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IRS Scandal and Tax Reform

Tax reform has been a topic of political conversation for years.  It had appeared that law makers may make headway this year and then the IRS scandal happened.  With reports of the IRS targeting specific conservative groups for audits and additional scrutiny business owners, investors, and conservatives clearly have something to worry about.  Rep. Dave Camp (R-Mich) has complained about the “arrogance” within the agency and is unhappy with the lack of answers they received during the recent investigation.

Chairman of the House Democratic Caucus, Rep. Xavier Becerra (California) said that the tax code is part of the problem that led to the IRS targeting conservative groups.  He said on Meet the Press, “The reason we have this problem is because we have a tax code that allows groups to use their political operations within the tax code under the guise as a charity, to use undisclosed millions of dollars to do political campaigns.”

Congressional Representatives are using the recent IRS tax scandal to encourage people to pursue further tax reform and deal with the IRS black hole once and for all.  Camp said, “A lot of people feel the tax code is broken. It’s not fair, it’s inefficient, it’s so complex. The average family should be able to fill out their own tax forms and file them. They can’t now. It takes the average American 13 hours to comply with the code.  I think we need a fairer, flatter, more efficient tax code.”

Some people are even calling for elimination of the agency all together.  Forbes columnist John Tamney said, “The problem is not the redundancy that is the ‘politicized IRS, Rather the problem is that the IRS exists to begin with. It’s time that we abolish our tax authority with a view toward re-asserting our individual liberty.”  He goes on to say that the tax authority basically holds citizens hostage as they give over a portion of their pay check every month only to live in fear of completing their taxes incorrectly and ending up in trouble with the law.  Tamney advocates that the government “must scrap the income tax code altogether and institute a national sales tax,” which “would mean we no longer need to act as subjects cowering in fear of a tax authority.”

Others argue that a flat tax is the solution to our nations tax troubles.  By using a flat tax the complicated IRS code would no longer be relevant and citizens would at least be able to understand what their tax liability is.

The IRS scandal is at best causing many citizens to look at the reality of government corruption.  Investors, business owners, and citizens should continue to pay attention to the tax scandal and any changes made to tax regulations.  Staying up to date is an important component of protecting your investments and keeping more of your money in your pocket.

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National Compliance Event Hosted by the SEC

This week in Washington DC the Securities and Exchange Commission will host a national compliance event for broker dealers.  The April 9th event is part of an SEC outreach program.  The event is free to attend and will provide broker dealers with an opportunity to meet industry peers, learn best practices, and further their education regarding SEC and FINRA regulations.  It will be held at the SEC headquarters at 100 F Street NE in Washington DC.

The broker dealer industry has changed significantly and will continue to do so.  With Congress looking for additional ways to regulate broker dealers, and financial service providers, it is important for industry executives to stay informed and incorporate changes into their daily operations.  This event is supposed to provides information, ideas, and tips for how to stay in compliance and mitigate exposure to risk.

Susan Axelrod, FINRA Member Regulation EVP, said in a statement, “FINRA is pleased to continue the partnership with the SEC to provide this opportunity for broker-dealer compliance professionals and regulators to foster two-way communication and work together to protect investors. Given the pace of change in the industry, face-to-face meetings of this kind are more valuable than ever.”

This event will be most valuable to broker dealers with complex business lines, as it provides a forum for asking questions and obtaining instant feedback.  Audit officers are invited to attend as well.  They will feature discussions on net capital compliance, risk management, sales and trading compliance.  Those of you using to reach out to investors to sell Private Placements and other investment opportunities can use this event to gain further compliance information.

Since the event is free this provides an excellent opportunity for emerging broker dealers to interact with more seasoned industry professionals and learn from their best practices.  Additionally securities attorneys are not cheap.  Attending the event will give broker dealers answers to questions directly from the SEC, at their corporate headquarters.  An airplane ticket will likely cost less than one hour of an SEC attorneys time so if you haven’t registered yet go to, and sign up.

