An irreverent Wall Street Blog
by Bill Singer
by Bill Singer
All That Glitters Not Gold In Ponzi Bullion Scam
March 5, 2014
All that glitters is not gold. Fact is, a lot of shiny stuff is simply crap that glints in the sun and delights something childish in most of us. Kids like sparkly things. As we get older, not all that much changes.
For starters, consider these three companies:
- Global Bullion Trading Group, Inc. ("Global"),
- WJS Funding, Inc., d/b/a Capital Asset Management ("WJS Capital"), and
- Certified, Inc., d/b/a Certified Clearing ("Certified").
Investment Brokerages
An impressive sounding group of businesses, no? Global is not just a trading group or even a bullion trading group but, my oh my, a global bullion trading group. Then we got WJS Capital, which is some funding company that becomes involved in managing capital assets. Then there's Certified, a clearing organization. On top of all the global, capital, and certified language, let me share with you the fact that the three entities were in the investment brokerage business. I mean, geez, imagine if these three companies somehow came together and got involved in a venture that combined global bullion trading and capital management and it was all certified. You could hardly get the bucks out of your pocket fast enough to toss at some folks behind such a dynamite undertaking.
SIDE BAR Aside: Lean in a bit here while I'm talkin' to you . . . we don't want everyone to hear about this. Step a little closer. Okay, listen, these three investment brokerage businesses can get you into the gold, silver, platinum, and/or palladium game - we're talking bullion. You might ask how safe this is. Go ahead, ask me. I'm gonna be honest with you. Your bullion is going to be stored in depository vaults. No. . . not just a vault but a depository vault. I can tell that you're a sophisticated investor, so I know that you're not going to ask me about what a depository vault is because, well, because you and I both know what I'm talkin' about and you're not going to let yourself look like some rube, some jackass, by asking a dumbass question like what the hell is a depository vault. I mean, for godsakes, we're talking bullion, right?
Hooked on this fast talkin' crapola, you fork over the moolah for your shiny metal bullion, which, duh, is going to be safe and sound in a depository vault. And don't be such a damn cynic. In fact, I can show you proof that investment accounts were established with a London broker-dealer for WJS Capital and Certified. So there - and you thought that this was all going to end as some scam? Tut tut.
If I Had A Hammer
Except - ah yes, there's that word on which good and bad fortune often pivot - those WJS Capital and Certified London investment accounts were not actually used to purchase any bullion for the investors.
Oops.
What got purchased with the investors' funds were precious metal derivative contracts.
Derivative contracts ain't bullion.
To keep it somewhat simple, you can take a hammer and tap away at the bullion and it will probably make a clanging sound. If you took the same hammer to the derivative contracts, it's more like a thud, assuming, of course, that you can actually get a paper version of such a contract because they're generally only in paperless digital form.
What's In A Name?
So, no -- bullion wasn't purchased in the two London accounts. Derivative contracts were purchased. Oh, and while we're 'fessin' up, you might as well know that when we say that we opened the two accounts funded with investors' funds in the name of WJS Capital and Certified, you need to take that literally. The accounts were in the names of those two companies. The accounts were not in the names of the individual investors.
Making A Federal Case
On August 9, 2012, a federal Indictment was unsealed in the Southern District of Florida naming as defendants:
- Arthur John Schlecht, 53, of Boone, NC (formerly of Miami-Dade County,FL)
- Frederick Bart Gomer, 66, of Sunrise, FL
- Ricardo Jorge Padron, 52, of Miami, FL and
- Carlos Rodriguez, 35, of Miami, FL
The four defendants, allegedly the geniuses behind Global, WJS Capital, and Certified,were each charged with conspiracy to commit mail and wire fraud. In addition, Schlecht was charged with wire fraud. USA v. Schlecht et al. (Indictment, SDFL, 12-CR-20588, August 7, 2012).
What was the final tally of this scam? Would you believe that starting around 2005 and running through about October 2009, hundreds of victims lost in excess of $25 million?
A Diversion
As it turns out, millions of dollars of investors' funds were diverted to Schlecht, his family, and third parties. And to what use were these diverted funds put? Among the alleged uses were
- maid services,
- personal tax obligations,
- salary,
- social security contributions,
- home and vacation home construction,
- landscaping,
- remodeling,
- interior furnishings,
- automobile purchases,
- restaurant dining,
- personal travel expenses,
- clothing, and
- jewelry.
Ponzi Ennui
Ho hum, yet another Ponzi in which investors' money was diverted to personal expenses and new investors' money paid off older investors. In time, it all just gets played out and collapses under its own weight. On October 26, 2009, Global, WJS Capital, and Certified all filed for bankruptcy. How you lose money investing in precious metal bullion is puzzling but every so often the amazing does occur.
Schlecht The Obscure
Before we bring the curtain down, let me regale you with a bit of background about Defendant Arthur Schlecht. For starters, the other three defendants apparently went to great lengths to keep under wraps Arthur Schelcht's ownership and control of Global and WJS Capital; however, it was not impossible to have discovered him in the background - or, at the worst, to have uncovered enough information that would have prompted further inquiry. For example, the Indictment asserts in Paragraph 15:
Global Bullion Trading Group, lnc. was a Florida corporation incorporated on or about December 26, 1995 under its original corporate name, Schlecht Group, lnc. On or about March 21, 2003, the corporation changed its name to Global Bullion Trading Group, Inc. . . .
Similarly in Paragraph 22 of the Indictment we are informed that:
ARTHUR JOHN SCHLECHT was the owner of WJS at the time of WJS' incorporation, although a family member of SCHLECHT, whose initials coincidentally consisted of the letters "W.J.S.,''was designated in the Florida public record as WJS'S sole director and officer. On or about April 22, 2007, documents were filed with the State of Florida which removed SCHLECHT'S family member as the director of WJS in the public record.
A Little Due Dilly
As I often lament and admonish, far too many fleeced investors never do the minimal amount of due diligence. If you had simply entered Arthur Schlecht as a search term into most search engines, you would like have been directed to these pages:
And just what might you have learned from some of the online results for your search? Well, it turns out that in 1993, the Commodity Futures Trading Commission filed a Complaint naming, among others, Schecht with:
fraud by making false, deceptive, and misleading representations of material facts in connection with the solicitation of customer commodity option accounts. The alleged material misrepresentations concern the likelihood of realizing profits and the risk of loss involved in trading options on commodity futures contacts and the experience and trading success of Concorde and its salespeople, including the firm's trading performance record and research capabilities."
The CFTC Complaint alleged that from January 1989 to June 1992, Concorde traded over 2,800 customer accounts and that over 90 percent of these customers lost all or substantially all of their money, while Concorde collected $12.8 million in commissions.
If you read a bit further along the timeline, you would have come upon this July 23, 1996 press release headline:
FLORIDA COURT ENTERS CFTC SETTLEMENT ORDER WITH CONCORDE TRADING GROUP OF AVENTURA, FLORIDA, AND CONCORDE PRESIDENT ARTHUR J. SCHLECHT, NETTING $1.5 MILLION IN CUSTOMER RESTITUTION, AMONG OTHER SANCTIONS AGAINST THE DEFENDANTS
Ah yes, small wonder that the conspirators sought to hide Schlecht's role. The question is, what, if anything, did investors do to truly uncover who was behind the three companies?
Wheels Of Justice
On February 27, 2014, after a five-week trial in Miami, FL, Schlecht was convicted on conspiracy to commit mail and wire fraud, and for wire fraud. Defendants Gomer, Rodriguez, and Padron had previously pled guilty. Schlecht faces a statutory maximum sentence of up to 40 years in prison, plus fines and restitution.
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