Gold IRA Scams
The vast majority of people in the gold and precious metals world are honest and ethical. But there are crooks in every conceivable human endeavor. Unfortunately, the precious metals market is mostly unregulated, so it’s a good idea to become familiar with the industry and recognize possible gold IRA scams.
Gold IRA investors may encounter two different kinds of scams:
- Gold (and precious metal) scammers
- Self-directed IRA scammers
Let’s take a look at the most common types of scams in both categories.
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Gold and Precious Metal Scams
In the most common variation of this scam, you may respond to an ad or an email offering one attractive deal. When you get on the line, the salesperson wants to talk you into buying something else entirely.
The “bait” is an offer that seems too good to be true. The “switch” is often accompanied by high-pressure “limited time only” sales tactics. They are designed to prevent you from doing your own due diligence on the investment.
Furthermore, often the investment they want to sell you isn’t appropriate for an IRA. They try to redirect you to an exclusive collector coin, pre-1933 coins or numismatics that sell for far above spot price. And they aren’t even allowable in IRAs to begin with (see below).
Another variation of the “bait and switch” scam occurred recently in Nanuet, New York. This one involved outright counterfeit coins: A man answered a Craigslist ad offering a number of Canadian Maple Leaf gold coins for sale – at an improbably low price.
The scammer arranged to meet the victim at an area coin shop. The victim was able to verify that the coins for sale were legitimate. The victim then went out to his car, where the scammer was waiting for him, and offered $19,000 for the coins. But the scammer began acting nervous and took the pouch of coins back from the victim, and placed it in his back pocket.
The scammer put the pouch in his back pocket – and closed the deal again.
The victim handed the scammer $19,000, and the scammer handed back a different pouch of coins. Fakes.
By the time the mark realized he had been conned, the scammer was gone.
According to Coinweek, some of the more commonly counterfeited coins include the Chinese Pandas, St. Gaudens and $20 Liberty Head coins.
Remember that legitimate sellers almost never mark down much below spot price.
If you’re new to the gold and precious metals world, it’s important to buy only from recognized and reputable dealers. Buy from established businesses with something to lose. You won’t hit any home runs, but you won’t be left paying $19,000 for worthless coins, either.
Damaged or shaved coins, rounds and bars
In some cases, scammers have shaved a few grains of metal off existing coins or bars. There have even been cases of crooks drilling holes in gold bars and filling the holes with lead, which weighs almost the same.
If you are doing private transactions with individuals unknown to you, get good at assaying. Learn to use a scale and calipers to verify the weight and thickness of any gold or bullion you’re considering buying in person.
Remember: Scammers are getting better and better. Some of the better fakes even have the correct weight. So if you’re checking out coins or bullion or other forms yourself, consider need to use several testing methods in combination, such as calipers to check coin or bar thickness, or checking specific gravity.
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Selling IRA-ineligible gold.
While you can buy gold and precious metals for your own collection in any form you like, buying for your IRA is a different story. Federal law restricts IRAs from owning jewelry in any form. For IRAs, you can only purchase American Eagle coins, or bullion in the form of standardized coins, rounds or bars of known and adequate purity.
By law, a gold coin, round or bar must be at least 0.995% pure to be deposited into an IRA. Not every well-known coin or bar is eligible. For example, the South African Krugerrand is not eligible for IRAs, though there are still plenty of options you can choose from that are, including:
- American Eagles
- Australian Kangaroos/Nuggets
- Austrian Philharmonics
- New British Britannias (0.9999+ pure)
- Canadian Maple Leafs
- Chinese Gold Pandas
- American Buffalo Bullion
- Credit Suisse/PAMP Suisse Gold Bars
Ineligible coins include:
- Austrian Corona and Ducat
- Belgian Franc
- British Sovereign and older Britannias
- French Francs
- German Mark
- Swiss Francs
- Hungarian Koronas
- Mexican Pesos
- Chilean Pesos
- Dutch Guilders
Do not do business with anyone trying to sell you coins for your IRA due to their rarity or “high collectors’ value.” For retirement accounts, your sole focus must be on the weight and discount or premium from the spot price. “Rare coins,” “exclusive mintings,” might be great for your private, personal collection. But they are not something you want to buy for your IRA.
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Home storage Gold IRAs
Beware of anyone trying to push a “home storage gold IRA” or anything similar. IRA rules prohibit home storage of gold and precious metals. The metal has to be held by an authorized custodian.
Often, the salesperson will try to get you to start an LLC, and then have the LLC own the gold within your IRA. But it doesn’t pass legal muster. The IRS is likely to rule that you are trying to circumvent IRC Section 408 prohibited transaction rules, and possibly disallow your entire IRA.
Some dealers falsify this information, inflating the grades that these independent firms actually assign – relying on your ignorance to charge a premium price. Some go so far as to create fake grading documents, or switch coins, selling a lower-graded coin with a high-grade certification.