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Black Gold in Australia

On January 23rd Linc Energy (ASX: LNC) announced that they have two independent reports showing that oil, black gold, has been discovered in the Arckaringa Basin in Australia.  These oil reserves are located in the the Pre-Permian, Stuart Range, and Boorthanna.  One report by Gustavson estimates that 233 billion barrels of oil equivalent are in the reservoirs while DeGolyer and MacNaughton estimate 103 billion barrels are there.  This could be a game changer in the oil industry.

Linc Energy owns 16 million acres in the area and believes that 2-3 million acres have the majority of these reserves.  Some independent reports have estimated that the oil discovery could be worth $20 trillion for South Australia.  Linc will not confirm this number stating that it is too early to put an exact value on the discovery.  For those watching the market there is clear potential to benefit from this discovery as Linc is a publicly traded company.

Reports show that the Stuart Range formation has significant oil and gas prone kerogen. These reports confirm Linc Energy’s view that the Arckaringa Basin is rich in resources which can be compared with US unconventional liquids plays such as the Bakken. Those in the US can point to the massive economic impact accessing those reserves had on the economy with sleepy states like North Dakota becoming boom towns with more people moving there than housing and ammenities to support them.  This Australian discovery will not only generate massive revenue for Linc, position Australia for oil independence but also positively impact the Australian economy.

In addition to identifying the potential reserves D&M also evaluated the likelihood of geological success.  With a positive report in hand Linc Energy is looking to Barclays Bank to provide them with strategic guidance and help them secure a JV partner that is experienced in shale operations.  They are estimated to need an additional $150 – $300 million for the next stagge of the project.  Linc CEO, Peter Bond, was quoted as saying  ‘Linc Energy is committed to delivering the best outcome for the development of this acreage and maximising value to shareholders. The best way for Linc Energy to do that is to bring in an industry expert with the know-how and funding to drive this asset forward to production as promptly and as efficiently as possible.’
Linc is not inclined to agree with the $20 trillion estimate for oil production but even their worst case scenario yields 3.5 billion BOE.  This will be a boom for the Australian economy and has the ability to make them oil independent.  If the reports are accurate Australie could become the worlds next major exporter of oil.  Shares of Linc were trading at $2.82 so investors wanting to participate still can, at a low price.

Green energy has become a popular investment over the past decade with just as much failure as success.  Oil on the other hand is still a very tangible commodity, required by the modern world to operate factories and cars.  As the economy improves oil demands will rise and the Australian discovery could be just in time.

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Gold Investors On Shaky Ground

South Florida becomes a national center for bullion firms operating in virtual regulatory limbo

Written By Jon Burstein, Sun Sentinel:

With the price of gold at near or all-time highs, South Florida has become a national hotbed for companies operating in a largely unregulated niche of the precious metals industry, where some customers have reported losses in the tens of millions of dollars, a Sun Sentinel investigation has found.

In Broward and Palm Beach counties alone, more than 45 firms have opened since 2007, offering clients the chance to buy gold and other precious metals via heavily financed transactions.

In an environment devoid of federal licensing or reporting requirements, convicted felons and people with checkered regulatory pasts have been among those setting up shop.

“They took every dime I had,” said Richard Ray, a Georgia man who lost $46,300 with Spyker Consulting, a Deerfield Beach-based precious metals firm supervised by two convicted felons. No criminal charges have been filed against Spyker officials over investors’ losses, but one of the company’s founders is now facing prison time after a FBI sting revealed he lied to his probation officer about his role in Spyker and two other metals firms.

The Florida Office of Financial Regulation has ongoing investigations into at least 23 area companies marketing opportunities to buy bullion and have it stored at a secure location. Hundreds — if not thousands — of Americans have entrusted their money to South Florida precious metals companies.

