Published on January 7th, 20200
What You Need to Know about Metals.com
Seven state securities regulators have taken action against Metals.com this year, including Texas, Colorado, Georgia, Alabama, Kentucky, Missouri and Massachusetts. In a May 1 emergency order, the Texas State Securities Board explained that it had received a tip that Metals.com was suspected of engaging in financial exploitation and that after investigating the claim, it secured evidence that “Metals.com and its representatives are engaging in an illegal and fraudulent scheme targeting elderly persons and other investors.”
All of the state actions make similar allegations, claiming in sum and substance that Metals.com is engaged in an illegal advisory scheme that targets the elderly (the majority of the company’s clients are 65 to 90 years old). Specifically, the complaints allege that Metals.com misleads and deceives elderly consumers by informing them that:
- The stock market is in decline (or going to crash) and they are at risk of losing all their money. Meanwhile, there is no risk in an investment in precious metals.
- Securities holdings are not safe investments but investing in precious metals is secure and safe.
- Investment advisers are committing illegal acts against their clients or engaging in acts that could result in the loss of consumers’ security funds.
- Metals.com does not charge a fee for the purchase of precious metals.
Based on such representations by Metals.com representatives, consumers have liquidated their securities holdings and purchased precious metals through the company. The results have been financially devastating for many. For example, 20 Georgia investors liquidated more than $3.9 million of their retirement accounts and/or securities holdings to invest in precious metals through Metals.com. As of June 2019, the total value of their precious metals investment was about $1.62 million, indicating that Georgia investors had lost 48 percent of the value of their original liquidated portfolios.
To date, Metals.com has settled two of the cases against it. Two months after the Texas State Securities Board issued its emergency order, Metals.com agreed to fully refund 84 Texas investors in a deal that is likely to cost the company more than $10 million. Similarly, in Colorado, Metals.com has agreed to refund 21 investors in a deal that could cost the company as much as $2.9 million.
While many of the state actions against Metals.com allege that members of its sales force illegally represented to consumers that they were licensed investment advisors, the truth of the matter is that they are not. Though a statement in the “About” section of the company’s Facebook page could make you think otherwise. It claims that “Metals.com has proper and full accreditation from the state, federal government and distributors alike.”
According to an eight-page legal contract consumers are required to sign before purchasing precious metals through Metals.com, it “is not an investment advisor, consultancy, licensed brokerage, or banking institution.” Buried in the middle of the contract — in the seventeenth paragraph, to be exact — the company also informs consumers that “sales representatives are not licensed brokers and their knowledge of Precious Metals and the Precious Metal marketplace varies markedly.” The contract goes on to explain that “sales representatives are commissioned salespersons – i.e., their salary is based, at least in part, on the amount and profit margin of the Precious Metals they sell.” Meaning these commissioned salespeople don’t necessarily know anything about the precious metals they’re selling to you.
Meanwhile, buried in Metals.com’s contract is a provision that requires its customers to attest to the fact that they are precious metals experts under penalty of perjury law. Specifically, the contract states:
Customers who are buying Precious Metals from [Metals.com] declare under penalty of perjury pursuant to 28 U.S.C. §1746 that (i) Customer either deals in such articles or otherwise by Customer’s respective occupation or as a result of Customer’s avocations as collector, speculator, or investor has and holds him or herself out as having knowledge or skill peculiar to such articles or the practices involved in the purchaser of such articles …
So if you’re not completely knowledgeable about investing in precious metals, run, don’t walk, away from Metals.com.
A recurring theme in the state actions filed against Metals.com is that sales representatives deceptively told consumers that there were no fees associated with their purchase of precious metals from the company – that all consumers had to do was pay the “retail price.” What Metals.com allegedly failed to explain to consumers was that the company pockets the “spread,” which is the difference between the wholesale price it pays for the metals and the retail price it charges consumers. That is to say, Metals.com’s profit margin (including the salesperson’s commission) is included in the price consumers are quoted by the company.
The contract makes two important points about this: first, these profit margins vary wildly and are subject to negotiation, so get ready to haggle; and second, the margins vary depending on what you buy. Here’s what the contract says:
- Bullion – spread is generally between 1 and 5 percent.
- Government mint, gold, silver, and Numismatic coins and bars – spread is generally between 1 and 19.9 percent.
- But if you’re using IRA funds – the spread for precious metals will be even greater with a general spread between 1 and 19.9 percent or more.
