Release: #4082-97 (Civ 97-7422)

For Release: November 24, 1997


WASHINGTON -- The Commodity Futures Trading Commission (CFTC) announced today that on November 20, 1997, it filed an injunctive action in the U.S. District Court for the Southern District of Florida against Midland Rare Coin Exchange, Inc. (Midland), its president, Robert J. Mitchell (Mitchell), and its vice-president, Terry A. Sands (Sands); Globex Bullion and Financial Services Corporation (Globex) and its president, Edward N. Tabb (Tabb); and Global Asset Management, Inc. (Global). The CFTC's complaint charges that Midland telemarketers fraudulently sell nationwide illegal off-exchange futures contracts in various commodities. Globex and Global, according to the complaint, claim to provide financing for these investments and store the purchased commodities for Midland customers.

On November 21, 1997, the court entered an ex parte order which, among other things, freezes the defendants' assets and appoints a receiver to take control of Midland, Globex, and Global.

The CFTC complaint charges that defendants violated section 4a of the Commodity Exchange Act (CEA) by selling or assisting in the sale of illegal, off-exchange futures contracts, and that Midland, Mitchell, and Sands violated section 4b of the CEA by cheating and defrauding customers through false claims concerning the profitability and risk associated with Midland's investment program.

According to the complaint, Midland telemarketers falsely claim that customers will reap substantial profits from only slight increases in the cash prices of commodities such as heating oil, unleaded gasoline, natural gas, and various precious metals, currencies, and agricultural commodities. The complaint also alleges that Midland telemarketers fail to disclose the amount of commissions, interest, and fees charged to customers' accounts. Customers consistently lose the bulk of their investments, according to the complaint.

Commenting on the filing of this matter, CFTC Director of Enforcement Geoffrey Aronow said:

"This case is part of the Commission's continuing campaign against fraudulent telemarketing schemes in precious metals, heating oil and other commodities. Investors should be wary of high-pressure sales tactics and promises of quick riches with little risk."

According to the complaint, the defendants' precious metals program is a high-risk enterprise. The complaint alleges that under Midland's program, a customer pays for a portion of the commodity (usually 20 to 23 percent) in cash (known as "initial margin"); Global, Globex, and other firms loan the customer the balance of the purchase price of the commodity and purportedly purchase and hold the commodities on behalf of Midland customers. According to the complaint, when decreases in the price of a commodity or accumulating credit and storage fees cause a customer's equity to drop below a specified level, the customer must pay additional money to return his or her equity to a specified level (known as "maintenance margin"). Midland telemarketers claim they will monitor the market and instruct customers when they should liquidate their accounts for a profit, according to the complaint. It is only after customers send their funds to Midland, the complaint alleges, that customers receive account opening forms and documents purporting to disclose risks inherent in the investment scheme.

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 customers.

The Florida Comptroller's Office, the Texas Department of Public Safety, the Federal Bureau of Investigation (San Diego office), the San Diego Boiler Room Task Force, the Arizona Corporation Commission, the Utah Division of Securities, and the United States Customs Service provided valuable assistance to the CFTC during the investigation of this matter.