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Busted for Selling Fake Facebook Shares

Three New Jersey men were busted last month for selling fake Facebook shares.  Prior to Facebook going public last year they had a limited private placement.  Very few people were able to invest in this highly sought after PPM.  Scammers jumped in with both feet and people started claiming they could arrange, and did invest in the private placement.  One of them was former Oregon GOP Chairman Craig Berkman, who was arrested in March for securities fraud as investors were lured in with promises of Facebook stock.

The latest arrest were on the East Coast last month as Eliyahu Weinstein, Alex Schleider, and Aaron Muschel were charged with stealing $6.7 million from an investor after claiming special access to Facebook shares (prior to the public offering).  This is not their first brush with the law.  Weinstein had a 45 count indictment returned against him in 20011 for operating a Ponzi scheme from 2004 – 2011.  That scheme cost investors approximately $200 million.   U.S. Attorney Fishman said, “Shamelessly, Eliyahu Weinstein allegedly committed these crimes while under federal indictment for another investment scheme, even using stolen money to pay his legal fees. Today’s arrest should put an end to his brazen conduct.”   Talk about embarrassing.

The plot thickens when you look at the entire picture.  Weinstein was working with an overseas investor from New Zealand, using offshore bank accounts, and getting funds for a Brooklyn Synagogue that was paying the life insurance premiums for members that named them as the beneficiary.  The complaint state that while there were no Facebook shares Weinstein used the funds to get his house out of foreclosure, pay his other legal fees, send his kids to religious school, help the synagogue, and invest in African gold.

His other scams have included a real estate scheme where he raised money for properties he never actually owned.  That scam ranged from New Jersey, Florida, California and Israel.  I guess the real question is what was this guy not into?

Weinstein faces 25 years in prison for the Ponzi scheme and now is facing another 30.  The big warning to investors is that Weinstein is not the only scammer out there.  When someone promises to deliver something no one else has access to you better do your research.  After all why would some guy from New Jersey get access to pre IPO Facebook shares when Silicon Valley was foaming at the mouth to get in?  If it looks too good to be true it probably is.  In the meantime Weinstein has stolen hundreds of millions from unsuspecting investors.

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SEC Talks about ways of Avoiding Fraud

The SEC issued its recommendations for avoiding fraud when investors are investing through social media.  With various schemes going through the internet investors should take care when reviewing investment proposals found through social media sites.  Many consumers are also using social media for information on particular investments reviewing comments made on LinkedIn, Facebook, Twitter and more for tips, evaluations, and ideas.  The challenge is that there is no way to prove where this information came from or how accurate, or inaccurate, it may be.

The key for investors is to evaluate information they receive, regardless of how great it looks on social media.  Verify the information through additional sources prior to viewing it as fact in avoiding fraud.

Here are some tips for how to avoid investment fraud:

  • Verify the Source.  Research the person that is posting the information.  What credentials do they have for providing investment analysis or advice?  If you can’t locate information on them anywhere other than the social media sites this should be a red flag.
  • Be an Educated Investor.  Learn everything you can about the industry you are investing in.  What are typical profit margins, investor returns, and strategic positioning that makes an investment good or bad?
  • Unsolicited Offers.  If someone you don’t know sends you a private message, posts on your wall, or sends a tweet mentioning you “exercise extreme caution”.  Find out who this person is.  Research them prior to responding.  If people have mentioned them as a potential fraudster block them from viewing your profile.
  • Report Suspicious Activity.  The SEC Complaint Center will take reports of suspicious activity and investigate it.  If all investors filed reports more people would be saved from becoming a victim of a scam.
  • Too Good to Be True.  If something is too good to be true – it probably is.  Industry standards hold steady because there are certain facts that do not change, regardless of the company.  For example a medical drug has to go through FDA trials.  There is no way around it.  If someone is offering for you to invest in something that can skip these trials and go straight to market… this is a red flag. This is one way in avoiding fraud.  The same holds true for all industries and that is why it pays to be an educated investor.
  • Guaranteed Returns.  Investments are risky which is why the reward can be so great.  Simultaneously there is no way to guarantee returns.  Be suspicious of anyone that offers this to you.
  • Privacy Settings.  Set your social media profiles to private so that only people you know have access to your personal information.  You can also determine what information the site itself shares with its partners.

Investors should use caution when making any investment.  The more informed you are the better decisions you will be able to make.  Rather than taking people’s word for the outlined facts, learn about the industry and the company so that you can ask educated and informed questions prior to making investment decisions.

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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: https://articles.sun-sentinel.com/2011-03-19/news/fl-leveraged-gold-industry-20110303_1_precious-metals-owner-jamie-campany-gold-investors

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
202-418-5088

Last Updated: December 5, 2012

Source: https://www.cftc.gov/PressRoom/PressReleases/pr6447-12

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