While retail investment advice has mostly buttoned up since the turn of the century, the old vanguard of boiler rooms, cold calls and high-pressure sales tactics are alive and well in one opaque corner of the industry.
After the Taxpayer Relief Act of 1997 broadened the types of assets allowed within self-directed individual retirement accounts (SDIRAs) to include precious metals such as gold, silver and platinum, a cottage industry emerged in which commission-based salespeople work to convince investors to move their money from Roth IRAs, 401(k)s and other retirement accounts into SDIRAs where they can directly purchase these metals, namely gold and silver bullion.
Recently, federal and state regulators have targeted several such precious metals dealers in far-reaching lawsuits – the first of their kind – after dozens of retired or near-retirement investors reported being bilked out of millions of dollars by salespeople who allegedly charged undisclosed and inflated markups, sometimes higher than 100%, on the gold and silver products they sell.
Court filings in these ongoing cases and interviews with people formerly employed by the firms offer a rare glimpse inside the culture of many metals dealers, including how sales teams play on aging investors’ financial fears to push product.
In February, the Securities and Exchange Commission (SEC) charged Los Angeles-based precious metals salesman Jeffrey Santulan of Safeguard Metals with fraud, alleging he and his team made false statements to persuade more than 450 elderly investors to buy gold and silver at egregious markups, leading to roughly $25m in allegedly wrongful gains for the firm. Santulan and Safeguard have denied the allegations in court, and the case is ongoing.
A former Safeguard salesman who requested anonymity described to Citywire Safeguard’s operation.
The business operated on the ground floor of a multi-tenant office building on Ventura Blvd. in the West San Fernando Valley neighborhood of Woodland Hills. Behind a passcode-protected door sat a classic boiler room setup, with between 35 and 45 computer stations pushed together into several rows.
The sales team was divided between ‘openers,’ who would cold call prospects and give the general pitch of swapping stock investments for precious metals, and ‘closers,’ who would take over to talk about market specifics and to persuade prospects to move their money into SDIRAs. Each row of desks in the Safeguard office featured a string of three or four openers feeding leads to a closer sitting at the end of the row.
According to the salesman, openers were handed a script and a client relationship management system with a list of prospects. The quota was for openers to call between 150 and 200 prospects a day. If that quota was met, openers were rewarded with new leads.
While the salesman said he wasn’t employed at Safeguard for long, he said he observed a culture that reminded him of a ‘frat house’ or a ‘scaled-down’ version of the corrupt brokerage portrayed in The Wolf of Wall Street.
‘Closers,’ he said, were flashy with their wealth, flaunting expensive suits and jewelry and driving foreign sports cars. ‘Openers,’ on the other hand, were less well paid. He said his wage had been $15 an hour plus a marginal commission on closed deals. Turnover among openers had been high. To keep sales staff from getting comfortable, the office had been kept ‘really, really cold,’ he said.
Additionally, everyone in the office used aliases to conceal their true identities. ‘That was a red flag,’ the former salesman acknowledged.
According to the SEC, Safeguard’s pitch to customers gravitated around mischaracterizations of a ‘money market reform law,’ which closers told investors would allow banks and brokerage firms to freeze individual retirement accounts during an imminent recession. To remain in control of their assets, they said, investors should sell out of their securities portfolios and move money into gold and silver. While the money market reform law does exist, it applies only to money market funds in rare circumstances and ‘could never result in an individual’s entire account being frozen,’ the SEC said.
The salesman said Safeguard’s sales process during his employment leveraged the political landscape and 2020 presidential election to target older, politically conservative investors. The money market reform law was characterized by closers as a way for Democratic politicians to come after people’s retirement savings, he said.
‘With Trump leaving office, older Republicans were really scared about the direction of the country. They were scared about their finances in particular under the new administration. That was the catalyst for a lot of these people to move their money to a self-directed IRA,’ he said. The SEC noted in its complaint that Safeguard had found its leads by advertising on conservative political radio shows run by Sean Hannity, Mark Levin and others.
