Release: #4030-97 (Civ. 97-4443)
For Release: June 23, 1997
CFTC CHARGES CALIFORNIA COMPANY, ITS PRESIDENT AND THREE OF THE
FIRM'S TELEMARKETERS WITH FRAUD IN THE SALE OF ILLEGAL, OFF-EXCHANGE
PRECIOUS METALS FUTURES CONTRACTS NATIONWIDE
Court Issues Ex Parte Order Freezing Defendants' Assets and Appointing a Receiver
WASHINGTON - The Commodity Futures Trading Commission (CFTC) announced today that on June 18, 1997, it filed a two-count civil injunctive action in the U.S. District Court for the Central District of California charging C.O.M. Consultants, Inc., d/b/a Golden State Bullion (Golden State) of Marina del Ray, California; Richard David Otto, Golden State's president and owner, of Corona del Mar, Ca.; and Fred Ronald Williams of Pacific Palisades, Ca., Linton Samaru of Venice, Ca., and Bruce Michael Paine of Venice, Ca., three of Golden State's telemarketers, with fraudulently selling illegal off--exchange precious metals futures contracts to members of the public nationwide.
On June 19, 1997, the court entered an ex parte asset freeze order which, among other things, freezes the defendants' assets and appoints a receiver to take control of Golden State.
The CFTC said it is bringing this case against the defendants to halt the alleged fraudulent telemarketing of highly-leveraged investments in platinum, gold, silver, and palladium. The CFTC complaint charges that the defendants violated section 4(a) the Commodity Exchange Act (CEA) by offering and selling illegal, off-exchange precious metals futures contracts and section 4b of the CEA by cheating and defrauding customers through false claims concerning the likelihood of profit and the risk of loss associated with Golden .State's precious metals program. Specifically, the complaint alleges that the defendants' high-pressure sales pitch claims that their precious metals investment program involves little or no risk and that impending labor turmoil at South Africa's platinum mines will cause the price of platinum to increase to between $600 and $700 per ounce, providing investors with a return of three to four times their investments in two to three months. The complaint alleges that, in fact, customers consistently lose the bulk of their investments.
Commenting on the filing of this matter, CFTC Director of Enforcement Geoffrey Aronow said:
"We believe the fraudulent investment scheme alleged in this complaint is not
unique. Investors need to be wary of off-shore metal financing schemes that promise quick riches with little risk. Our investigative work in this area continues."
According to the complaint, the defendants' precious metals program involves highlyleveraged speculative investments. The complaint alleges that under Golden State's program a customer pays for a portion of the precious metal (usually 20 percent) in cash, and an offshore financial institution loans the customer the balance of the purchase price of the metal. Customers do not receive the metal they have supposedly purchased and instead the metal is purportedly purchased and held by the off-shore financial institution. The defendants' telemarketers claim they will inform customers when the price of the metal has peaked and should be sold at a profit, according to the complaint.
In addition, according to the complaint, the defendants attempt to sell customers additional platinum, gold, silver, and/or palladium investments, after their initial platinum purchase, representing that the customers can expect high profits and be exposed to little or no risk by investing in these metals, as well.
In its continuing litigation against the defendants, the CFTC is seeking preliminary and permanent civil injunctions in addition to other remedial relief including, restitution to investors and civil monetary penalties against each defendant. The CEA provides for a civil monetary penalty of up to $110,000 (or $100,000 for violations occurring before November 28, 1996), or triple the monetary gain to the defendant, whichever is greater, for each violation of the CEA.
The Federal Bureau of Investigation (San Diego Office), the San Diego Boiler Room Task Force, the California Department of Corporations, and the Texas State Securities Board provided valuable assistance to the CFTC during the investigation of this matter.