In the past 18 months, clients and creditors of seven local precious metals businesses have claimed losses of more than $54 million, a Sun Sentinel review of more than 2,000 pages of court documents shows. Among the developments cited:

The collapse of Lake Worth-based Global Bullion Exchange with 1,400 investors losing more than $29.5 million. Owner Jamie Campany has admitted in a sworn statement that money “distributed to customers came from funds provided by other customers,” and metals weren’t purchased as promised. Campany is being sued by the company’s receiver for fraud. He has not been criminally charged.

A Broward judge froze the bank account of Pompano Beach-based JDC United Metals Inc. after a 70-year-old California retiree filed a lawsuit accusing the company of defrauding him of more than $627,500 in six months.

The bankruptcy of three related Miami companies — Certified Inc., Global Bullion Trading Group Inc. and WJS Funding — with more than $22 million in claims filed against them, court records show.

Industry defended

Defenders of this segment of the precious metals industry maintain it offers the public a chance to buy gold and silver as tangible hedges against uncertain economic times and a deflating dollar.

“We have a terrific program and, like anything else, it depends on who you are doing business with,” said Robert Acocella, president of Monolith Bullion, a Boca Raton-based precious metals firm. “I personally will speak to every client that comes on board and we custom tailor a strategy to meet their needs.”

Jeffrey Schuler, co-founder of Liberty International Financial Services of Fort Lauderdale, said his clients receive full explanations about how the metals are purchased. He said he prefers that clients have the bullion delivered to their homes.

“All of the firms that don’t have complaints, no one hears about them,” he said.

Monolith Bullion and Liberty International Financial Services are not being investigated by the Office of Financial Regulation.

Acocella and Schuler were the only two industry executives who agreed to be interviewed after the Sun Sentinel contacted 20 South Florida firms selling precious metals through financed transactions. Other companies declined comment or did not return phone calls.

How firms work

The metals firms have been opening at a rate of nearly one per month, setting up in office suites from Hollywood to Jupiter and relying on websites and telemarketing to draw in customers.

Many of the firms operate this way: Clients are offered a chance to buy precious metals and have them delivered to their homes or stored in a secure location. Most choose storage. Customers are also told they can buy “on leverage” — meaning they can obtain financing so they can purchase more metal.

For example, a customer could put down $1,000 to buy $5,000 worth of gold. The financing comes from separate businesses called “clearing firms” or “clearing houses,” that have pre-existing relationships with the precious metals firms.

Under such leveraged arrangements, if metal prices fall by a certain amount, clients are subject to a “margin call,” meaning they must pony up more cash — or risk losing their money.

A Federal Trade Commission official testified before Congress last year that the agency has seen a rise in unscrupulous telemarketers pitching highly leveraged precious metals sales to consumers who don’t understand how the deals work or the risks involved.

“The telemarketers charge hefty commissions and other fees that significantly reduce or completely eliminate the value of the consumers’ initial investments,” Lois Greisman, an associate director in the FTC’s Bureau of Consumer Protection, told the House Subcommittee on Commerce, Trade and Consumer Protection.

Frank Widmann, director of securities for Florida’s Office of Financial Regulation, told the Sun Sentinel that the volatility of this market can make it treacherous territory for inexperienced gold buyers.

“This is an area where it’s real easy to mess with investors,” he said.

Minimal regulations

Customers of some South Florida companies question whether their money was ever even used to buy precious metals. Campany, head of Global Bullion Exchange, acknowledged in his sworn statement that not only were metals never bought, but that the “clearing firm” being used — Diversified Investment Group — was a shell company that he created himself.

Four men who worked for The Bullion Trading Group, which had offices in West Palm Beach and Stuart, were indicted last year on federal charges of defrauding clients out of about $1 million by allegedly forging documents that falsely showed money was being invested in metals. Two of the defendants have each pleaded guilty to a fraud charge, while the other two have pleaded not guilty.

