WEST PALM BEACH, Fla. (CN) - A gold dealer defrauded customers of $13 million by taking money without buying or delivering the goods, the Commodity Futures Trading Commission claims in court.
The CFTC sued Worth Group, of Jupiter, Fla., its owner Andrew Wilshire, and its sole officer and director Eugenia Mildner, in Federal Court.
The CFTC claims that Worth engaged in illegal off-exchange transactions by failing to deliver metal to customers within 28 days, as required by law, and charged storage fees and interest for nonexistent metal.
Worth received more than $73 million in customer money between July 2011 and December 2012, according to the 31-page lawsuit.
"Worth purports to sell physical commodities, including gold, silver, platinum, and palladium, on a leveraged, margined, or financed basis ('retail commodity transactions' or 'financed transactions'), as well as on a fully paid basis ('fully paid transactions') to retail customers located throughout the United States," the complaint states. "Worth is managed by its 100 percent owner, Andrew Wilshire ('Wilshire'), and its president, Eugenia Mildner ('Mildner')."
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, a financed transaction such as those conducted by Worth is an illegal off-exchange transaction unless it results in actual delivery of metal within 28 days of accepting the customer's order.
The CFTC claims that Worth often failed to make such delivery on a timely basis, misrepresented delivery dates on statements, and used customers' money to finance other customers' purchases.
Instead of buying metal and delivering it to its customers as promised, Worth bought metals derivatives in its own trading accounts, according to the complaint.
"Because Worth receives only a relatively small 'down payment' when its customers make a financed metals purchase, and Worth generally has not had access to outside lines of credit, Worth has been forced to 'self-finance' financed transactions to attempt to make physical delivery as required by the exception," the complaint states. "Self-financing the volume of financed business Worth transacts requires many tens of millions of dollars.
"In its efforts to meet the demands of self-financing for its financed transactions,
Worth has cheated, defrauded, or deceived another category of its customers, who Worth has incorrectly perceived as falling outside of the CFTC's jurisdiction: those who have made fully paid purchases following the implementation of Dodd-Frank.
"During the relevant period, Worth has represented to fully paid customers that it delivers precious metals purchased on a fully paid basis within 28 days of purchase, making delivery either to the customer or to a depository for the customer's benefit. In most instances, however, Worth has not purchased any physical metals for fully paid customers unless the customer has demanded personal delivery. Instead, Worth has purchased financial metals derivatives in margin accounts owned by Worth that would purportedly 'cover' customer transactions, but that did not involve any transfer or physical delivery of precious metals to either Worth or its retail customers. Because Worth has been required to post only a fraction of the value of a customer metal purchase to open these derivatives positions, it has been able to use the remaining funds to purchase physical metals for financed retail commodity transaction customers.