This article discusses gold IRA scams and how gold investors can avoid getting burned. Gold IRA scams are historically plentiful. Unfortunately, some organizations and businesses want to take advantage of hard-working investors through scams.
Selecting a reputable gold IRA and precious metals IRA provider is the first essential key to avoiding gold IRA scams:
• Look for a gold IRA plan sponsor that offers retirement savers personalized attention and a solid track record with retirement accounts.
• Look for a gold IRA plan sponsor that provides research reports. Gold and precious metals investing differ from stock market investing.
• Look for a gold IRA plan sponsor that offers safe, secure methods to help you invest in precious metals over the long term. Ideally, your plan sponsor offers a range of precious metal products to choose from.
Make sure your provider is reliable and trustworthy using this Gold IRA company checklist.
Table of Contents
- Investing in Gold for Retirement
- Gold IRA Scams in the News
- Financial Advisors Typically Recommend Precious Metals Exposure
- Ponzi Schemes and Issues Related to Non-Delivery
- How to Protect Yourself from Gold IRA Scams
- Gold IRA Scams and Frauds
- U.S. Law and Your Gold IRA
- Affiliate Gold IRA Scams
- Gold IRA Scam Warnings
- Report Precious Metals or Gold IRA Investment Scams
Investing in Gold for Retirement
Gold and precious metals remain popular as assets for long-term investments. Sadly, gold and precious metals investors have sometimes been targets for scammers. The Gold IRA scammers want to take advantage of what investors don’t understand about gold and other precious metals as investments.
For example, some investors might not understand why gold and other precious metals prices rise and fall. In order to protect yourself as an investor, it is crucial to be aware of some common gold IRA scams in order to avoid them.
Using gold investment apps can help you to monitor the precious metals markets and stay on top of your investments. Knowledge is an essential part of successful investing—and it can also protect you from would-be gold IRA scams.
In this article, we review some common gold IRA scams and offer suggestions about how to stay safe while investing your retirement plan funds in gold.
Gold IRA Scams in the News
Banks and alternative financial institutions in China were fooled by Kingold’s counterfeit gold scheme. Based in Wuhan, Kingold was once substantial enough to list shares on the NASDAQ exchange.
The company pledged billions in physical gold to collateralize $2.8 billion in loans. The funds were used to speculate in the real estate bubble in China.
Kingold offered 83 metric tons of gold to collateralize the loans and, apparently, they never had the gold in the first place. Dongguan Trust, one of the lenders recognized the fraud when Kingold’s loan was called. Kingold didn’t have the funds to repay their loan with Dongguan.
The real estate bubble burst to leave about 65 million unoccupied homes on the Chinese mainland. Since the real estate wasn’t generating rental income as planned, the bank sought to liquidate Kingold’s collateral.
When they inspected the gold bars on their vault, Dongguan officials learned that Kingold deposited gilded copper. In other words, copper bars were electroplated with a thin layer of gold.
Kingold’s fraud didn’t directly cause a financial loss to any individual precious metals investors. However, the enormous scale of this fraud demonstrates how much resources and capital were involved in the gold fraud scheme.
Fourteen banks were duped by Kingold in this scheme. That’s why learning about precious metals is so important to every individual gold IRA investor and retail gold buyer.
Financial Advisors Typically Recommend Precious Metals Exposure
Today’s financial advisors frequently suggest some exposure to hard assets in gold or other precious metals in your retirement savings plan. In addition to market securities e.g. mutual funds, stocks, bonds, annuities, and other assets, saving for retirement should include gold and other precious metals.
In an inflationary environment, gold is one of the best ways to diversify your retirement portfolio against risks associated with currencies, stock markets, and interest rate shifts.
Before investing, it’s essential to protect yourself from gold IRA scams, including counterfeit rings and other precious metals fraudsters. You must understand the approaches and techniques used by fraudulent organizations to propagate their gold IRA scams.
According to Nikkei Asia, China remains home to sophisticated gold IRA scams and other counterfeit precious metals fraud schemes.
Ponzi Schemes and Issues Related to Non-Delivery
Many investors remember Bernie Madoff’s Ponzi scheme in which investors’ funds were pocketed by Madoff and his colleagues instead of investing the money as agreed.
In a classic Ponzi scheme, the fraudsters pay out enough money to investors to perpetuate the fraud.
Northwest Territorial Mines Gold Fraud
Northwest Territorial Mints is a famous example of a precious metals fraud scheme. The firm accepted millions in investor orders and agreed to deliver liquid gold bullion coins.
