SEC Charges Investment Firm for Fraudulent Coin Scam

Red Rock Secured allegedly tricked victims into selling off 401(k) assets to invest in coins at an exorbitant markup.



The SEC has charged a California-based investment firm and three of its executives for allegedly tricking hundreds of investors into selling off retirement account assets to buy gold and silver coins at exorbitant markups.

According to the SEC’s complaint, El Segundo, California-based Red Rock Secured LLC CEO Sean Kelly and two former senior account executives repeatedly solicited investors through “false and misleading statements.” They allegedly told investors that the best way to protect their nest eggs from stock market risk was to diversify by converting their securities into gold and silver coins. In particular, they talked them into buying coins sold by Red Rock, which they “misleadingly promoted as tangible assets that would always have value and typically increase in value,” the SEC complaint states.

Red Rock Secured allegedly targeted investors who held securities in retirement accounts, including the federal government employee Thrift Savings Plan, 401(k) accounts and individual retirement accounts.

“Defendants’ fraudulent scheme was designed to lure investors away from relatively liquid retirement account investments with well-defined and clearly-reported market values,” the complaint states. “Defendants solicited investors through numerous marketing materials, email campaigns, and telephone calls in which they made dire statements, some of which were false and misleading, warning that the investors’ existing securities holdings faced imminent and serious risk of losses.”

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Firm representatives allegedly told investors they could buy gold or silver coins at a markup of only 1% to 5% above their cost for “common bullion” assets. However, according to the SEC, Red Rock did not disclose that the “premium” coins it was advising investors to purchase had a much higher markup: typically 120% to 130% greater than Red Rock’s cost to acquire the coins. The complaint alleges a transaction agreement the firm provided to clients contained misleading language that indicated it charged a maximum of 29% above its cost for “premium metals.”

The SEC alleges at least 700 clients sold more than $50 million worth of securities in their TSPs, IRAs and other retirement accounts to buy from Red Rock Secured the so-called premium coins “at Red Rock’s repeated urging and with its advice.” The firm allegedly pocketed more than $30 million of the funds investors paid for the “premium” coins.

“This upfront markup, or profit above Red Rock’s cost to acquire the coins, immediately put clients in a hole and significantly depleted the very retirement assets that Red Rock had advised clients to ‘protect,” the complaint states.

The SEC has charged Red Rock Secured, Kelly and senior account executives Anthony Spencer and Jeffrey Ward with violating the antifraud provisions of federal securities laws. The regulator is seeking permanent injunctions, disgorgement of allegedly ill-gotten gains plus interest and civil penalties, as well as an officer and director bar for Kelly.

“As our complaint alleges, the defendants used fear and lies to defraud investors out of millions of dollars from their hard-earned retirement savings,” Antonia Apps, director of the SEC’s New York regional office, said in a release. 

 

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FBI Arrests Head of Wealth Management Firm for Fraud

 

 

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