Since these gold companies advertise they buy and sell actual bullion — rather than do paper transactions — they have fallen outside the jurisdiction of the Commodity Futures Trading Commission, the federal agency that oversees the commodity and financial futures market.

The metals firms don’t need to register with any federal agency to do business and employees don’t require licensing other than state approval to engage in telemarketing. That means someone with no financial background or training can start soliciting customers to buy gold and silver. (A conviction for a financial crime can bar a felon from getting a telemarketing license.)

Within the last year, seven precious metals businesses in South Florida have been forced by the state to apply for telemarketing licenses after inspectors issued cease-and-desist orders to end unregistered phone solicitations, said Sterling Ivey, spokesman for the state Department of Agriculture & Consumer Services.

One of the companies that was registered to engage in telemarketing was Spyker Consulting, which was founded by two men who met in federal prison while serving time in separate white-collar criminal cases, court records show. Luis Ferreira and Eugene Cabrera ran the firm with Ferreira’s mother listed on state documents as the president, court records show. Ferreira admitted in court papers that he used a variety of aliases in dealing with customers at Spyker and two other precious metals firms he helped start.

Ferreira pleaded guilty last month to conspiracy to commit witness tampering, acknowledging he lied about his role in the companies to his probation officer. He likely faces no more than three years in prison when he is sentenced May 20.

More federal oversight of the gold firms appears to be on the horizon when a new law takes effect in July. Companies that sell precious metals in leveraged deals will have to deliver the gold within 28 days to the customer or a location where the metals are easily accessible so the buyer can verify that they actually exist. If the gold isn’t physically delivered, the transactions will fall under CFTC jurisdiction, and companies and their brokers will need to be federally licensed to work in commodities.

Daniel Roth, president of the National Futures Association, a self-regulating trade organization for the U.S. futures industry, said he hopes the new law will close loopholes that have allowed metals companies offering leveraged purchases to operate without strong oversight.

“We’ve been advocating this for a long time,” he said.

Schuler, of Liberty International Financial Services, said he also welcomes greater regulation.

“If there is leverage involved, the CFTC should be involved,” he said.

Retirees hit hard

The court documents obtained by the Sun Sentinel show senior citizens have suffered some of the biggest losses when it comes to area precious metals firms. In the case of Global Bullion Exchange, of the 20 clients who reported losses greater than $225,000, 10 are older than 60 and three others have died.

James Haston, a 70-year-old California retiree, confided more than $627,500 to JDC United Metals, believing he was capitalizing on the rising price of gold, said his attorney, Heather Rutecki. JDC United Metals chief executive officer Danny Reynolds repeatedly visited Haston, even staying at his house and calling him “Dad,” according to a Broward Circuit Court lawsuit filed by Haston in December.

When Haston sought to pull money out, the lawsuit claims, Reynolds disconnected his phone and couldn’t be found.

A person responding to the email address posted on JDC United Metals’ website wrote the Sun Sentinel that Haston’s lawsuit was frivolous and misleading. Broward Circuit Judge Victor Tobin ordered a JDC United bank account frozen in December, but the company has not filed a legal response to Haston’s suit.

Two other retirees, Esther MacDonald-Gurl and Brian Gurl of North Carolina, sued Deerfield Beach-based American Precious Metals in February, alleging they lost more than $105,000 in a month with the company. One of the company’s founders previously was sanctioned by the National Futures Association for running an investment business where employees made misleading sales pitches, according to the Gurls’ lawsuit.

Attempts by the Sun Sentinel to speak to a representative from American Precious Metals were unsuccessful. The company reports on its Website that “85 percent of our business is repeat business and referrals.”

Gurl, 74, said he and his wife have been in shock since losing so much money.

“This was our nest egg,” he said.

