USA DOJ CHARGES BULLION DIRECT OWNER CHARLES MCALLISTER with 2 Counts of Wire Fraud + 1 Count of Money Laundering, USA CFTC CHARGES HIM with Engaging in a Fraudulent Precious Metals Scheme
Charles H. McAllister (aka: Chad McAllister)
Washington, DC – The Commodity Futures Trading Commission (CFTC) filed a federal civil enforcement action in the U.S. District Court for the Western District of Texas against Defendant Charles H. McAllister, of Auburn, Alabama, charging him with fraud and misappropriation in connection with contracts of sale of precious metals through his company, BullionDirect, Inc. (BDI). McAllister has never been registered with the CFTC in any capacity.
McAllister & BDI Allegedly Defrauded Thousands of Customers throughout the United States
The CFTC Complaint alleges that from August 15, 2011 through July 20, 2015, McAllister and BDI defrauded thousands of customers throughout the United States who purchased precious metals from or through BDI. McAllister’s and BDI’s fraud allegedly resulted in customer losses of more than $16 million.
Specifically, according to the Complaint, McAllister and BDI fraudulently solicited and induced customers, through BDI’s website, to send money to BDI for the purported purchase of gold, silver, palladium, and platinum from or through BDI. Customers purportedly could take immediate delivery of or store the precious metals with BDI. However, as alleged, McAllister and BDI failed to procure all the metal they were obligated to purchase for customers. Instead, McAllister and BDI misappropriated millions of dollars from thousands of customers in the fraudulent scheme to pay back other customers (in Ponzi scheme fashion), cover BDI business expenses, and invest in other businesses.
As further alleged, McAllister and BDI made material misrepresentations and omissions to customers in the course of their fraudulent precious metals scheme, and they issued false account statements to customers.
In its continuing litigation, the CFTC seeks, among other relief, restitution to defrauded customers, disgorgement of ill-gotten gains, trading bans, a civil monetary penalty, and a permanent injunction against future violations of federal commodities laws, as charged.
Related Criminal Charges
On January 18, 2018, the U.S. Attorney’s Office for the Western District of Texas filed a related criminal action charging McAllister with two counts of wire fraud and one count of money laundering in the U.S. District Court for the Western District of Texas for conduct spanning back to 2009. In conjunction with that action, McAllister was taken into custody on January 23, 2018 and later conditionally released.
The CFTC appreciates the cooperation and assistance of the U.S. Attorney’s Office for the Western District of Texas, the Federal Bureau of Investigation, and the Internal Revenue Service, all located in Austin, Texas.
CFTC Division of Enforcement staff members responsible for this matter are Jo Mettenburg, J. Alison Auxter, Stephen Turley, Joyce Brandt, Christopher Reed, and Charles Marvine.
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CFTC’s Precious Metals Customer Fraud Advisory
The CFTC has issued several customer protection Fraud Advisories that provide the warning signs of fraud, including the Precious Metals Fraud Advisory, which alerts customers to precious metals fraud and lists simple ways to spot precious metals scams.
Customers can report suspicious activities or information, such as possible violations of commodity trading laws, to the CFTC Division of Enforcement via a Toll-Free Hotline 866-FON-CFTC (866-366-2382) or file a tip or complaint online.
USA DOJ 2018 ANNOUNCEMENT: Austin Businessman Indicted in Wire Fraud Scheme
In Austin, 47-year-old Charles McAllister, owner of Bullion Direct, Inc. (BDI), faces federal wire fraud and money laundering charges in connection with a scheme to defraud customers out of millions of dollars announced United States Attorney John F. Bash, Federal Bureau of Investigation (FBI) Special Agent in Charge Christopher Combs, San Antonio Division; Internal Revenue Service-Criminal Investigation (IRS-CI) Acting Special Agent in Charge Andy Tsui; and, Texas State Securities Board Commissioner Travis J. Iles.
A federal grand jury indictment unsealed on Tuesday charges McAllister with two counts of wire fraud and one count of engaging in a monetary transaction with criminally derived property.
The indictment alleges that from January 2009 through July 2015, McAllister perpetrated a scheme that falsely represented that funds obtained from individual customers would be used to purchase precious metals on behalf of the customer and either shipped directly to the customer or stored in BDI’s vault. Instead of buying the precious metals with the customer’s funds, McAllister spent the money on BDI corporate expenses, on other investment activities, and for his own personal use and benefit.
The indictment also seeks a monetary judgment in the case totaling $16,186,212.56. That sum represents the amount of proceeds obtained directly or indirectly from the defendant’s alleged scheme during the time of the indictment.
McAllister, who is currently on bond, has waived formal arraignment and entered a plea of not guilty to the indictment. No further court dates have been scheduled. Upon conviction, he faces up to 20 years in federal prison for each wire fraud count and up to ten years in federal prison for the money laundering charge.
