Precious Metals

CFTC reaches agreement with firms in bullion fraud case

The CFTC has reached an agreement with two firms engaged in a fraudulent and deceptive scheme in connection with the purchase and sale of precious metals.

Original image from the Commodity Futures Trading Commission.

The Commodity Futures Trading Commission announced on July 3 that it had settled with First State Depository Company LLC and Argent Asset Group LLC, resolving its action initially filed on Sept. 27, 2022, charging that the owner of the firms, coin dealer Robert Leroy Higgins engaged in a fraudulent and deceptive scheme in connection with the purchase and sale of precious metals.

The title of Eleanor Pringle’s July 4 story in Fortune magazine neatly summarized the situation:  “Silver coins, promised profits, and an empty vault: How a silver dealer’s slow theft of investors’ precious American Eagle coins ended in a $146m fine.”

The Consent Order for Permanent Injunction requires Higgins and his two firms to pay $112.7 million in restitution to customers, who purchased over 500,000 American Eagle silver bullion coins and over 9,000 gold American Eagles while believing that the firms were holding the coins on their behalf.

CFTC Commissioner Kristin N. Johnson explained in a press release, “A majority of the assets that were supposed to be held at FSD were missing,” adding that Higgins “brazenly left ‘IOU’ slips in empty boxes marked to indicate a customer’s account, yet containing no assets.” She concluded, “This kind of egregious behavior merits the full weight of the Commission’s enforcement authority.”

The two firms would send customers account statements, and provided “false and misleading excuses for why assets could not be withdrawn.” Johnson said that the actions “represent the very type of fraud Congress expressly intended to prevent when it enacted the Commodity Exchange Act.”

Holding silver in trust

First State Depository was advertised as a “private depository” that would hold precious metals for customers. The CFTC focused its investigations on Higgins’s and the firm’s activities from about January 2014 to September 2022. An affiliated silver leasing program called the “Maximus Program” offered customers guaranteed monthly lease payments in exchange for the use of American Eagle silver bullion coins that were represented as purchased by Higgins and his firms.

The initial CFTC Oct. 5, 2022, press release announcing the fraud charges explains: “Customers were told they would earn a monthly ‘lease’ payment based on a sliding scale. Customers were falsely told, among other things, that Argent would acquire silver on their behalf, their silver was securely stored by FSD in a storage facility, and their investments were guaranteed and fully insured.”

The CFTC’s complaint filed on Sept. 27, 2022, in Delaware’s U.S. District Court cited an unnamed Metals Dealer 1, a company in Kansas that specializes in precious metals as investments. Many of that unnamed firm’s customers entered the “Silver Lease Program” so they could obtain monthly income from metal they deposited in an Independent Retirement Account. The complaint alleged that Higgins owned and controlled both First State Depository and Argent. Higgins alleged that the firms were separate, and he had no control over the depository firm. However, the CFTC stated that the two firms shared employees including family members.

The firms would send customers weekly or monthly “Holding Reports” that purported to show each customer’s balance and holdings at FSD, along with “Activity Reports” that were purportedly distributed each time a transaction occurred in their accounts.

The CFTC challenged the idea that the firms communications represented transparency, instead finding that the First State Depository’s failure to inform customers of the actual location of their silver American Eagles was a deceptive omission. 

Citing Higgins’s LinkedIn account, Argent described its Maximus Program’s benefits, stating, “Over 12 months, utilizing the minimum 5000 ounces required to sign up for this program, an additional annual income of $4,500 would result, regardless of any price movement in Silver. … A storage agreement at [FSD] is the only other requirement.”

The recent settlement resolves the CFTC’s lawsuit filed last year, holding Higgins and his firms liable for “misappropriating tens of millions of dollars and making fraudulent misrepresentations to customers in connection with the purchase and sale of precious metals,” according to CFTC Director of Enforcement Ian McGinley, who said that the restitution amount of $112.7 million confirms the CFTC’s commitment to “vindicating victims’ interests.”

According to the settlement, “Additionally, the orders enjoin the defendants from further violations of the Commodity Exchange Act (CEA) and CFTC regulations, as charged, and impose permanent trading bans in any CFTC-regulated markets as well as registration bans against the defendants.”

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