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Don't get taken by precious metals scams

Created date

June 25th, 2014
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One thing about scams, no one is immune. Take the case of Joe Melomo, a retired IBM physicist from Austin, Tex. You might think that Melomo would be the last person to be taken by scammers but sadly, he lost more than $170,000 investing in a precious metals scam.

Shortly after Melomo lost money in a restaurant investment, he got a phone call from American Precious Metals. “The person who called talked to me about investing in precious metals, primarily gold and silver. The conversation got my attention because I could see a way to possibly cover some of my losses from the restaurant. So I asked him to send me some information, which he did,” said Melomo in his testimony before the Senate Special Committee on Aging. “All of the materials looked very professional and legitimate. Between his encouragement and what seemed to be genuine interest in helping me profit from this kind of investment, and my desire to make back some money, I started to invest in gold and silver.”

Unbeknownst to Melomo, the company made all of his transactions on leverage, with only a tiny portion of his investment going toward the actual purchase of metals. Approximately 97% of his funds went to fees, transaction charges, and interest, resulting in a loss of most of his investment.   

Melomo told his story before the Senate Special Committee on Aging at a hearing examining precious metals scams. It was the culmination of a year-long investigation, looking at 34 federal cases involving more than 9,100 victims who lost an estimated $300 million—an estimate that investigators describe as  “conservative.”  Even though federal and state regulators have worked to penalize those who operate these scams, precious metal fraud in the U.S. remains the sixth most significant form of financial fraud.

“Today’s hearing focuses on a particularly appalling scam—the so-called “sale” of precious metals to seniors, who are eager to avoid the dangers of the stock market, trying to find a safe haven for their life savings, seeking to protect their financial independence, and wanting to pass some portion of their nest egg along to their children and grandchildren,” says Senator Susan Collins of Maine. “I say so-called ‘sale’ because, as we have discovered in our investigation, a key feature of this scam is to get the customer to pay real money for a fiction—gold, silver, platinum, or palladium—that the scammer never delivers, and often doesn’t even own.”

Do your homework

Investing in precious metals can pay off, but like any investment, you must do your homework and carefully consider the risks. The Federal Trade Commission offers these tips:

• Consider additional costs associated with the investment. You may need to buy insurance or a safe deposit box, or you may need to rent off-site storage to safeguard your bullion. These costs will cut into the investment potential of bullion. 

• Be wary of buying bullion or bars that won’t be delivered to you, but rather to a “secured facility,” by the seller or a third party. When you buy metals without taking delivery, you face the risk that the metal doesn’t exist, isn’t of the quality described, or isn’t properly insured. 

• Walk away from sales pitches that minimize risk and sales representatives who claim that written risk disclosures are just formalities required by the government, and therefore not necessary. Reputable sales reps are upfront about the risk of particular investments.

For more information about precious metals scams, visit