regulated by government agencies. However, the futures market for these precious metals is not without risk. Sometimes, in a falling market, an investor can lose more than his or her initial investment.
Be aware that deferred delivery contracts for gold and silver are not regulated by federal, state or provincial governments and that many coin and bullion dealers similarly are not subject to regulatory oversight.
Small investors should be careful when presented with offers to invest in "strategic" metals such as cobalt and titanium. Recently some unscrupulous dealers have been misrepresenting the potential risks and earnings connected with dealing in these metals.
Ask for written information. Read it and consult with a knowledgeable person before investing. Do not be rushed.
G34.9/95
Gold & Silver Investments © 1995
bosbbb.org
If the little guys were failing at it in 1995 could the big guys be near failure with the same scheme now?
Someone needs to ask each of the "regular suspects" if they have a
"deferred delivery plan" & if so, write the BBB.
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