Regulators charge metals dealer with $67 million fraud

Federal and state regulators charged a precious metals dealer Tuesday with a $67 million fraud that harmed mostly elderly investors.

The Securities and Exchange Commission filed a civil suit in a Los Angeles federal court against Safeguard Metals and its owner, Jeffrey S. Santulan, alleging that from December 2017 through at least July 2021, Santulan convinced hundreds of investors who were at or near retirement to sell their existing securities, transfer the proceeds into self-directed individual retirement accounts and purchase gold and silver coins.

Safeguard Metals made false and misleading statements about the safety and liquidity of the metals investments, the SEC alleged. It also said the firm told investors its markup was usually 4% to 23%, depending on the coin. But the firm actually charged a 64% markup on the sales of silver coins, which made up almost all of the transactions with the victims.

The SEC said Safeguard made $67 million on coin sales to about 450 “mostly elderly, retail investors” and kept approximately $25.5 million in markups.

In a separate action in the same Los Angeles federal court, the Commodity Futures Trading Commission and 27 state regulatory agencies filed a civil suit against Safeguard and Santulan.

The SEC, CFTC and state regulators are seeking injunctions, civil penalties and the return of ill-gotten gains. The CFTC and states also are seeking restitution and permanent registration and trading bans.

In its complaint, the SEC said Safeguard and Santulan lured investors through Safeguard’s website, online advertisements and direct calls. Safeguard purported to be a global operation with $11 billion in assets under management and offices in California and London. Instead, it was housed in a small leased space in Woodland Hills, California.

Santulan orchestrated a boiler-room type operation in which people representing Safeguard pressured investors into liquidated their securities holdings and transfer their retirement money into self-directed IRAs with one of Safeguard’s custodians to purchase and hold coins, according to the SEC complaint.

“Guided by scripts, some of which were prepared by Santulan, Safeguard sales agents made false and misleading statements to investors about the purported risks associated with the investors’ existing securities holdings at investment banks and brokerage firms,” the SEC complaint said. “Safeguard and Santulan targeted investors who were 59 years and older. Many of the investors had limited investing experience in general, and virtually no experience investing in precious metals.”

The SEC sent a warning about misleading sales practices.

"We will take action when, as alleged, parties fraudulently induce investors to sell their securities through lies and deception,” Kathryn A. Pyszka, an associate director in the SEC’s Chicago office, said in a statement.

The civil suit filed by state regulators and the CFTC is the second time the two have collaborated on a precious metals fraud case through an information-sharing agreement between the CFTC and the North American Securities Administrators Association.

“This action to stop a large-scale precious metals scheme is the latest in an ongoing effort by state and federal regulators working cooperatively to protect investors,” NASAA president and Maryland Securities Commission Melanie Senter Lubin said in a statement. “Unfortunately, this case reflects just one of the many epidemic-level investment scams targeting senior and vulnerable populations.”

Santulan could not be reached for comment.