Note: If you’re buying gold for your IRA or other retirement account, you should be buying bullion. Not numismatics. Bullion is sold for its weight in metal. Grading should have little to do with the price of bullion. Beware of dealers trying to upsell bullion based on independent ratings.
Leveraged investment scams
Some dealers try to get you to borrow money in order to buy gold. They may lead with breathless speculation that gold prices are about to explode. If you can just make a down payment, they say, you can control 3, 4 or 5 times that amount in gold.
There are some legitimate applications for leveraging gold like this. Institutions use leverage all the time. But legitimate applications don’t involve calling senior citizens off a list.
In many cases, the broker convinces the buyer to borrow money, with no repayment due, other than storage costs. Instead, the broker will subtract payments from your equity in the gold, hoping you forget about the arrangement.
Once your equity falls below 10% of the purchase price + fees (or some other number) the broker then issues an “equity call,” similar to a stock broker’s margin call. If you don’t come up with the cash, the dealer sells your gold. If the sale doesn’t cover your debt, you’re liable for the difference.
Example: In 2015, a federal judge found that North Lindhurst, NY-based firm PCA Collectibles, and PCI Coin Grading Company misled a customer “into buying coins that were counterfeit, damaged or worth only a fraction of what they were represented to be.”
This scam combined the bait-and-switch technique and false grading to bilk the unsuspecting buyer into purchasing hundreds of thousands of dollars of counterfeit or damaged coins.
Self-Directed IRA Scams
Other scams are not specific to gold and precious metals per se, but are pertinent to self-directed IRAs in general. Gold and precious metal IRAs are usually a subset of self-directed IRAs. This term refers to IRAs and other retirement accounts that are not administered by traditional Wall Street financial institutions, but that allow for more direct control on the part of the owner.
Self-directed IRA investors should be on the alert for any of these common scam warning signs:
- Any claim that any gold or precious metal investment is “risk free.” Even cash in the bank carries a level of risk.
- Any claims of “guaranteed returns” or “guaranteed profits.”
- Promises of “high returns” and “low risk.”
- High-pressure or bullying sales tactics;
Here is a closer look at some of the more common scams in operation today:
In 2010, federal officials broke up a Florida-based gold mining stock Ponzi scheme that defrauded investors of over $300 million. The two Canadian promoters promised investors returns of 18 to 36 percent per year, and claimed the investments were “fully collateralized by gold,” according to the SEC.
“Unbeknownst to investors, they were actually investing in shell companies owned or controlled by Brost or Sorenson. Investor funds were often transferred multiple times through numerous bank accounts held as far away as Asia, Europe and South America, and then ultimately used to make “interest payments” to investors, fund the few unprofitable companies that actually had operations, and personally enrich Brost, Sorenson and others involved in the scheme.”
Instead of investing the money on their investors’ behalf, though, the promoters helped themselves to millions of dollars, and funded a lavish lifestyle for themselves.
In this case, the hook was gold. But a criminal could put a similar con together based on any investment they were willing to lie to this degree about.
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False endorsement claims
Some salespeople may claim that a certain investment carries special approval or endorsement from the IRS, Federal Reserve, Federal Trade Commission or other recognizable organization.
These are sure-fire scams: The IRS does not screen investments. You are responsible for your own due diligence and research. The IRS will provide no guarantees on self-directed IRA investments, nor will any other government organization. Banks are not in this business, either.
Sometimes, scammers may call retirees who are dissatisfied about their current retirement portfolios returns. Seniors are particularly vulnerable during big market declines, and so this is when rollover scammers are most active.
In the rollover scam, agents may try to get their marks to roll over guaranteed or low-risk assets to buy riskier ones – without fully disclosing the risk. Or they could try to get you to buy high-priced annuities with steep fees and nasty surrender charges, which can make it very difficult for you to unwind the transaction.
Gold may or may not be an appropriate investment for your rollover funds. Only you and your financial advisors can make that determination for you. But generally, regulators frown on sales reps who convince senior citizens to sell guaranteed investments and income-oriented investments for riskier ones, such as gold.
Also, anyone who wants you to buy or sell securities should be properly licensed to do so.
In a few cases, scammers have convinced their marks to write big checks – only to disappear with the money.
Always deal only with established and reputable firms. Check for licensing, and never write a check out to the salesman, personally, or to cash. Never hand cash to any gold IRA salesperson to open an account for you.
What to Do if You’ve Been Scammed
Contact the Federal Trade Commission, using the FTC Complaint Assistant portal.
You can also report scammers to industry regulators:
Financial Industry Regulatory Authority
9509 Key West Avenue
Rockville, MD 20850-3329
Phone: (301) 590-6500 – for all investors
Toll Free: (844) 57-HELPS / (844) 574-3577 – FINRA Securities Helpline for Senior InvestorsTM
U.S. Securities and Exchange Commission (SEC)
Office of Investor Education and Advocacy
100 F Street, NE
Washington, DC 20549-5631
North American Securities Administrators Association
Find contact information for your state-specific securities regulator.
For more specific information on reporting gold IRA scams and related criminal activity, click here.