You Can't Cheat an Honest Man - James Walsh [43]
“This guy was like an addict. He couldn’t control himself,” said one of the federal agents who’d investigated Chilcott in Colorado. “And it couldn’t have been fun. You should have seen him when he came back [after the Del Mar arrest]. He was still barely 40. But he looked ten years older.”
Precious Metals
Just as the complexity of commodities trading and currency exchange rates invites bogus theories and Ponzi scammers, trading in precious metals provides a rich setting for scams.
“There’s something about the idea that an ounce of gold fluctuates in value against the dollar that strikes most people as magic,” says an FBI agent based in the Midwest who’s investigated several goldbug Ponzi schemes. “For a big part of this country’s history, the dollar was backed by gold. When that link was broken, both dollars and ounces seemed a little less legitimate.” And may, in fact, have become less legitimate.
The recession of the mid-1970s planted the seeds of uncertainty in many people’s minds. Those days were the most recent shining moment for goldbugs. While stocks and bonds floundered along with the economy in general, gold exploded in value. People who wouldn’t normally invest in gold were hoarding gold coins: American Eagles, Canadian Maple Leafs and South African Krugerrands. The coins have been out of financial fashion pretty much ever since.
Theories about the gold standard, usually the realm of economists and conspiracy-minded novelists, have given birth to Ponzi schemes based on exploiting the shifting connection between dollars and gold.
David and Martha Crowe started Gold Unlimited, a multilevel marketing company based in Madisonville, Kentucky, in November 1993. The company conducted seminars to recruit people willing to invest $400 in the company. In return, investors would receive a gold coin and be placed on a list giving them the right to recruit additional participants.
Once investors recruited two other people to join, they were promised a commission on the recruits brought in through them. From the beginning, the company struck some people as a pyramid scheme. But its participants insisted Gold Unlimited was legitimate. According to them:
• people paid nothing to become representatives nor were they paid for bringing in others as representatives;
• participants could earn profits on goods they sold, but they could only earn commissions when they brought others into their sales networks who either brought or sold products;
• participants had to qualify to establish sales networks by producing $200 in “personal business volume credit.”
For 1994, the Crowes’ company claimed sales of $25 million. It boasted more than 90,000 sales representatives worldwide and with divisions in Canada and Hong Kong. The company’s headquarters had once been a private mansion. There were walk-in safes on each floor to store the gold and silver bullion and coins, precious stones, jewelry and rare books the company sold through its independent representatives.
But, in early 1995, the company started running into trouble with state courts and regulators throughout the South and Midwest.
Mississippi Attorney General Mike Moore said consumers in that state should exercise caution about putting money in the firm. “Our main problem is that several representatives of the company appear to be concentrating on the recruitment of people into the company, not the sale of gold coins,” said a spokeswoman for Moore’s office. “We’ve also heard people saying that since our office met with the attorneys from Gold Unlimited, we’ve approved the program. Nothing is farther from the truth.”
Iowa authorities reported that a growing number of residents had been lured into investing about $200 in Gold Unlimited. Each investor then had to recruit two more investors who also paid $200 each. After the company received the $600, the initial investor would get a gold coin worth about $300.
Arkansas Attorney General Winston