(HedgeCo.Net) The Commodity Futures Trading Commission and state regulators in California and Hawaii have announced they have filed a joint civil enforcement action in the U.S. District Court for the Central District of California against a precious metals dealer, its chief executive officer (CEO), and a senior account executive for perpetrating a $61.8 million nationwide fraudulent scheme.
The complaint charges defendants Red Rock Secured LLC (Red Rock), its Owner and CEO, Shade-Johnson Kelly aka Sean Kelly, and Senior Account Executive Anthony Spencer with executing an ongoing nationwide fraud that solicited and received over $61 million in customer funds to purchase silver and gold coins. Red Rock is a Nevada limited liability company with its principal office located in El Segundo, California. Kelly and Spencer both reside in the Los Angeles area.
“Today’s filing is another example of the CFTC and state regulators working cooperatively to protect the investors and root out fraud in the precious metals markets,” said Director of Enforcement Ian McGinley. “It illustrates our shared commitment to hold accountable those who would undermine the public’s faith in our markets by taking advantage of often vulnerable victims.”
In the continuing litigation against the defendants, the CFTC, the California Department of Financial Protection and Innovation (DFPI), and the Hawaii Department of Commerce and Consumer Affairs (DCCA) seek disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans, and a permanent injunction against further violations of the Commodity Exchange Act, CFTC regulations, as well as various provisions of state law.
Case Background
The complaint alleges that, from at least November 2019 and continuing through at least February 2022, the defendants made knowing or reckless misrepresentations and omissions to prospective and existing customers to induce them to purchase precious metals from Red Rock, in particular silver and gold Canadian Red-Tailed Hawk (RTH) coins.
As alleged in the complaint, the defendants convinced hundreds of customers to transfer funds in their tax-deferred retirement accounts, including individual retirement accounts (IRAs), 401(k) plans, and the U.S. Government Thrift Savings Plan, and use those funds to purchase the RTH coins from Red Rock through self-directed IRAs. The defendants also solicited and accepted funds from hundreds of customers to purchase precious metals from Red Rock using non-retirement funds.
The complaint further alleges the defendants knowingly or recklessly misled these customers into believing that Red Rock’s mark-up on these coins—i.e., the difference between what Red Rock paid to acquire the RTH coins and the price Red Rock charged its customers for those coins—would fall between either 4% to 29% or, in some instances, 1% to 5%. In reality, Red Rock routinely and repeatedly charged mark-ups ranging from approximately 100% to 130% on the RTH coins, and did not tell customers the actual mark-ups charged. In addition, the complaint alleges the defendants made other misrepresentations and omissions about, among other things, Red Rock’s relationship with various mints, in particular the mint which produced the RTH coins; pricing and mintage of the RTH coins; “bonuses” and “discounts” purportedly offered to Red Rock’s customers; and the purported “retail/market value” of the customers’ RTH coins.
In total, according to the complaint, the defendants fraudulently solicited approximately $61.8 million from more than 950 customers to purchase RTH coins. Red Rock charged its customers approximately $34.4 million in mark-ups on those purchases, as part of the defendants’ fraudulent scheme.
