Three Palm Beach County companies were part of a scheme that used hefty commissions and steep fees to defraud hundreds of speculators in precious metals of $46 million, federal regulators say.
In a suit filed in federal court in West Palm Beach, the U.S. Commodity Futures Trading Commission said the firms charged customers interest on loans that were never made and pocketed storage and insurance fees on phantom metals. U.S. District Judge Donald Middlebrooks this week ordered that the companies stop selling the investments to retail customers.
Named as defendants in the commission’s suit are: Lloyds Commodities of Palm Beach Gardens and its managers, James Burbage and Frank Gaudino; Blackstone Metals Group of West Palm Beach and its manager, Baris Keser; and Newbridge Alliance of West Palm Beach and its manager, John King. Also named is C.D. Hopkins Metals Division, a California telemarketing firm that had an office in West Palm Beach, and Hunter Wise Commodities, a Las Vegas firm described by Middlebrooks as the “conductor” of the scheme.
“This is not a one-time fraud,” Middlebrooks wrote in this week’s order. “This is a careful and calculated system designed to maximize profts by taking advantage of ill-advised investors.”
One Lloyds Commodities client told The Palm Beach Post in 2011 that he was confused about why the balance in his account dwindled so rapidly. Michael Chittum, a novice investor with no experience trading metals, put his $14,000 nest egg into silver, only to see the amount quickly fall to $7,000.
In their suit, federal regulators offered insight into where Chittum’s money might have gone. Customers were charged a commission of up to 38 percent, a mark-up or mark-down of 3 percent to 5 percent, interest at an annual rate of 9.5 percent and a service fee of 7 percent.
Most of the companies’ customers lost money, federal regulators said. One report by Hunter Wise Commodities showed that 98 percent of customers who traded C.D. Hopkins took a loss.
Regulators also accuse the firms of lying about storing customers’ gold, silver, platinum and palladium in vaults. In fact, the investments were only “paper transactions,” regulators said.