Marketing Scheme Played on Consumers' Fears of Y2K Financial Breakdown
A California mining company and its president have settled Federal Trade Commission claims that they allegedly defrauded customers using an Internet investment pitch that played on fears of a worldwide financial breakdown due to the Y2K computer glitch. The strong injunctive relief provided by the settlement protects consumers by permanently prohibiting the company and its president from using false representations to market any investment in the future.
The company, Selket Precious Metals, Inc., and its president, Paul H. Byus, marketed two types of investments: shares of stock in Selket and certificates redeemable for gold from the company's mine. Potential investors were assured that an investment in Selket stock would appreciate, because Y2K related concerns would drive up the price of gold, and that gold certificates purchased would be just like money in the chaos following January 1, 2000.
"Using Y2K-related fear tactics to make a quick buck from consumers is unconscionable," said Jodie Bernstein, Director of the FTC's Bureau of Consumer Protection. "Consumers should be wary of any offers that play on their fear of Y2K-related financial difficulties. This is the third Y2K-related case the FTC has brought, and we will continue to be on the lookout for other schemes related to the Year 2000 date change."
The first two Y2K-related complaints -- brought by the Commission earlier this year -- involved companies that allegedly sold hundreds of consumers worthless credit card protection services that they claimed would shield cards from Y2K-related problems.
According to the complaint filed by the FTC yesterday, since January 1995 Selket Precious Metals has used the Internet and other means to sell unregistered stock, based on the promise that an investment in the company's Herculean gold mine, located in Baker, Oregon, was low-risk and likely to yield high returns in a short period of time. In its marketing materials, Selket claimed that the mine would yield more than 300 troy ounces of gold per week, resulting in a total yield of "$100,000 per week or $400,000 per month, at $300 per ounce."
Selket also represented that the value of an investment in its stock would rise significantly because "the price of gold and silver is going to climb at an exponential rate as we approach the year 2000 because of peoples (sic) fear of a calamity!"
In addition, Selket allegedly marketed worthless gold certificates to investors over the Internet, promising that they would be a safe investment that would appreciate in value after January 1, 2000, when the nation's financial system would collapse. The company claimed that an investment in its gold certificates would be safe from any ill effects of Y2K on the economy, and that they could be used like cash in the event of financial breakdown.
According to the FTC's complaint, however, the Herculean mine is not currently producing gold and will not be fully operational within a few months. Thus, Selket does not -- and will not have -- the gold necessary to back representations made about the safety, liquidity and profitability of its gold certificates. Furthermore, according to the FTC, it is unlikely that an investment in Selket stock would have yielded the substantial short-term returns promised in the company's marketing material.
Under the terms of the settlement agreement, Selket would be permanently prohibited from making false representations about the potential risk and return of investments in its mining operations, that its mine will be operational in any given period of time, that the value of any ore deposits has been proven, or that a known quantity of ore will be mined. In addition, the proposed order broadly prohibits Selket from misrepresenting the risk, value or any other fact material to any investment or investment offering.
The proposed order also contains provisions for record-keeping by the company, compliance reporting, notification of the Commission regarding changes in the corporation or its business activities and the distribution of the order to any venture capitalist or marketing entities associated with the company now or in the future.
The Commission vote to authorize staff to file the complaint and stipulated final judgment was 4-0. The complaint and stipulated final judgment were filed in the United States District Court, Eastern District of California on November 16, 1999. The judgment requires the court's final approval and is not binding until signed by the judge.
Available Y2K Resources
The FTC, in cooperation with the Federal Financial Institutions Examination Council and the President's Council on Year 2000 Conversion, has issued a consumer alert -- "Y2K? Y 2 Care: Protecting Your Finances from Year 2000 Scam Artists." The FTC also has prepared a series of consumer alerts to inform consumers and industry about Y2K issues. In addition to the alerts, consumers can call a free hotline -- 1-888-USA-4-Y2K -- for information about Y2K topics. Copies of the Y2K Y 2 Care consumer and business alerts and other Y2K information are available from the FTC's web site at www.ftc.gov and www.consumer.gov and also from the FTC's Consumer Response Center.
NOTE: This stipulated final judgment is for settlement purposes only and does not constitute an admission by the defendants of a law violation. Consent judgments have the force of law when signed by the judge. The civil action number was not available at press time.
Copies of the news release and legal documents related to this matter are available from the FTC's web site at http://www.ftc.gov and also from the FTC's Consumer Response Center, Room 130, 600 Pennsylvania Avenue, N.W., Washington, D.C. 20580; 877-FTC-HELP (877-382-4357); TDD for the hearing impaired 1-866-653-4261. To find out the latest news as it is announced, call the FTC NewsPhone recording at 202-326-2710.
(FTC File No. 992-3253)
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