Use of Gemstones in Fraudulent Investment Schemes
More conservative victims are swayed to purchase long-term assets they can physically touch, such as gemstones, which are considered more valuable and understandable to them, compared to the complexity of paper instruments like stocks and bonds.
A Gem of a Deal
You get a call from a distinguished-sounding gentleman offering information on excellent, low-risk gemstone investments.
Through questioning, during the initial qualification telephone call, they determine that you have the financial capacity to participate in large investments, so they mail out promotional materials to you.
Their promotional materials contain representations that their gemstones are low risk, profitable and highly liquid investments.
Some of their promotional materials also describe bullion, rare coins and precious metals as investment products offered by them.
They state that the market price of these hard assets is skyrocketing and will increase in value, not only because experts have graded them rare, but also because of the demand.
They make follow-up sales calls to you, after allowing time for the promotional materials to arrive.
During the sales calls, they typically make the following representations:
|their gemstones will be sold to you at a discount;|
|their gemstones are procured from advantageous sources, such as directly from mining companies, international markets, domestic estate liquidations and distress sales;|
|they operate their business under government approval and follow government guidelines;|
|their gemstones appreciate around 25-40% per year and have an established average trading value that is monitored daily by them; and|
|you can easily re-broker or liquidate your gemstones through them at a substantial profit to you.|
To create a sense of urgency in your mind, they claim that the proffered gemstones will be sold quickly to another client if you do not commit to purchase immediately.
Once you succumb, they arrange for an overnight courier to pick up your payment.
The gemstones are shipped to you along with two "third-party" identification reports.
The reports purportedly verify the gemstones' physical attributes such as the size, weight, color and gem type but do not provide dollar appraisals of the gemstones' values.
Although they tell you that your gemstone portfolio is a long-term investment, they represent that they will re-broker or liquidate your gemstones after a minimum period of eighteen months, and that they routinely re-broker peoples' gemstones.
They assure you that re-brokering or liquidating gemstones through them is easy and will result in substantial profits for you.
After you purchase, they contact you on a regular basis, giving you an "update" on the financial appreciation of your "gemstone portfolio." They typically represent that your gemstones have appreciated between two and four percent per month.
During the update calls and at other times, they commonly solicit you to purchase additional gemstones.
In some cases, they persuade you to trade-in previously purchased gemstones either for different gemstones, or for a credit in the amount of the gemstones' higher "update value," toward the purchases of more expensive gemstones.
Should you ask, they will refuse to liquidate your gemstones.
In fact, they do not initially sell their gemstones at or close to the prices at which you could sell them in the gemstone market, but at a multiple of that price. The gemstones they sell are not excellent, low risk investments.
Due to their inflated prices, there is a substantial, if not certain, likelihood that you will realize a loss when you seek to liquidate them.
Rarely do the gemstones they have sold to you appreciate in value since the time of purchase. In instances where their gemstones have appreciated at all since the time of purchase, it is at a rate much lower than they have represented.
Before the end of the minimum eighteen month holding period that they require before they will liquidate gemstones, or once you stop purchasing additional gemstones, they typically cease contact with you.
If not actively traded for investment, gemstones may have to be resold in the commercial jewelry market.
Many jewelers will not buy gemstones from an individual and those who do generally pay substantially less than what they pay suppliers for similar gemstones.
Sealed for our Protection
Years back, you invested a tidy sum in gemstones which you were offered over the phone by a convincing salesman who assured you that if you kept them long enough they would increase in value.
This you did, rather than broker through them, as they assured you that you could.
The items are protectively encased in plastic with warnings not to break the seal for fear it will decrease their value.
You recently got a call asking you to submit info on your earlier purchased stones, after which they applaud your investing acumen and tell you that you could probably get twenty times what you paid for them.
After such good news you are soon convinced to add to your collection for even greater gains in the future.
They then offer to upgrade some of your stones by taking back and crediting certain gems along with more cash.
To ensure the fairness of the deal they insist you call references and recommended companies who can value your stones.
These contacts are actually employees of the same company reached by different phone numbers.
They call a bit later saying that they now have a "prospective buyer" interested in acquiring your gems, but indicate that your collection needs a more complete "portfolio" of stones before the best price can be offered.
They promise a quick turnaround on your purchase, with payment of the profits to be delivered, within 30 days of your payment, by an armoured truck.
To undertake this, you are informed that an advance payment is required to cover a finder’s fee, duties or taxes, or commissions or examination fees.
Soon they belittle your objections to spending $20,000 to get back $200,000.
They may even offer to lend you their personal funds to help you out, then call back saying it's illegal and continue seeking payment for the purchase they made on your behalf or they'll "get in trouble".
The calls which can last for hours, consist of droning and coercive brainwashing. Even efforts by family members and friends, asking them to stop calling, are met with belittling calls back to you.
