Hundreds of depositors who handed over millions to a silver trader in exchange for valuable minted coins have learned that their vaults were in fact empty following an investigation by the US Commodity Futures Trading Commission (CFTC).
Two companies run by precious metals dealer Robert Higgins have been ordered to pay $112.7 million to victims of an allegedly complex fraud scheme and $33 million in civil fines.
The investigation into Higgins and two related companies began last year.
According to a CFTC statement, between 2014 and 2022, Higgins conducted a fraudulent silver leasing scheme through two companies: Argent Asset Group LLC (Silver) and First State Depository Company, LLC.
The system of government
The land, sold to customers as the “Maximus Program”, offered to pay silver coin owners a rental fee in exchange for Argent’s use of the merchandise.
Payouts were on a “ladder” and went up or down depending on how many coins the customer was willing to offer.
The coins already belonged to customers or could be purchased through Argent, and were apparently stored in a vault owned by the First State Depository Company in Delaware.
Clients were also informed that their investments were guaranteed and fully insured.
Coins like these – silver American Eagle dollars – are often bought by investors who want to see something tangible for their money, as opposed to government bonds or stocks.
People buy the coins because, even though they only have a face value of $1, they are 99.9% fine silver and thus retain their value as a precious metal rather than a than currency.
The bars are also produced by the US Mint, which guarantees their authenticity and are minted – or stamped – in limited numbers to ensure their rarity. Currently, uncirculated 1 ounce silver coins of the 2023 release can be purchased for $76 each.
Customers also felt like they had an eye on their coin revenue, as they received monthly reports from the company, which prosecutors say “misrepresent[ed] that the assets remained securely stored at the FSD.”
Disappearing parts
Court documents show that large quantities of parts apparently stored in FSD facilities simply did not exist.
Documents released on June 20 reveal that accountants from Baker Tilly went to the vault to perform an inventory check and found nearly $113 million worth of client and customer assets were missing.
“In some cases they found empty boxes at FSD with a customer or client’s name on them, or boxes that contained no metal but instead contained some kind of ‘IOU’ – a piece of paper showing how much metal should have been stored there,” the document seen by Fortune keep on going.
He goes on to add that in some client cases, no records were kept, not even an empty box with their name on it.
Other inventories seen by Fortune show that Baker Tilly expected to find around 1.2 million Silver American Eagle coins and instead discovered just under 380,000.
Similarly, the accountants also expected to find 11,125 American Eagle gold coins and discovered only 1,936.
As a result, CFTC attorneys allege that the defendants “misappropriated” the exhibits, using or selling them for their own profit.
The CFTC also claims that some customers who had paid for more bullion never received them, with the parties pocketing the money instead.
CFTC Enforcement Director Ian McGinley said he is committed to “stamping out fraud” in the precious metals market.
However, the body warned that although damages were awarded to clients, there was no guarantee that they would recover the funds as the defendants may not have enough assets.
Customers seeking updates on the case will be able to find them on the First State Depository Company website which has been taken over by administrators.
Representatives for Higgins did not immediately respond when approached by Fortune for comment.
This story was originally featured on Fortune.com
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