The contract also points out that sales representatives may get bonuses for selling certain denominations, types and/or grades of precious metals. So here’s a quick question for you: If you are a Metals.com-commissioned salesperson, which product are you going to try and sell? The likely answer: The one with the highest profit margin for the salesperson.
In 2017, Stephen Matteo called Metals.com after hearing the company’s radio ads, according to a 2019 federal complaint. The then-71-year-old Hawaiian resident explained in multiple phone calls with Metals.com representatives that his wife had recently passed away, that he had about $465,000 in life savings, and that he was relying on that savings to support him for the rest of his life. According to the complaint, company representatives repeatedly told Matteo that investing in precious metals was a safe, no-risk investment that could not go down in value, and that the company would buy back the precious metals for the same price he paid for them at any time.
Based on these alleged representations, Matteo gave his entire life savings to Metals.com to purchase precious metals. “Within about two months’ time, the Plaintiff’s $461,812.50 investment with Defendants had lost about $250,000.00 in value,” the complaint states.
Based on the contract that Matteo had signed, which states, in part, that “Precious Metals cannot be exchanged or returned for a refund,” and “[the company] is prohibited by law from guaranteeing to repurchase Precious Metals that it sells,” Metals.com refused to buy back Matteo’s precious metals and the investment continued to go down in value. Ultimately, Matteo only recovered about $158,000 of what he had purchased from Metals.com, according to the complaint. Matteo, believing that Metals.com had misled him, filed a 20-count complaint alleging, among other things, that Metals.com “intentionally conspired and agreed to conduct … through a pattern of racketeering activity to perpetrate a fraud on plaintiff to steal his life savings and retirement funds for [Metals.com’s] own benefit.” Metals.com subsequently settled this case (terms undisclosed) with Matteo.
Despite the fact that seven states have sued Metals.com for engaging in financial fraud, you won’t find a lot of consumer criticism on the internet. There may be a few unpleasant reasons for this. First, according to one state complaint (Texas), the company threatens legal action against those who complain about its services. Specifically, the complaint states:
Metals.com is sending demand letters to clients who publicly [sic] complain about their purchases of precious metals …. For example, on or around April 17, 2019, … Metals.com, acting through Rabeh M. A. Soofi, Managing Attorney at AXIS Legal Counsel, sent a letter referred to as a ‘Pre-Lawsuit Notice’ and ‘Cease and Desist Demand’ to a 75-year old retired schoolteacher who publicly [sic] complained about rolling over her IRA to invest $65,991.00 in precious metals from … Metals.com. The Pre-Lawsuit Notice accused the elderly person of breach of contract, harassment, defamation and tortious interference with the prospective business relationships of … Metals.com. It provided notice that, if the elderly person did not satisfy … Metals.com’s demands, … Metals would file a lawsuit for injunctive relief, damages for actual loss, punitive damages of three times the award of actual loss, and attorneys fees and costs.
Second, the company appears to challenge ratings of fewer than five stars on the website Trustpilot.
And third, according to one former employee, some reviews are fake:
According to Metals.com’s contract, after you place an order for your precious metals, you have five days to deliver the appropriate funds to the company, and then Metals.com has 28 days to deliver your order. However, if you pay by check, Metals.com won’t do anything about delivery until your check clears, which Metals.com says can take up to 12 days — meaning you may not see those coins you ordered for more than 40 days.
While we’ve touched on some of the important points that can be found in Metals.com’s lengthy, tiny print contract, here are a few more noteworthy provisions:
- The decision to purchase or sell precious metals, and which precious metals to purchase or sell, are the customer’s decision alone.
- Customers should seek independent tax advice as there may be tax consequences to holding precious metals as an investment in an IRA.
- Customers should be prepared to hold any precious metals purchased for at least three to five years, and preferably five to ten years.
- Customers should not invest more than 20 percent of their investment funds in precious metals.
- Precious metals do not yield income and thus are not an appropriate investment vehicle for investors seeking current or future income.
- Metals.com makes customers waive the right to class-action lawsuits and a jury trial, tries to limit the statute of limitation to one year for any complaint, forces customers to enter into a binding arbitration agreement, and contractually tries to limit all damages to the amount paid for the precious metals in dispute.
TINA.org has reached out to Metals.com for comment. Check back for updates.
Read more about investing in precious metals here.