You experience a fear which arises from having invested so much and suspect that if you don't invest a little more you will lose it all.
You lose your sense of reality and judgment and find yourself acquiescing to their threats and persuasion, trapped in a sinkhole from which you can not escape.
Somehow, after you make the "required" purchases, the deal falls through, as the Saudi prince buyer is recalled to his homeland or a major change in the gem market alters their promises of a quick gain to a long-term hold suggestion.
Your salesman is then replaced by a new one with a sad story as a ploy to gain your sympathy, such as the other guy had serious family troubles or was fired for offering you too good a deal which they still had to honour.
They claim to be able to fix the problem swiftly with just a bit more money, which is needed to resolve an easily rectifiable investment problem, or all of your money could be lost.
The gems are usually just decorative stones or low grade gems encased in plastic so as to avoid scrutiny or independent evaluation which would quickly reveal their minimal value and overpriced nature.
Imprisoned For Your Protection
The operation calling itself the Canadian Gemstone Association marketed their stones by telephone as investment-grade gems whose supply was supposedly controlled by a cartel in Colombia and whose value was therefore projected to increase substantially.
The evidence at trial showed they made false statements and representations to induce customers to purchase and invest in gemstones at vastly inflated prices.
Between 1993 and 1996, over 700 victims paid more than $5 million for stones marketed by them.
In June 1997, a federal grand jury returned a 38-count indictment charging Claire Peck, aka Cathy Jackson and eight others with conspiracy, mail fraud and wire fraud.
All defendants, which included the principle BRENT BOYD, AGNES CARTMELL, aka Bea Cartmell, MARK BOYD, aka Joe Prescott, ALBERT MCAMMOND, aka Albert Adams, DAVID BECKLER, aka David Edwards, GEORGE MAZIOTIS, aka Martin Brook, ROBERT ROSS, aka Robert Stevens, HERVE SOURATI, aka Brian Sinclair, were charged in each count.
Peck was convicted on five counts of mail fraud in violation of 18 U.S.C. 1341, and one count of wire fraud in violation of 18 U.S.C. 1343, and she was acquitted on one count of conspiracy, 18 U.S.C. 371 in the United States District Court for the District of Vermont (Sessions, J.).
She is to serve concurrent 30-month terms of imprisonment, to be followed by three years of supervised release.
The district court also ordered her to pay (jointly and severally with all co-defendants) restitution of more than $4,000,000.
Boyd pleaded guilty in April 2000 and was sentenced to ten years in federal prison.
We Promise Never To Lie Again
Settlements negotiated by the FTC with several Los Angeles-area based defendants, charged by the FTC with operating a deceptive telemarketing scheme to sell gemstones as investments, include a total of $115,000 in redress for consumers who lost money in the scheme.
The FTC charged in a June 1992 complaint that International Assets Trading Co., Inc.; company officers Garry Schaeffer (a.k.a. Michael Taylor) and Thomas V. Lopes (a.k.a. Jack Prather); misrepresented the market value of their gem stones, falsely represented that they were excellent, low-risk investments likely to yield substantial profits upon resale, and that they were sold at or close to the prices at which consumers could liquidate them through a market sale.
The FTC's complaint also alleged that they made the following false statements:
|gemstones comparable to those the defendants sell have experienced substantial price appreciation in the recent past (when, in fact, they have not);|
|the gemstones they offer for sale are rare or are in short supply (when, in fact, they are not);|
|gemstones purchased from them are excellent, low-risk investments and that customers can reasonably expect to resell the gemstones at a substantial profit within a stated time, e.g. 18 months; (when, in fact, the prices charged by the defendants for the gemstones make it virtually impossi ble to realize a profit within the 18 months) and;|
|that they have been in business for seven to 15 years and that they operate under guidelines of the California Attorney General.|
Gem Sciences International (GSI); and its CEO, Sarabeth Koethe allegedly provided appraisal certificates that substantially overstated the values of the gemstones and bore no relation to the values at which consumers could resell their gemstones.
The prices paid by consumers ranged from less than $2,000 to tens of thousands of dollars.
Schaeffer and Lopes have agreed to refrain, in marketing gemstones or any other investments in the future, from falsely representing any factor likely to affect a consumer's decision to invest.
Schaeffer was also a defendant in another FTC case involving a similar scheme; thus, his settlement with would prohibit him from marketing any investment product by telephone in the future.
Lopes would be required to post a $50,000 bond before marketing investment products by telephone in the future and if he goes into business with another defendant in this case to telemarket investments, the bond requirement would increase to $100,000. The charges against International Assets Trading still are pending.
To settle the charges against GSI and Koethe, in connection with any appraisal services they perform on gemstones or any other assets sold as investments, they would be prohibited from, among other things, falsely representing the cost or the fair market, wholesale, replacement or cash-liquidation value of the asset and have agreed to clearly and prominently disclose on every document they issue discussing an investment in gemstones, that "purchasing gemstones as an investment is very risky". Together would also be required to pay $20,000 for consumer redress.
