A California-based precious metals dealer and self-declared financial advisor is in a lot of hot water for allegedly defrauding retirees in a $68 million scheme where he significantly overcharged for gold and silver coins.
The hammer came down hard last Tuesday. On Feb. 1, the Securities and Exchange Commission (SEC) announced charges against Safeguard Metals LLC, and its owner, Jeffrey Santulan, for engaging in a multimillion dollar fraudulent scheme involving hundreds of investors who were at or near retirement age.
The same day, the Commodity Futures Trading Commission along with 27 state securities regulatory agencies that are members of the North American Securities Administrators Association (NASAA) announced the filing of a joint civil enforcement action in the U.S. District Court for the Central District of California against the precious metals dealer and its owner for orchestrating the fraudulent scheme targeting elderly persons nationwide.
The civil complaint charges defendants Safeguard Metals and its principal, Jeffrey Santulan of Tarzana, Calif., also known as Jeffrey Hill, with executing an ongoing nationwide fraud that solicited and received approximately $68 million in investor funds to purchase precious metals and fraudulently overpriced silver coins.
The CFTC and state securities regulators seek the return of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act (CEA), state regulatory laws, and CFTC regulations.
“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. Unfortunately, this case reflects just one of the many epidemic-level investment scams targeting senior and vulnerable populations,” said NASAA President and Maryland Securities Commissioner Melanie Senter Lubin.
The SEC’s complaint, which was filed in federal district court in Los Angeles, charges Safeguard and Santulan with violating the antifraud provisions of the federal securities laws. The SEC is seeking permanent injunctions, disgorgement of allegedly ill-gotten gains, plus interest, and civil penalties.
Inside the scheme
According to the SEC’s complaint, from December 2017 through at least July 2021, Safeguard and Santulan acted as investment advisors and persuaded investors to sell their existing securities, transfer the proceeds into self-directed Individual Retirement Accounts, and invest the proceeds into gold and silver coins by making false and misleading statements about the safety and liquidity of the investors’ securities investments, Safeguard’s business, and its compensation.
As alleged, Safeguard fraudulently marketed itself as a full-service investment firm with offices in London, New York City, and Beverly Hills that employed prominent individuals in the securities industry and had $11 billion in assets under management.
Safeguard’s sales agents used prepared scripts that were filled with false and misleading statements about how the market was going to crash and how their retirement accounts would be frozen under a new “unpublicized” law.
In reality, Santulan allegedly operated the company from a small leased space in a Woodland Hills, Calif. office building using sales agents. The complaint further alleges that Safeguard’s sales agents used prepared scripts, some written by Santulan, that were filled with false and misleading statements about how the market was going to crash and how their retirement accounts would be frozen under a new “unpublicized” law.
“The federal securities laws prohibit deceptive conduct and material misrepresentations in the purchase or sale of securities,” said Kathryn A. Pyszka, an Associate Director in the SEC’s Chicago Regional Office. “We will take action when, as alleged, parties fraudulently induce investors to sell their securities through lies and deception.”
Safeguard and Santulan also allegedly misled investors about Safeguard’s commissions and markups on the coins, charging average markups of approximately 64% on its sales of silver coins, instead of the 4% to 33% markups that they disclosed to investors, per the SEC complaint. The CFTC complaint said the markup that customers paid on silver coins averaged from 51% to over 70%. In the end, nearly every customer suffered an immediate loss of their investment on the purchase of precious metals from Safeguard Metals.
To perpetuate their fraud, when questioned by customers about the value of the precious metals they purchased, the defendants claimed the silver coins were rare and carried a premium far above the base melt value to conceal their fraud and hide that customers significantly overpaid for their investments. In fact, the silver coins were significantly less valuable than the defendants claimed, based on the resale prices the firm marketed and promoted.
According to the SEC complaint, Safeguard obtained approximately $67 million from the sale of coins to more than 450 mostly elderly, retail investors, and kept approximately $25.5 million in markups.
“Today’s action demonstrates the commitment of state and federal regulators to work together to prevent investment fraud,” said Joseph P. Borg, Co-chair of NASAA’s Enforcement Section and Director of the Alabama Securities Commission. “Given the complexity of investment products, our jobs have never been more important, or more demanding.”
States involved include: Alabama, Arizona, Arkansas, California, Connecticut, Florida, Hawaii, Idaho, Illinois, Indiana, Kentucky, Maryland, Michigan, Mississippi, Missouri, Nebraska, New Mexico, New York, North Carolina, Oklahoma, Oregon, South Carolina, South Dakota, Tennessee, Vermont, Washington, and Wisconsin.
SEE ALSO:
• SEC Halts Ponzi Scheme Targeting Veterans’ Retirement Funds
• 10 Signs of 401k Contribution Fraud: DOL
• Bad ‘Actor’ Charged by SEC in $700 Million Ponzi Scheme
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
