Precious Metals, Costly Fraud

Safeguard Metals LLC and its principal, Jeffrey Santulan a/k/a Jeffrey Hill were hit with multiple enforcement actions this week, alleging fraud in their sale of securities and commodities to investors they targeted to sell their existing securities and invest the proceeds into gold and silver coins.  The CFTC and 27 state security regulatory agencies jointly filed one action, and the SEC filed its own action.  Both allege that defendants defrauded investors out of approximately $68 million.

According to the complaints, Safeguard and Santulan targeted their marketing to senior citizens and those nearing retirement age, and used high-pressure tactics and misrepresentations to convince them to convert their accounts into self-directed IRAs which they then used to purchase precious metals marketed by defendants. The government alleges that defendants made false and misleading statements, including about the risk and safety of their investments in traditional retirement accounts, and hid extraordinarily large markups from their customers. Victims unwittingly paid anywhere from 51 percent to an over 70 percent markup on precious metal purchases. When customers inquired about the value of their investment, Safeguard claimed the silver coins were rare and carried a premium far above the base melt value. This induced victims to overpay for silver coins that were significantly less valuable than Safeguard claimed, based on the resale prices the firm marketed and promoted.

The SEC pleads claims against defendants for fraud in connection with the sale of securities, and while acting as investment advisors. The CFTC and state complaint pleads claims against defendants for violations of the Commodity Exchange Act, based on fraud in connection with the sale of commodities. The state security agencies–all members of the North American Securities Administrators Association (NASAA) – collaborated under an information sharing agreement, signed in 2018, which enables the agencies to combine resources to root out large-scale, multi-jurisdictional fraud. The agencies are seeking from Safeguard and Santulan the return of ill-gotten gains, civil monetary penalties, restitution, permanent registration, trading bans, and a permanent injunction of further violation of the Commodity Exchange Act, state regulatory laws, and CFTC regulations.

Fraud against seniors and vulnerable populations is at “epidemic” levels, according to NASAA President and Maryland Securities Commissioner Melanie Senter Lubin. Such pervasive fraud illustrates the need for, and powerful reach of, cooperative agreements between state and federal agencies. Lubin is correct, as this is the second such sweeping enforcement action. The first was filed in September 2020, for a $185 million fraudulent precious metals bullion scheme, also targeting elderly persons nationwide.

In addition to the federal and state agencies who wield enforcement power, equally essential are whistleblowers willing to step up and expose fraud, providing information on illegal activity that would otherwise go undetected. Both the SEC and the CFTC offer rewards to whistleblowers in successful enforcement actions.  If you would like more information or have questions about bringing a whistleblower claim, please contact us for a confidential conversation.

Read More:

• Financial & Investment Fraud
• What Potential Whistleblowers Need to Know About the Dodd-Frank Act
• Misrepresentations in Sales of Securities and Commodities

Tagged in: Financial and Investment Fraud, Fraud in CFTC-Regulated Markets, Misrepresentations, Securities Fraud,