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Multi-Million Dollar Fraudulent Precious Metals Scheme

CFTC alleges that defendants conducted illegal, off-exchange commodity transactions, and deceived customers in connection with financed transactions in precious metals

Washington, DC – The U.S. Commodity Futures Trading Commission (CFTC) today announced that on December 5, 2012, it filed a civil injunction enforcement action in the U.S. District Court for the Southern District of Florida against Hunter Wise Commodities, LLCHunter Wise Services, LLCHunter Wise Credit, LLCHunter Wise Trading, LLCLloyds Commodities, LLCLloyds Commodities Credit Company, LLCLloyds Services, LLCC.D. Hopkins Financial, LLCHard Asset Lending Group, LLC;Blackstone Metals Group, LLCNewbridge Alliance, Inc.United States Capital Trust, LLC; Harold Edward Martin, Jr.Fred JagerJames BurbageFrank GaudinoBaris KeserChadewick Hopkins;John King; and David A. Moore. The complaint charges these entities and individuals with fraudulently marketing illegal, off-exchange retail commodity contracts and deceived customers in connection with financed transactions in precious metals

. The complaint alleges that Hunter Wise Commodities, the orchestrator of the fraud, has taken in at least $46 million in customer funds since July 2011.

According to the CFTC complaint, the defendants claim to sell physical metals, including gold, silver, platinum, palladium, and copper, to retail customers in retail commodity transactions. Under the defendants’ retail commodity transactions investment contract, customers allegedly make a down payment on certain quantities of physical metals, usually 25 percent of the total purchase price. Defendants allegedly claim to arrange loans for the balance of the purchase price, and advise customers that their physical metals will be stored in a secure depository.

The complaint further alleges that these statements were false, and that the defendants do not purchase any physical metals, arrange loans for their customers to purchase physical metals, or arrange for storage of physical metals for any customers participating in their retail commodity transactions. Instead, all the transactions are just paper transactions, according to the complaint. Defendants allegedly do not own or sell metals to customers; customers are charged storage and insurance fees on metals that do not exist; and are charged interest on loans, which are never made by the defendants.

Precious Metals Fraudulent Scheme

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) of 2010 expanded the CFTC’s jurisdiction over transactions like these, and requires that such transactions be executed on or subject to the rules of a board of trade, exchange or commodity market, according to the complaint. This new requirement took effect on July 16, 2011. The complaint alleges that all of the defendants’ financed commodity transactions after July 16, 2011, were illegal. The complaint also alleges that the defendants defrauded customers in all of these financed commodity transactions.

David Meister, the CFTC’s Director of Enforcement stated: “Here is a prime example of how the Dodd-Frank Act provided the Commission with additional strong authority to go after wrong-doers, such as, as alleged in the complaint, individuals who prey on people looking to make retail investments in commodities like gold and silver. We will use this new authority to the fullest extent possible.”

In January 2012 the CFTC issued a Consumer Fraud Advisory (see Advisory under Related Links) regarding precious metals fraud, saying that it had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Consumer Fraud Advisory specifically warned that frequently companies do not purchase any physical metals for the customer, instead simply keeping the customer’s funds. The Consumer Fraud Advisory further cautioned consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.

In its continuing litigation against the defendants, the CFTC is seeking preliminary and permanent civil injunctions in addition to other remedial relief, including restitution to customers.

The CFTC thanks the Florida Office of Financial Regulation, the Florida Department of Agriculture and Consumer Services, and the United Kingdom Financial Services Authority for their assistance.

The CFTC Division of Enforcement staff responsible for this action are Carlin Metzger, Joseph Konizeski, Heather Johnson, Stephanie Reinhart, Jennifer Smiley, Judith McCorkle, Jeff LeRiche, Peter Riggs, Jennifer Chapin, Steven Turley, Brigitte Weyls, Joseph Patrick, Susan Gradman, Theodore Glotfelty, William Janulis, Scott Williamson, Rosemary Hollinger, and Richard Wagner.

Media Contacts
Dennis Holden

Last Updated: December 5, 2012


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