A long-awaited quarterly financial statement arrives in the mail at the Tillerson home in Santa Monica. The price of gold has not changed much over the past three months, but retirees Fred and Martha are still anxious to see how their Individual Retirement Account (“IRA”) has done ever since Goldtown, a local precious metals company, persuaded them to switch the account into a “Gold IRA.”

With Fred watching from across the kitchen table, Martha opens the statement.

Four months earlier, the Tillersons had called Goldtown after seeing its compelling TV commercial. The ad, complete with scary music, warned of the fragile U.S. economy and said investing in gold was the only way to protect against inflation or recession.

When the Tillersons called Goldtown to find out more, the salesman confirmed that gold was a great investment – but only if they bought fancy collector’s coins, and not gold bars. He said the government could “confiscate” bars, but that the coins were “private” and outside Uncle Sam’s reach.

After hearing the salesman’s spiel, the Tillersons agreed to convert their $225,000 IRA into a Gold IRA – using collector coins instead of gold bullion.

“I do not like the look on your face, dear,” says Fred as she hands him the statement. “Well, get used to this look, honey,” replies Martha. “Because it’s going to be on my face until at least dinnertime. It says here that we’ve already lost over $30,000.”

Martha’s vision isn’t what it used to be, but Fred confirms it. What had been $225,000 just a few months ago was now $187,000. By dinnertime, after calling the City Attorney’s Office, they realize that the loss is from Goldtown’s hefty markup on the coins. In the instant of that IRA transaction, $38,000 became their sudden loss in retirement savings – and the company’s profit.

The Tillersons’ plight is a composite from hundreds of complaints from consumers across the U.S., received by Santa Monica’s Consumer Protection Division against three locally-based companies: Merit Financial, Superior Gold, and Goldline International. The City Attorney’s Office filed litigation against all three, which resulted in Merit and Superior shutting down, Goldline making vast changes to its business model, and the three companies paying millions of dollars in restitution and penalties.

The “bait and switch” allegations against these companies were similar, in that all three tricked consumers into buying gold and silver coins with high hidden markups, rather than the much cheaper bullion.

The City Attorney’s Office offers these tips to consumers considering precious metals as an investment:

 

  • If you’re considering gold or silver as an investment, get financial advice first. Many advisors shy away from investing in precious metals, or suggest that they be a small piece of the pie.
  • Beware of sales pitches for collector coins, also called “numismatic” or “proof” coins. They have much higher markups than plain bars or bullion coins – but dubious (if any) advantages for investors.
  • Do your homework before choosing a dealer to buy from! The Professional Numismatists’ Guild (PNG) has a list of legitimate dealers in your area.

The Consumer Protection Division of the City Attorney’s Office enforces the law and educates the public about tenants’ rights, fair housing, consumer protection and other issues. They can be reached at 310-458-8336 or smconsumer.org.

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