CFTC and state securities regulatory agencies again join forces to combat investment fraud
Washington, D.C. — (February 1, 2022) — The Commodity Futures Trading Commission and 27 state securities regulatory agencies that are members of the North American Securities Administrators Association (NASAA) announced the filing of a joint civil enforcement action in the U.S. District Court for the Central District of California against a precious metals dealer and its owner for orchestrating a $68 million fraudulent scheme targeting elderly persons nationwide.
The complaint charges defendants Safeguard Metals LLC (Safeguard Metals) and its principal, Jeffrey Santulan a/k/a Jeffrey Hill with executing an ongoing nationwide fraud that solicited and received approximately $68 million in investor funds to purchase precious metals and fraudulently overpriced silver coins. Safeguard Metals is located in Woodland Hills, California, and Jeffrey Santulan resides in Tarzana, California.
In the continuing litigation against the defendants, the CFTC and state securities regulators seek the return of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA), state regulatory laws, and CFTC regulations.
Today’s joint effort is the second nationwide fraud action against precious metals dealers by the CFTC with NASAA state securities regulators. [See CFTC Press Release No. 8254-20]. Both actions arose out the CFTC’s information sharing agreement with state securities regulators, through NASAA.
“This joint investigative effort between the CFTC and 27 state regulators represents our mutual interest in protecting main street investors,” said CFTC Chairman Rostin Behnam. “A cross-agency approach enhances our ability to protect investors and the integrity of our markets.”
“This action to stop a large-scale precious metals scheme is the latest in an ongoing effort by state and federal regulators working cooperatively to protect investors. Unfortunately, this case reflects just one of the many epidemic-level investment scams targeting senior and vulnerable populations,” said NASAA President and Maryland Securities Commissioner Melanie Senter Lubin.
“When it comes to protecting the public, we will not hesitate to do everything in our power to vigorously investigate and protect their retirement savings from fraud in commodity markets,” said Acting Director of Enforcement Vincent McGonagle. “We are committed to holding those accountable who undermine the investing public’s trust in our commodity markets through illegal conduct.”
“Today’s action demonstrates the commitment of state and federal regulators to work together to prevent investment fraud,” said Joseph P. Borg, Co-chair of NASAA’s Enforcement Section and Director of the Alabama Securities Commission. “Given the complexity of investment products, our jobs have never been more important, or more demanding.”
The complaint alleges that from approximately October 2017 and continuing through at least July 2021, the defendants fraudulently solicited and received approximately $68 million in customer funds—the majority of which was retirement savings—from at least 450 persons throughout the U. S. for the purpose of purchasing precious metals, primarily consisting of gold and silver coins.
According to the complaint, the defendants deceived customers into purchasing precious metals through false and misleading statements, including about the risk and safety of their investments in traditional retirement accounts. The defendants also deceived customers into purchasing silver coins at grossly inflated prices that bore no relationship to the ranges represented to customers. The markup that customers paid on silver coins, for example, averaged from 51 percent to over 70 percent. That was substantially more than the amounts the defendants represented in Safeguard Metals’ customer agreements. In the end, nearly every customer suffered an immediate loss of their investment on the purchase of precious metals from Safeguard Metals.
As the complaint alleges, to perpetuate their fraud, when questioned by customers about the value of the precious metals they purchased, the defendants claimed the silver coins were rare and carried a premium far above the base melt value to conceal their fraud and hide that customers significantly overpaid for their investments. In fact, the silver coins were significantly less valuable than the defendants claimed, based on the resale prices the firm marketed and promoted.
Parallel Civil Action
In a simultaneous filing, the SEC commenced a suit against Safeguard Metals LLC and Jeffrey Santulan for violations arising from the fraudulent precious metals scheme and exorbitantly priced silver coins and for rendering unlawful investment advice.
The CFTC and NASAA thanks and acknowledges the assistance of the SEC.
The following NASAA state regulatory agencies are CFTC’s co-plaintiffs in today’s action and the CFTC thanks them for their cooperation: Alabama Securities Commission; Arizona Securities Division; Arkansas Securities Department; California Department of Financial Protection & Innovation; Connecticut Securities and Business Investments Division; Florida Office of Financial Regulation; Hawaii Division of Business Registration; Idaho Department of Finance; Illinois Securities Department; Indiana Securities Division; Kentucky Department of Financial Institutions; Maryland Division of Securities; Michigan Corporation, Securities & Commercial Licensing Bureau; Mississippi Securities Division; Missouri Securities Division; Nebraska Department of Banking & Finance Bureau of Securities; New Mexico Securities Division; New York Investor Protection Bureau; North Carolina Securities Division; Oklahoma Department of Securities; Oregon Division of Financial Regulation; South Carolina Securities Division; South Dakota Division of Insurance – Securities Regulation; Tennessee Securities Division; Vermont Department of Financial Regulation; Washington Securities Division; and Wisconsin Division of Securities.
The CFTC Division of Enforcement staff members responsible for this action are Steve Turley, Clemon Ashley, Jeff Le Riche, Christopher Reed, and Charles Marvine; in partnership with enforcement authorities from NASAA member agencies, led by the Alabama Securities Commission and the California Department of Financial Protection and Innovation.
CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories and Articles, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
The CFTC also strongly urges the public to verify a company’s registration with the CFTC before committing funds. If unregistered, a customer should be wary of providing funds to that company. A company’s registration status can be found using NFA BASIC.
Customers and other individuals can report suspicious activities or information, such as possible violations of commodity trading laws, to the Division of Enforcement via a toll-free hotline 866-FON-CFTC (866-366-2382), file a tip or complaint online, or contact the CFTC Whistleblower Office . Whistleblowers are eligible to receive between 10 and 30 percent of the monetary sanctions collected paid from the CFTC Customer Protection Fund financed through monetary sanctions paid to the CFTC by violators of the CEA.
NASAA’s Precious Metals Investor Advisory
NASAA and its members have issued a series of investor advisories, including an advisory on what to consider before making gold-related investments, as well as the NASAA Senior Investor Resource Center, which helps older investors protect themselves against investment fraud.
Investors should also contact their state or provincial securities regulator with questions about any investment opportunity or the person offering it for sale before investing in the product. For contact information on the regulator in each jurisdiction, visit the NASAA website here.
About the CFTC:
The CFTC was created as an independent government agency in 1974 with the enactment of the CEA. The CFTC’s mission is to foster open, transparent, competitive, and financially sound markets. By working to avoid systemic risk, the CFTC aims to protect market users and their funds, consumers, and the public from fraud, manipulation, and abusive practices related to derivatives and other products that are subject to the CEA. To promote market integrity, the CFTC polices the derivatives markets for various abuses, and also seeks to lower the risk of the futures and swaps markets to the economy and the public. For more information, visit CFTC.
Formed in 1919, NASAA is a nonprofit association of state, provincial and territorial securities regulators in the United States, Canada and Mexico. NASAA has 67 members, including the securities regulators in all 50 states, the District of Columbia, Puerto Rico, and the U.S. Virgin Islands with a shared mission of protecting investors from fraud and abuse. For more information, visit: www.nasaa.org..
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