CFTC Partners with 30 States to Bring a Sweeping Precious Metals Fraud Action

Orrick, Herrington & Sutcliffe LLP

Orrick, Herrington & Sutcliffe LLP

On September 22, 2020, the CFTC along with 30 state securities regulators filed a historic joint enforcement action against two precious metals dealers and their companies for perpetrating a $185 million scheme to defraud over 1,600 persons nationwide.  The scheme, which targeted the vulnerable elderly population in particular, induced the victims to purchase gold and silver bullion at inflated prices averaging from 100% to 300% over the spot price.  CFTC, Alabama Securities Commission, et al. v. TMTE, Inc. a/k/a, et al, (20-cv-2910) (N.D.Tex. Sept. 22, 2020).  The joint enforcement action is the largest joint filing in CFTC history with state regulators, and the first resulting from a 2018 information sharing agreement between the CFTC and the North American Securities Administrators Association, which represents state and provincial securities regulators in the United States, Canada, and Mexico.  While the CFTC often partners with other federal agencies to investigate potential fraud in the commodities markets, this case shows that joint investigations by the CFTC and state securities regulators are a similarly formidable force.

According to the complaint filed in federal court in the Northern District of Texas, from at least September 2017 through the present, Defendants Lucas Asher a/k/a Lucas Thomas Erb a/k/a Luke Asher (“Asher”), and Simon Batashvili (“Batashvili”), and their companies, TMTE, Inc., d/b/a, Chase Metals, LLC, Chase Metals, Inc., Barrick Capital, Inc., targeted elderly and newly-retired persons with little experience in precious metals, and deceived them into transferring funds from their retirement savings to self-directed individual retirement accounts (“SDIRA”) and cash accounts in order to purchase precious metals.  The Defendants lied to the investors about the actual value of the precious metals, charged grossly inflated prices, or “markups,” that bore no relationship to the prevailing market price, and falsely represented the precious metals market as a safe and conservative investment.  Defendants not only targeted a vulnerable population of investors, they also designed and employed a particularly egregious method to solicit vulnerable investors by first establishing a relationship of trust through mutual political and religious affinity and then manipulating that relationship by instilling fear in the investors.  The complaint also alleges that the Defendants falsely represented the amount of fees they received from the investors.

The complaint details how Asher and Batashvili directed their sales representatives to persuade investors to transfer their retirement funds into SDIRAs by misrepresenting: (1) that the United States government was going to take their retirement funds in a “Bail-in” to help banks and government programs; (2) that IRA custodians are in financial trouble and are likely to collapse; and (3) that the government could seize funds from the individuals’ retirement accounts but could not seize precious metals held in SDIRAs.  To gain trust from potential investors, Asher and Batashvili advertised on conservative media and websites and claimed they were friends with a conservative television and radio personality who recommended purchasing precious metals.

The state claims included acting as unregistered investment advisors and investment advisor representatives in various states by holding themselves out as such and providing investment advice to investors for compensation.  The complaint alleges that in acting as investment advisors, the Defendants violated their fiduciary duties to investors by failing to disclose conflicts of interest, making unsuitable investment recommendations, charging unreasonable fees, and making material misrepresentations and omissions to investors.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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