The U.S. Justice Department reports that the fraudsters harmed more than 2,500 clients and those total losses were greater than $25 million. The firm lied to its buyers about when the gold bullion would be shipped and used investor funds to bilk new investors of their money in other states.
Like Madoff’s Ponzi scheme, Northwest Territorial Mints paid off existing customers with funds they received from new ones.
Ultimately, the DoJ booked 14 felony convictions.
The Tulving Company Gold and Precious Metals Fraud
The Tulving Company, led by Hannes Tulving in Newport Beach, CA, sold precious metals including bullion and coins to investors over the Internet.
Tulving’s fraud scheme began to unravel when the company couldn’t deliver precious metals to its customers. The company used investor funds to maintain their personal lifestyles.
Customers asked when their precious metals purchases would arrive and Tulving offered an array of excuses. The firm tended to deliver the purchase or refund their customers when legal action was threatened.
After the DoJ become involved in the Ponzi scheme and non-delivery problems, more than 380 investors lost at least $15 million.
How to Protect Yourself from Gold IRA Scams
As an investor, it’s critical to voice your displeasure with the gold retirement plan sponsor right away. While investing in gold may entail some delivery problems on occasion, it’s important to ask questions now.
Demand a refund and legal action if you feel uncomfortable. A legitimate gold and precious metals dealer will usually do so without delay. Don’t delay. History shows that the last victims to request a payout are often those who lose the most money.
Gold or Precious Metals Coin Valuation Frauds
History shows that some coin dealers encourage their buyers to invest in collectible rare, uncirculated, or proof coins. These coins, unlike popular and more liquid gold bullion choices, are often substantially more expensive than the current gold spot price.
Sometimes, the buyer receives a different coin than the one they were sold. Often, the coin is of lower value than the one they were sold.
For instance, a mature lady in her 70s wanted to liquidate her coins by selling them to a dealer. The dealer offered her $10,000 for the coins.
She acted in good faith by shipping the gold coins immediately to the dealer. When the dealer received the coins, she was told that the market price for gold coins was now lower and that her coins were worth less (about $8,500).
The seller refused to accept the new price and demanded that the dealer return the coins. The dealer didn’t return the coins. When she threatened a lawsuit, the dealer return coins but they were different from the ones she shipped to him. The coins returned were worth much less – about $1,000!
The Office of the Minnesota Attorney General reported that the woman never recovered her money or the lost coins.
Buy Liquid Gold and Precious Metals Bullion Coins
Unless you’re a sophisticated investor with a larger risk appetite, stick with bullion coins and bars. Because precious metals coins and bars are manufactured with their specific gold or precious metals content and weight, they are easier to sell. Your gold and precious metals coins and bullion will typically sell for close to the current spot price:
• Don’t buy rare coins and avoid speculation in uncirculated or proof items.
• Stick with typical bullion coins and bar products.
• Always pay close attention to the spot price when you decide to sell. It’s simple to find the current spot price online.
By following these easy rules, fraudsters have less opportunity to cheat you in a precious metals coin valuation scam.
Gold IRA Scams and Frauds
Let’s say you want to buy gold in your retirement account or gold IRA. In this scenario, select a gold IRA plan sponsor who regularly deals with individual retirement accounts (IRAs) and other retirement plan products every day.
Both Congress and the Internal Revenue Service (IRS) limit the types of precious metals and gold you may buy within the IRA account. Restrictions include:
• Investors cannot buy jewelry, collectibles, or gems in their gold IRA account. Your gold IRA is restricted to certain kinds of liquid gold bullion coins. Remember, you cannot book a loss in your gold IRA account.
• Your gold IRA must contain only bullion bars, rounds, and coins of specific purity and fineness. The gold products must be at least 99.5 percent in purity. In comparison, silver coins and products must be at least 99.9 percent pure. Palladium and platinum must be a minimum of 99.95 percent in purity.
• Your gold IRA assets must be manufactured by a recognized government refiner, manufacturer, assayer, or mint that’s certified/accredited by ISO 9000, NYMEX, TOCOM, COMEX, LME, NYSE-Liffe, LBMA, or LPPM.
• All proof coins must be deposited in their original and complete mint packages. They must be in “excellent” condition and offer a certificate of authenticity (COA).
• Bullion bars less than 100- or 400-ounce gold, 1,000-ounces silver, 50-ounce platinum, or 100-ounce palladium are restricted to exact weight specs.