The hard-edged sales tactics used by gold sellers were observed in a phone call with Los Angeles-based metals dealer Fisher Capital (not associated with Fisher Investments), which is run by Alexander Spellane, a former ‘closer’ at Safeguard.
In a phone conversation heard by Citywire, a salesman at Fisher started off by explaining to a potential customer why the outlook was poor for traditional investments such as stocks and bonds. His pitch stopped short of outright lies but cited public statements made by respected investment industry figures including Warren Buffett and Ray Dalio in ways that could be seen as misleading. On the call, the salesman quoted Buffett as saying that ‘if you stay in the market, you’re going to lose at least 50% of your money.’ Not only does this take a line from Buffett’s 2017 letter to shareholders badly out of context, but it omits the fact that Buffett is famously skeptical about investing in gold.
Then the salesman transitioned to speaking about gold.
‘No one that I’ve ever known has purchased gold or silver and was sorry that they did. That’s the truth,’ he said, adding that brokers and advisors ‘don’t want you to buy gold because they don’t make money when you buy gold. There’s no commissions for them, no management fees, nothing.’
After roughly an hour on the phone with another Fisher salesman, the potential customer discovered that personal identification information they had disclosed through the normal course of conversation was being entered without their knowledge onto a transfer rollover form that would authorize the movement of money into an SDIRA. This was not revealed until the salesman asked for the investor’s retirement account numbers.
The ex-Safeguard salesman told Citywire that this was common practice at Safeguard.
‘I don’t know if they had permissions given to them or if they were just filling out an application as they were asking victims for that information,’ he said, adding that sales tended to stall when a closer asked a customer for their Social Security number.
On a separate call with the same investor also observed by Citywire, a Fisher salesman who went by ‘Alexander Overly’ said that he had made his first million dollars at 27 years old. Promotional blog posts about Fisher’s Alexander Spellane claim that ‘at the ripe age of 27, Alexander made his first million.’
Court filings show Spellane was previously involved with embattled Los Angeles gold dealer TMTE Inc., which used DBA names Metals.com, Chase Metals and Barrick Capital. Spellane is a defendant in a 2019 lawsuit filed by TMTE, which accused Spellane, a former salesman there, of breach of contract, tortious conduct and unfair competition for allegedly ‘misappropriating Plaintiff’s customer database, proprietary business information, and software database to set up a competing business.’ The court ruled in Spellane’s favor, denying TMTE’s motions for judgment.
Like Safeguard, TMTE drew scrutiny from federal and state regulators after Spellane’s tenure. The firm is the subject of a 2020 lawsuit from the Commodity Futures Trading Commission (CFTC) along with 30 states, which together accuse it of charging undisclosed markups of up to 300% on gold and silver, costing more than 1,300 elderly investors a combined $185m. The case was the largest joint filing in the CFTC’s history at the time and was the first nationwide fraud action against a precious metals dealer.
In February, the CFTC filed its second such action, this time against Safeguard Metals. The action was coincident with the SEC’s.
Firms such as Safeguard and Fisher exist in something of a legal gray area.
Because gold and silver are not securities, the companies that sell them are not regulated by the SEC, nor are they covered by the Securities Investor Protection Corporation. In Safeguard’s case, the SEC got involved because it determined the firm and its salespeople ‘acted as investment advisors’ without being registered as such.
Enforcement has historically rested with state attorneys general. Back in 2019, several states including Texas, Georgia, Kentucky and Alabama issued cease-and-desist orders against TMTE under the business name Metals.com, accusing the firm and its representatives of both fraud and of illegally offering investment advice.
In the shadow of regulatory actions, gold sellers appear to rely on statements that are perhaps misleading but not necessarily false – such as the Fisher salesman’s use of out-of-context statements made by respected public figures. In doing so, these salespeople can stoke the financial fears of aging investors while distancing themselves from legal liability.
Of course, because metals dealers are not registered investment advisors, they and their salespeople are not held to a fiduciary standard. In the absence of lies or misrepresentations, manipulative and pressurized sales tactics are legal, if not always ethical, and the onus is on the customer to do their own research before making dramatic portfolio reallocations.
Fisher and Safeguard did not respond to requests for comment.
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