Gold IRA Scams
There are many ways you can be scammed under the guise of a Gold IRA, even though it's a perfectly legal product. Read on.
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Gold IRA ads are everywhere—on radio, TV, and online—but which companies can you really trust?
Investing in gold may be a good option in itself, but there are many ways it could go wrong.
In this article, learn how to avoid falling victim to Gold IRA scams that drain your retirement savings.
How Gold IRA Scams Work
Gold IRA scammers create a false sense of urgency, promise guaranteed returns, and trick you into buying unnecessary gold.
The scams can vary from charging excessive markups and fees to failing to deliver the agreed services and just outright stealing.
When you buy physical gold directly, you decide where to buy and store it. But with Gold IRAs, the provider handles everything, increasing the risk of your money being mishandled.
Many Gold IRA providers have already been charged by the Commodity Futures Trading Commission (CFTC) for their unfair practices. Continue reading to learn more about their modus operandi.
Exorbitant Spread & Markups
The most common Gold IRA scam is through excessive fees.
One example is Lear Capital, which charged as much as 33% in the spread. This means that if you had invested $10,000 in capital, you would have lost $3,300 in spread alone.[1]
Even if gold is a good store of value, achieving a 33% gain just to break even would be challenging. Plus, you pay for the spread every time you buy; it's not just a one-time fee.
Since 2017, Red Rock convinced customers to buy gold and silver coins at only a 1-5% markup. However, they charged as much as 130% markup in reality, pocketing over $30 million for themselves.[2]
So, every time you invest with a provider with excessive fees, you're losing money and will most likely not recover your capital.
Excessive Rollover Fees
Not only can you get scammed through spreads & markups, but you can also get scammed through rollover fees.
When rolling over from your 401k to a Gold IRA, your Gold IRA company handles the entire fund transfer process for you. However, this is where you can also be taken advantage of.
According to the CFTC, there was a complaint about a gold dealer and IRA custodian who charged nearly 50% in commission and fees after rolling over a $300,000 investment to a Gold IRA. That means this poor investor lost $150,000 in "fees."[3]
A legit Gold IRA company will not charge commissions for the rollover.
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Aggressive Sales
There's nothing wrong with advertisements and sales pitches—it's a normal business practice. What's bad is a pushy salesperson hard-selling you to invest in gold using false and misleading information.
At Goldline, an investor was advised by a salesperson to go "all-in" on eagle proofs. The salesperson also predicted that gold would reach $3,000 per ounce within the year. Believing they were making a sound decision, the customer invested $140,000 and lost $60,000 overnight.[4]
Some salespeople will also use fear to push you to invest.
A Chase Metals representative told a retiree that they would lose all their money due to an imminent dollar collapse unless they bought their offering. However, after switching to a precious metals IRA, this retiree lost over $25,000 in total.[5]
A reputable Gold IRA will not push the hard sell. Instead, they will take the time to educate you, so you can make a well-informed choice for yourself.
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Bait and Switch
With bait and switch, companies will lure you in with a too-good-to-be-true offer, such as low fees. Then, once you get baited, they'll persuade you to invest in another type of gold. A gold that isn't allowed in a Gold IRA.
This is one of the schemes by Seacoast Coin, also known as Merit Gold & Silver. In their ads, they promised a 1% fee for bullion gold. Once customers take an interest, they aggressively convince the investors to switch to non-bullion gold at 20% to 40% over cost.
Not only are they being pushy, but they're also making false sales remarks such as non-bullion coins having better privacy and greater investment value, including tax advantages.[6]
Goldline International also runs a bait-and-switch operation. They train their salespeople to get investments for bullion gold, but they later switch it to overpriced collectible gold coins. They're also trained on how to disguise the 50% markup on these coins.[7]
Underdelivering Promised Gold
One of the pros of a Gold IRA is having your provider do all the work for you, including purchasing and storing gold. However, this also makes you susceptible to scams.
Superior Gold Company used the fact that it's the provider that delivers the gold to the retirement account to fool those who are not knowledgeable about this process.
They solicited investments for precious metals and collectible coins from investors through ads and promised that their assets would be sent to their retirement accounts.
In reality, many investors never got the gold that they paid for.[8]
Fund Misappropriation & Forgery
Sometimes, even if the company shows documents that your Gold IRA investment is doing well, that doesn't mean that your money is still safe.
Such is the case with Regal Assets, which solicited customers to transfer their funds from their existing retirement account to a self-directed IRA.
