Precious metals scam costs elderly investors $68 million

A California man accused of defrauding millions of elderly clients while acting as an investment adviser is now facing a slew of charges from state and federal authorities.

This week, Jeffrey Santulan and his company, Safeguard Metals LLC, became the target of enforcement actions by the SEC, the Commodity Futures Trading Commission and 27 member state securities regulatory agencies of the NASAA.

Court documents say that Santulanof Tarzana, Calif., ran a program from October 2017 to at least July 2021 that involved persuading hundreds of customers at or near retirement age to dump their existing titles and transfer the proceeds in self-directed IRAs.

Santulan then convinced the targets to invest these products in gold and silver coins by making false and misleading statements about “the security and liquidity of investors’ securities investments, Safeguard’s activities and its remuneration” , according to the SEC.

CFTC and NASAA officials said the defendants fraudulently solicited and received $68 million in client funds from at least 450 victims nationwide.

In response, the SEC filed charges of violating anti-fraud provisions of federal securities laws in the U.S. District Court for the Central District of California. A joint civil action by the CFTC and NASAA accuses Safeguard Metals and Santulan, also known as Jeffrey Hill, of carrying out an ongoing national fraud.

“Federal securities laws prohibit deceptive conduct and material misrepresentation when buying or selling securities,” Kathryn A. Pyszka, associate director of the SEC’s Chicago regional office, said in a statement. communicated. “We will take action when, as alleged, parties fraudulently induce investors to sell their securities through lies and deception.”

Court documents explain the defendants’ efforts to keep the deception going. Asked by customers about the value of the precious metals they purchased, the defendants claimed that silver coins were rare and carried a premium far greater than basic cast iron, according to court documents.

In reality, the silver coins were worth much less than the defendants claimed based on the resale prices marketed and promoted by the company. Investigators said Santulan and Safeguard were charging average markups of around 64% on its silver coin sales instead of the 4% to 33% markups they had disclosed to investors.

In addition to the millions made from the sale of coins, court documents say the defendants kept about $25.5 million in profit margin.

Safeguard also fraudulently presented itself as a full-service investment firm – with offices in London, New York and Beverly Hills – with $11 billion in assets under management, according to court documents. But Santulan reportedly powered the whole business with sales agents working out of a small rented space in Woodland Hills, California.

The complaint further alleges that Safeguard’s trading agents used prepared scripts written by Santulan that were filled with false and misleading statements about how the market would crash and how their retirement accounts would be frozen under a new “unpublished” law.

Securities litigation consultant and former regulator Louis Straney said that in cases like this, perpetrators rely on products with relatively little regulatory oversight and high return on minimal effort through clearinghouses. calls staffed with people without license requirement.

With a sales pitch laced with scare tactics and fake “doomsday” scenarios, Straney said the scammers act as if they were following “The Art of War”.

Strike quickly, paralyze your enemy, then move on to the next reward.
“From this example and others, it’s easy to craft a doomsday scenario or story where someone is going to raise taxes or your mortgage rates are going to double or the stock market is going to crash,” Straney said. . “The different scenarios have been used over the years to really alarm unsophisticated investors and lure them into what they believe to be safe havens for them – gold and silver. is far from certain.

Joseph P. Borg, co-chair of NASAA’s Enforcement Section and director of the Alabama Securities Commission, said the joint action shows the commitment of state and federal regulators to work together to prevent investment fraud, noting that the increasing complexity of investment products has made their work more important and demanding than ever.

He added that this week’s filing is the second large-scale precious metals deception addressed by the CFTC and state regulators in recent memory. Borg noted a September 2020 case in Texas against two traders in precious metals accused of perpetrating a $185 million fraud targeting the elderly.

Borg warned that more scams could be on the way as scammers continue to prey on the uncertainty being created within their targets.

“What’s happened – especially since the start of the pandemic, although it’s not limited to that – is that the market has become more and more volatile and people are getting a little nervous, there has been quite a bit of activity and research into alternatives. Specifically precious metals like gold, silver,” Borg said. “Everyone says if the market is going to crash, go gold. It’s the old saying. Whether it’s true or not doesn’t matter, but people believe it.

Knowing this, Borg said the scammers play on market volatility and then trick people into something they can sell. But before that happens, they need to build trust.

“In affinity fraud it’s the guy from your local church or your rotary club or something… so how do you go about selling something specific like gold and metal to people that you don’t know? How do you get that trust factor?” Borg said. “Well, you’ll see as the case develops that a lot of that money has come out of the IRA accounts and is went into self-directed IRAs. And if I say the word IRA to most people, they’re like, ‘Oh yeah. Government program. Put some money in there, report your income, and somebody watch it for me. Unfortunately, with a self-directed IRA, people don’t watch it for you.

Borg is also urging investors to contact state securities regulators if faced with doomsday prospects and very real precious metals trading. From there, authorities can help determine who is operating without a license and whether someone claiming the ability to operate in a specific state is misleading.

“Before you send in your hard-earned money, call the state securities regulator and say, ‘Hey, I got this guy who wants me to buy $10,000 worth of gold coins. Does he have a license,” Borg said. “If the answer is ‘no, he doesn’t have a license’…hold on to your wallet because someone’s about to grab it.”

The SEC, CFTC, and state securities regulators are calling for a barrage of penalties, including permanent injunctions, return of ill-gotten gains, civil monetary penalties, and permanent listing/trading bans.

Attempts to reach Santulan and his attorneys for comment were unsuccessful.