• Should the investor own non-proof or rare bullion coins in the gold IRA, these must be in uncirculated and undamaged condition.
Avoid Numismatic Collectibles
Beware of precious metals salespeople or dealers who pitch numismatic collectible rounds, coins, or bars for your gold IRA. Laws of the United States disallow these collectibles and numismatics in your retirement plan.
These items are less liquid than gold bullion coins or bars. Salespeople and other marketers can charge higher commissions for these products.
What happens if you try to buy these unauthorized numismatic or collectible coins in your gold IRA?
IRS law says that your entire tax-deferred gold IRA may be disallowed. You may be required to take taxable distributions on the entire plan! Because the tax-deferred effect is one of the most attractive benefits of IRA investing, you may incur significant penalties and income tax liabilities.
Gold IRA Scam: Home Storage
U.S. and IRS laws prohibit you from taking personal possession of assets in your gold IRA. The IRS demands that your gold IRA and retirement plan assets be held by an approved custodian, e.g. depository facilities or third-party vaults. Therefore:
• You may not store precious metals or gold assets in a safety deposit box or safe under your control.
• Unfortunately, some gold dealers have purposefully misled clients by advertising “home storage IRA plans.”
• These dealers want you to believe that it’s possible to purchase gold bullion, platinum, silver, palladium or other precious metals using home delivery.
• You must store precious metals and gold IRA assets in a third-party vault or depository. You must use an IRS-approved gold IRA custodian.
U.S. Law and Your Gold IRA
United States law does not prohibit individual ownership and storage of gold bullion or precious metals at home. You must hold the assets in your name and not in a tax-deferred retirement account.
To own physical precious metals or gold in a SIMPLE IRA, self-directed IRA, employer 401(k) (learn how you can rollover your 401k plan to a gold IRA here), SEP, or other retirement plan account, you’re prohibited from possessing or holding these assets for even a short time.
Precious metals or gold dealers must directly ship these assets to an approved third-party depository or facility until you take a distribution from the plan or sell an asset.
Affiliate Gold IRA Scams
In another type of gold IRA scam, more than one criminal individual or business affiliate builds trust with clients. After this trust is achieved, the affiliation exploits the customer.
Frequently, the fraudster builds trust within a network of buyers, e.g. members of a veteran’s group or religious organization. In such scenarios, the members trust feedback from their friends. The scammers benefit from a member or members’ referrals.
First American Monetary Consultants
As an example of how con men infiltrate such organizations, Larry Bates and his family heavily advertised First American Monetary Consultants on religious television and radio networks.
First American Monetary Consultants organized seminars and conferences throughout the country. The business worked to instill fear in the minds of their conservative religious attendees, that fiat currencies like the U.S. dollar would fail in an economic collapse. To avoid imminent financial danger, Bates urged immediate gold and precious metals investments.
In three years (2006-2009), First American Monetary Consultants had already sold $26 million of gold and precious metals to customers. The company never delivered their clients’ orders.
Over a six-plus year period (2007-2013), First American Monetary Consultants sold $87 million in precious metals investments. According to the U.S. Department of Justice, the business didn’t invest clients’ funds. Instead, Bates and his family traded commodities and spent the money.
The Bates family bought 300 acres of land in Tennessee and constructed a 10,000-square-foot home there. First American Monetary Consultants spent more than $4 million to create a new religious right media organization (International Radio Network) as well.
Of course, the DoJ eventually brought the principals to justice. They were found guilty of fraud and sentenced to more than 52 years in federal prison.
Affiliate schemes aren’t restricted to religious or veteran groups. According to the Federal Trade Commission (FTC), some minority groups are especially vulnerable to scammers because members of these communities trust friends and relations in the community.
Gold IRA Counterfeit Scams
Gold and precious metals counterfeiting rings frequently arise in Africa and China. Banking officials and lax consumer protection laws help these sophisticated and large counterfeiting rings steal from gold and precious metals buyers.
Theft from counterfeiting is especially egregious when it involves investors’ retirement funds.
Of course, gold IRA counterfeiting scams have been identified in most major world markets. For that reason, precious metals buyers, e.g. gold and silver investors, must remain vigilant.
In the United States, Jonathan Kirschner of New Jersey was tried and found guilty of a fraudulent import scheme. He imported counterfeit Morgan silver dollars and sold them to unsuspecting buyers as authentic merchandise. He also sold counterfeit gold bullion bars.