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. 10/25/93 Civil Action No. 92-3483 RMT - FTC File No. 922 3040
Now Travel Back Ten Years
In August 1983 the FTC filed a complaint against Kimberly International Gem Corp. The complaint also named Frank Kimball, founder and former president of Kimberly; co-presidents Stephen Small and Steve Angelica; the firm's chief gemstone appraiser, International Gemological Society (IGS); IGS' president, Harvey Levitt; and three salespeople: Robert McCallum, Rene Dupont and Jean Paul Pierre. Kimberly and Levitt filed for bankruptcy.
The complaint charged the defendants with a variety of misrepresentations in the telemarketed sale of gemstones, including false claims that they sold at wholesale prices when their prices were actually many times greater than those retailers charge, that customers could easily resell their gemstones for a profit and that there was little if any risk in the investment.
They also delivered gemstones inferior in quality to those ordered, kept consumers' gemstones and replaced them ones of lesser value.
IGS in turn prepared certificates of evaluation for the gemstones which gave false evaluations of their worth inducing individual consumers to purchase them for from a few thousand dollars to tens of thou sands of dollars.
Under the settlements, a $280,000 fund will be divided among Kimberly's customers who request redress, with the refund for each depending on the amount invested.
Kimball will pay $125,000 into the consumer redress fund. The remainder will be paid by Angelica ($40,000) and Small ($35,000), who bought Kimberly in 1982, and Kimberly's insurance carrier, Mercury Casualty Co. ($80,000).
The injunctions and default judgments prohibit the officers, the salesmen and IGS from misrepresenting the types, characteristics, quality and retail value of gemstones and other investments.
The settlements require Kimball, Angelica and Small and the three salesmen to disclose on the front cover of every sales brochure and in every sales contract that gemstones are a high-risk investment, that they are not as easy to sell as other investments and that appraisals may not reflect the actual amount consumers may get when reselling the gemstones. 8/28/85
Civil Action No. 83 5268 JMI - FTC File No. 832 3206
Should Be Stoned As Well
Rene F. La Treill, a.k.a. Ray Latreill, of Newport Beach, California, has agreed to pay $1.5 million in consumer redress to settle the FTC's charges against him for his role in a gemstone telemarketing scheme, bringing the total amount recovered in the case to $3.5 million.
The agreement stems from the FTC's 1990 complaint naming Newport Gems, Inc., doing business as Capital Assets International; RIME Inc., doing business as First Capital Trading Co.; and three individuals that they falsely represented the value, past appreciation, investment risk, likely resale price, and ease of liquidating their gemstones.
The stones, including tourmalines, tsavorites, tanzanites, and spinels sold for prices ranging from a few thousand dollars to many tens of thousands of dollars, through unsolicited telephone calls to consumers.
In addition, the proposed settlement agreement would prohibit him from misrepresenting the value of any investment offering he makes, and require him to disclose to future customers the risks of investing in gemstones.
NOTE: This consent judgment is for settlement purposes only and does not constitute an admission by the defendant of a law violation. Consent judgments have the force of law when signed by the judge.
12/06/91 Civil Action No. 90 2001 R
|An in-depth look at a tourist scam in Thailand involving sapphires.|
No Booze Beneficial for Bogus Buyer
03/03 - Frederick Carrier, who pleaded guilty in October to money-laundering charges stemming from a telemarketing scam, was sentenced in Miami Friday to 70 months in prison despite his request for a shorter sentence because he's suffering from liver disease.
Noted in court was Carrier's prior criminal record, which goes back to the 1970s and that he was on supervised release for a similar offense in Louisiana when the U.S. attorney's office in Miami filed the money-laundering and fraud charges in 1999.
According to the indictment, Carrier and six associates ran a telemarketing scam, contacting collectors of coins, art or gemstones and promising to sell their collections to willing buyers if they added a few more pieces to their portfolios.
No sales ever took place. The funds sent by hopeful sellers ended up in bank accounts for shell corporations set up Carrier and his associates then immediately withdrawn.
Carrier had gone to the Philippines during the government's investigation, which began six years ago. He was arrested there last May.
The 1999 indictment also included charges against his then-wife, Linda Carrier; Donald Webber, Carrier's half-brother; Nely Emiliani; and Teresa Amores, all of whom have entered guilty pleas.
A Miami-Dade accountant mentioned as co-conspirator but charged separately, also has pleaded guilty to money-laundering conspiracy charges.
Webber is serving 27 months in a Guam jail. Emiliani was already served a prison term.
Carrier's sentence, which he indicated he would appeal, also includes five years of supervised release after the jail time, a $1,500 fine and a special assessment of $500.