FOR RELEASE: MAY 24, 1993
KEY DEFENDANTS IN PRECIOUS METALS TELEMARKETING SCHEME AGREE TO SETTLE FEDERAL TRADE COMMISSION CHARGES
The president and the sales manager of the Newport Beach, California-based firm, Western Trading Group, Ltd., have agreed to settle Federal Trade Commission charges regarding their roles in an allegedly deceptive scheme to market leveraged investments in precious metals by telephone. The proposed settlement agreements would prohibit Jon A. Gentile and Sam Kingsfield from misrepre- senting the investment potential, risk, or any other material feature of any investment they offer in the future. The settle- ments also would require Gentile and Kingsfield to disclose to consumers the full amount of any fees charged in connection with any precious metals or currency investment offering they make.
The FTC first filed a complaint detailing its charges in this case in federal district court last July 15. The FTC alleged that, as a result of the defendants' deceptive practices and the volatility of the precious-metals market, most of the consumers who invested in the defendants' metals would lose some or all of their money. Shortly thereafter, Gentile and Kingsfield agreed to the entry of preliminary orders prohibiting the allegedly decep- tive conduct. The court also entered a default against Western Trading when representatives of the company failed to appear in court, but the default did not prohibit the allegedly deceptive conduct. Therefore, in addition to asking the court to approve the proposed settlements with Gentile and Kingsfield, the FTC is seeking a default judgment against the company that includes prohibitions on various deceptive practices. Western Trading Group is not currently in business.
- more - Western Trading--05/24/93)
(In a subsequent and related case, the FTC charged two inter- related companies -- Unimet Credit Company and Unimet Trading Company -- and their principals with aiding and abetting Western Trading Group and numerous other metals dealers in deceptive schemes. The Unimet defendants allegedly assisted Western by supplying the metals, and providing financing for its customers and other marketing assistance. Charges are still pending against these defendants. These cases represent a relatively recent FTC approach of targeting not only individual boilerrooms, but also suppliers and others who aid and abet or otherwise assist them, as a more effective approach to combatting fraud.)
The FTC's complaint in the Western Trading Group case alleged that, in the course of marketing leveraged investments in precious metals, the defendants misrepresented their risk, profit poten- tial, past performance, and the point at which an equity call would occur -- that is, the change in value at which point inves- tors would have to pay more to maintain their equity. The defen- dants also failed to disclose a number of fees and other costs -- including fees allegedly disguised as commissions -- associated with the investments, the FTC charged. The defendants' customers lost the vast majority of the funds paid into the program -- some in excess of $100,000 -- the FTC alleged in documents accompanying its complaint.
The proposed consent judgments to settle the charges against Gentile and Kingsfield, which require the court's approval to become binding, would prohibit them from misrepresenting the risk, profit potential, break-even point, or any other fact material to a consumer's decision to invest, for any investment offering they make in the future. The judgments also would prohibit the defen- dants from misrepresenting the equity call trigger point, and the costs to a retailer of obtaining bullion that investors can instantly resell at market prices.
Further, the proposed consent judgments would require Gentile and Kingsfield to disclose all fees charged in connection with an investment in precious metals or foreign currencies, and to in- clude a specifically-worded disclosure about the risks of lever- aged investments in such commodities. The disclosure would state, among other things, that such investments are speculative and extremely high in risk, and would warn consumers not to invest unless they are capable of losing their entire investment. The defendants also would be required to obtain each investor's signa- ture, indicating that they had read and understood the disclosure.
Finally, the proposed consent judgments include various reporting requirements to assist the FTC in monitoring the defendants' compliance.
The Commission vote to approve the proposed consent judgments for filing in court was 5-0. They were filed May 21 in U.S. District Court for the Central District of California, in Los Angeles.
NOTE: These consent judgments are for settlement purposes only and do not constitute admissions by the defendants of law violations. Consent judgments have the force of law when signed by the judge.
Copies of the proposed settlements, as well as previous news releases issued in connection with this matter, are available from the FTC's Public Reference Branch, Room 130, 6th Street and Penn- sylvania Avenue, N.W., Washington, D.C. 20580; 202-326-2222; TTY for the hearing impaired 1-866-653-4261.
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MEDIA CONTACT: Bonnie Jansen, Office of Public Affairs 202-326-2161
STAFF CONTACT: Daniel A. Spiro, Bureau of Consumer Protection 202-326-3288
(Civil Action No. CV-02-4194) (FTC File No. X920056) (western2)