Strangely, he was also charged and found guilty of federal agent impersonation. When he met buyers, Kirschner wore a Bureau of Alcohol, Tobacco, and Firearms identification to increase buyers’ likelihood of buying counterfeit coins and bars.
In some instances, criminals make counterfeit precious metal bars using real gold and silver. However, the markings (hallmarks) are faked. This sort of fraud enables the con men to launder money or get around certain legal sanctions involving precious metals transactions.
China and Precious Metals Counterfeiting
China is recognized for its production of counterfeit precious metal bars and coins. These imposters are made out of base metals, e.g. copper, lead, or tungsten, and coated with a thin layer of gold. Unless buyers test the coins and bars, they “look like gold.”
Many of these fake coins and bars are distributed over the Internet. Dealers are less likely to attempt to move such counterfeits because an experienced customer may notice the difference in how the merchandise looks and feels.
In addition, a knowledgeable buyer relies on a weighted scale and/or calipers to determine the precise weight/thickness of precious metals coins. It’s almost impossible for even the best counterfeiters to create fakes with the same weight and thickness as real gold and precious metals coins and bars.
That’s why Internet distribution works for criminals. It’s much more challenging for even experienced buyers to spot fakes online. What’s more, the seller might not provide an accurate photo of the coin or bar sold. You might not receive the merchandise as shown, or you might not receive delivery of anything at all.
In some cases, customers buy fake gold or precious metals coins online for years but don’t know they’re buying fake coins and bars. Eventual attempts to sell the fakes often disclose the moment of truth.
For these reasons:
• Buy gold and precious metals from reputable companies and dealers like Augusta Precious Metals or Birch Gold.
• Read online reviews (verified sources only, not only on the company’s website).
• Purchase a weighted scale and fine calipers to help you identify most fakes.
• Ask questions when anyone offers precious metal bars and coins at less than the current spot price.
• Choose a National Futures Association (NFA0 registered firm if you’re storing precious metals. Remember, you cannot take physical delivery of precious metals in your gold IRA, not even for a moment.
• Learn the precise thickness and weight of any coin you’re acquiring. Buy a weighted scale. Invest in calipers. Highly liquid Canada gold maple leaf coins weigh exactly 31.1 g of 24k (pure) gold. In contrast, American gold eagles or highly liquid South African Krugerrands are 22k gold, or 91.67 percent pure gold. These coins weigh 33.93 g. They’re heavier than solid 24k gold coins.
Gold IRA Scam Warnings
Investing in precious metals is not risk-free. Don’t trade with anyone who says investing in gold is simple or without risk:
• The price of gold and other precious metals fluctuates.
• Banks and governments do not guarantee the price of gold or other precious metals.
• It’s possible to lose capital. If the price of gold, silver, platinum, palladium or other precious metals drops from your purchase price and you need to sell, you will lose money.
• Avoid buying or selling gold and precious metals from dealers or others who guarantee your returns.
• Be wary of purchasing gold or precious metals coins or bars from Internet offers or direct response commercials on radio or tv.
• Never accept an offer to sell gold precious metals below the recorded spot price. There’s something wrong if your dealer offers to pay much less than the per-ounce spot price.
• Recognize that it’s a bad idea to send money to an international precious metals dealer or merchant. These individuals or businesses aren’t within the reach of U.S. law enforcement.
• Say no to boiler room pitchmen. Don’t act on unsolicited emails or calls from gold and precious metals agents or brokers.
• Don’t fall for pitches about the limited supply of any precious metal coins. Instead, invest only in highly liquid bullion, e.g. Canada maple leaf, American gold eagles, South African Krugerrands, or gold Buffalos. These coins are liquid, meaning you can find a smaller spread between the bid and asked prices.
• Always perform due diligence before making any investment. Buying and selling precious metals for your gold IRA for retirement is no different.
Report Precious Metals or Gold IRA Investment Scams
Gold IRA scams happen. If you believe you are a victim of a gold IRA plan sponsor or if you’ve been victimized in any way in buying or selling precious metals, contact federal and state regulators:
• Federal Bureau of Investigation local field office
• State Office of the Attorney General
• Federal Trade Commission
• United States Postal Service (suspected mail fraud, call 1-877-876-2455)
• Commodity Futures Trading Commission (CFTC)
Learn as much as you can about gold and precious metals markets before investing your retirement funds in a gold IRA. Education is the best way to avoid Gold IRA scams and take advantage of the long-term growth potential in gold and precious metals.