The following is from the CFTC...
The U.S. Commodity Futures Trading Commission (CFTC) today issued an Order filing and settling charges against two Miami, Florida, companies, Pan American Metals of Miami, LLC and Pan American Metals of Miami Beach, Inc. (together, the Pan American Companies), and their owner and principal, William J. Hionas, for engaging in illegal, fraudulent off-exchange financed transactions in precious metals with retail customers. The Pan American Companies are based in Miami Beach, Florida, and Hionas resides in Sunny Isles, Florida. Neither has ever been registered with the CFTC.
The CFTC Order, filed on July 29, 2013, requires Hionas and the Pan American Companies jointly to pay restitution of approximately $3.2 million to defrauded customers and a $1.5 million civil monetary penalty. The Order also imposes permanent trading and registration bans against Hionas and the Pan American Companies and permanently prohibits them from further violations of federal commodities law, as charged.
The Order finds that, from July 2011 to at least April 2012, the Pan American Companies fraudulently solicited and accepted more than $4.7 million from retail public customers throughout the United States and Canada to engage in illegal off-exchange financed transactions in gold, silver, platinum, and palladium, in which a retail customer purportedly purchases physical commodities and pays just a portion of the purchase price.
Specifically, the Order finds that the Pan American Companies falsely claimed to (1) sell and transfer ownership of physical metals to customers, (2) provide loans to customers to purchase the physical metals, and (3) arrange for storage and store customers’ physical metals in independent depositories. In fact, the Order finds that in their retail financed transactions, the Pan American Companies did not sell or transfer ownership of any physical metals, did not disburse any funds as loans, and did not store physical metals in any depositories for or on behalf of customers.
The Order also finds that the Pan American Companies defrauded customers and potential customers by misrepresenting and failing to disclose material facts relating to (1) their experience and expertise dealing in retail financed transactions, (2) actual trading results other customers had achieved, and (3) the profit potential and risks associated with engaging in off-exchange metals transactions on a financed basis, among other things.
The Order finds that 180 of the 189 Pan American Companies’ customers lost money, with much of the approximate $3.2 million they lost going to pay commissions and fees to the Pan American Companies, which totaled over $1.68 million – equivalent to approximately 35 percent of the more than $4.7 million accepted from customers.
The Order further finds that Pan American Metals of Miami (PAMOM) provided customers a risk disclosure document stating that “[f]inancing precious metal trading is not an appropriate investment for retirement funds”; however, PAMOM solicited at least 46 individuals over 65 years of age, four over 90 years old, and one was solicited while in hospice care.
The CFTC Order states that such financed off-exchange transactions with retail customers have been illegal since July 16, 2011, when certain amendments of the Dodd-Frank Wall Street and Consumer Protection Act of 2010 (Dodd-Frank Act) became effective. As explained in the Order, financed transactions in commodities with retail customers like those engaged in by the Pan American Companies must be executed on, or subject to, the rules of an exchange approved by the CFTC. Since the Pan American Companies’ transactions were done off-exchange with retail customers, they were illegal.
Furthermore, the CFTC Order states that when the Pan American Companies engaged in these illegal transactions they were acting for Hunter Wise Commodities, LLC, which the CFTC charged with fraud and other violations in federal court in Florida on December 5, 2012 (see CFTC Press Release 6447-12).
CFTC’s Precious Metals Fraud Advisory
In January 2012, the CFTC issued a Precious Metals Consumer Fraud Advisory to alert customers to precious metals fraud. The Advisory stated that the CFTC had seen an increase in the number of companies offering customers the opportunity to buy or invest in precious metals. The CFTC’s Advisory specifically warns that frequently companies do not purchase any physical metals for the customer, but instead simply keep the customer’s funds. The Advisory further cautions consumers that leveraged commodity transactions are unlawful unless executed on a regulated exchange.
CFTC Division of Enforcement staff members responsible for this case are Robert Howell, Joseph Patrick, Susan Gradman, Scott Williamson, Rosemary Hollinger, and Richard Wagner.