Regal Assets misappropriated the funds from investors and did not use it to buy precious metals. They also forged documents to conceal their fraudulent activities.[9]
How to Identify Scams
Here are some of the red flags that you need to watch out for when investing in a Gold IRA.
Think twice before investing if a provider is:
- Creating a false sense of urgency by mentioning the limited supply
- Missing necessary documents
- Unsolicitedly calling you to convince you to invest in a Gold IRA
- Forcing you to invest in non-bullion coins or collectible coins
- Encouraging you to go all-in with your investment
- Promising guaranteed returns
- Predicting a specific price for gold in the future, typically a high one
- Giving you unverifiable details of the custodian or depository
- Offering "good" discounts for you, but you still need to spend a lot in return
- Saying that gold transactions are not regulated by the CFTC or NFA
- Scaring you about a possible economic collapse using current events and suggesting that their product is the best option
Even scammers innovate their schemes to defraud investors, so if you're not too sure about an investment prospect, continue reading to learn how to verify it.
How to Check if a Gold IRA Company is Legit
Here are some ways to check if a Gold IRA company is legitimate:
- Check Company's Registration
Contact the CFTC at 866.366.2382 or the National Futures Association to check the company's registration status, business background, and disciplinary history. - Approach on Education
A legitimate provider will help you understand the full picture of investing in a Gold IRA, including its pros and cons. They will be transparent with the fees they will charge, and they will not force you to invest with them.Always remember that your gold investment should be a small portion of your overall portfolio. If your financial advisor recommends allocating a significantly larger amount, it could be a red flag for potential fraud. - BBB Accreditation
Having BBB accreditation isn't a guaranteed way to prove a company is legitimate, but it can help you figure out if they're ethical and properly vetted. - User Reviews
Check how they are rated on consumer review platforms such as BBB, BCA, TrustPilot, or ConsumerAffairs. If there are any complaints, how well did the company handle them? - IRS-Approved Depository
Your Gold IRA company should use an IRS-approved depository, like Brink's, Delaware Depository, or International Depository Services. If they're pushing you to use an unknown or faraway depository, think twice.
While these factors aren't definitive proof of a company's legitimacy, they can help you assess if the company is trustworthy and legit.
- Ask how the product meets your financial needs
- Ask how the financial professional is paid for his/her service
- Ask how the financial professional is qualified to provide you with this service
What to Do if You've Been Scammed
If you have suspicions that you have been defrauded, contact the CFTC quickly. Call the CFTC or file a tip or complaint.
Don't forget to keep the necessary documents and files related to the fraudulent deal. This way, you'll have evidence to fight it.
Bottom Line
There are many ways for malicious individuals to scam you using Gold IRAs.
It doesn't even have to be outright stealing. Some will take advantage of you through exorbitant fees, aggressive sales pitches, bait-and-switch, underdelivering what's promised, and misappropriating your funds.
Make sure that you know how to identify the scams beforehand. If you do suspect fraud, immediately report it to the appropriate regulatory authorities.
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References
- ^ Office of the New York State Attorney General. Attorney General James Sues Lear Capital and Founder for Defrauding New Yorkers Out of $10 Million in Precious Metal Investment Scam, Retrieved 06/17/2024
- ^ U.S. Securities and Exchange Commission. SEC Charges Red Rock Secured, Three Executives in Fraud Scheme Targeting Retirement Accounts, Retrieved 06/17/2024
- ^ CFTC. Customer Advisory: Beware of Gold and Silver Schemes Designed to Drain Your Retirement Savings, Retrieved 06/17/2024
- ^ ABC News. Goldline Customer Testifies He Lost $60K When Goldline Urged Him To Turn IRA Into Gold Coins, Retrieved 06/17/2024
- ^ Quartz. A precious-metals scheme used fear and Facebook to trick older conservatives out of their savings, Retrieved 06/25/2024
- ^ City of Santa Monica. City Attorney Obtains $2 Million Judgment In False Advertising Case Against Coin Dealer Merit Financial, Retrieved 06/17/2024
- ^ ABC News. Goldline Execs Charged With Fraud, Retrieved 06/17/2024
- ^ United States Attorney's Office Central District of California. Valencia man Who Caused $11 Million in Losses Related to Precious Metal Investment Scam Sentenced to over 11 Years in Federal Prison, Retrieved 06/17/2024
- ^ CFTC. The CFTC and California Department of Financial Protection & Innovation Charge Los Angeles Area Precious Metals Dealer in $21 Million Fraudulent Scheme, Retrieved 06/25/2024
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