Agents with the FBI, IRS-CI and the Texas State Securities Board conducted this investigation. Assistant United States Attorney Dan Guess is prosecuting this case on behalf of the Government.
and more BACKGROUND: Bullion Direct – Another Bullion Biz Bankrupt – Vault Virtually Empty
As Much as $25M of Stored Metal ‘Not Actually Purchased’
As a bullion investor and webmaster of About.Ag, I understand well the risks that customers face when ordering precious metals, especially from out of state vendors or websites. I’ve seen firsthand the implosion of such companies and the havoc these business failures bring to investors – people like you and me who want to diversify their asset holdings and look to bullion as a way to do that. Last year, I had started warning people about The Tulving Company a few months before they shut down owing customers $17M, so I quickly noticed the red flags showing that this respectable 15-year-old company might have serious financial problems. So when, in June, a customer alerted me to problems at Bullion Direct, saying that he had waited several months without receiving metal he had purchased. I looked into it.
I sent an email to the company’s owner, and let him know my concerns. He quickly responded, and I gave him some information about how the Tulving fiasco unfolded and some general advice. The next day, Bullion Direct suspended operations.
Last week, Bullion Direct filed for Chapter 11 bankruptcy, stating they have as many as 6,000 total claimants and total debt “perhaps as great as $25 million.”
Calculations I have run suggest the debt may be significantly higher than that.
Yesterday, Bullion Direct filed a declaration that stated that “when a customer placed an order, the precious metal was not actually purchased unless the customer agreed to take actual delivery of the product.” In other words, they never bought the metal customers purchased if it was to be stored.
According to Bullion Direct’s statement, somewhere around 6,000 customers bought $25M of metal from Bullion Direct, and to store for them — but Bullion Direct did not actually purchase the metal.
Of course, Bullion Direct’s customers didn’t know this because when the company’s customers paid the company for bullion and storage, Bullion Direct would show the metal in their portfolios. Now we know that these holdings never existed.
What sets this sad situation apart from the failure of The Tulving Company is that people stored metal with Bullion Direct (or at least thought they did). So while Tulving customers lost metal from a single purchase, most Bullion Direct customers lost metal from many purchases, often over the course of years. Bullion Direct also held metal — paper, actually — in hundreds of IRA accounts. People were trusting Bullion Direct to safeguard their life savings. That trust was misplaced.
What We Know
Bullion Direct opened for business in 1999, and patented its unique process for connecting buyers and sellers of bullion. Customers could either buy directly from Bullion Direct, or through other sellers in the Nucleo Exchange. Bullion Direct offered free storage of metal (which we now know to be a warning sign), likely to entice people to later sell their metal on the Nucleo Exchange (where Bullion Direct would make a commission).
Going back at least as far as 2003, despite advertising the storage as “allocated” and “not pool metal”, the Bullion Direct terms of service stated that their storage was really an “undivided share of a fungible lot” and that Bullion Direct “may use or act as if it were the owner of the commodity held for Customer.”
To most people, that meant if you bought 2014 Eagles, they might have 2015 Eagles on hand, but the total ounces of metal was the same as customers had bought. We now know it meant something different to Bullion Direct.
In 2011, Bullion Direct created a subsidiary Nucleo Development Co. to handle the software platform, expand it to other markets, and license the patent. At times, Nucleo reportedly had over 30 employees.
What customers did not realize is that Bullion Direct “transferred funds to Nucleo for start-up expenses and continued funding Nucleo’s operations until shortly before the Chapter 11 filing.” Connecting the dots, it appears that Bullion Direct took money customers were sending in for metal and spent it on Nucleo’s operations, research, and development.
According to court documents, there are as many as 6,000 creditors (although, I believe that number is low, and closer to 8,000), and they are owed “perhaps as great as $25M.” A Joint Stipulation between Bullion Direct and the depository shows inventory that I calculate as being worth roughly $635,000. That’s about $.03 of real metal for every $1.00 of metal supposedly being stored.
The bankruptcy petition gives a range of $10M-$50M for the value of the assets, which presumably means that the intellectual property (mainly the patent and software) is believed to be worth at least $9M.
As shocking as it is to find out that almost none of the metal supposedly stored for customers ever actually existed. At least there is hope that creditors might be made whole, if the intellectual property has the value that Bullion Direct thinks that it does.
What You Can Do
If you are not owed metal or money, consider yourself fortunate, and make sure to research bullion dealers each time you place an order. Even if you have had a positive shopping experience with a company, continue to do research before placing additional orders.
If you are owed metal or money by Bullion Direct, expect a long and drawn-out process. You may get some of your money back, but likely not all. Tulving customers have been waiting over a year without seeing any money yet.
If the Chapter 11 bankruptcy proceeds as intended, there should be no need for you to do anything. Your name will automatically appear in the list of creditors that will be filed in the bankruptcy schedules by Bullion Direct. If what you are owed is properly listed, you will have to wait for the legal proceedings to run their course before the court distributes moneys to the company’s creditors.
If you are not included on the list of creditors, or if the bankruptcy is converted to Chapter 7, you would need to file a Proof of Claim form. You can do so now even though it is not yet required, but know that this is a public document, and you are responsibly for paying the filing costs.
I will continue to keep readers abreast of the situation at my blog: http://about.ag/BullionDirect.htm. You can sign up on that page for regular updates. My friends at CoinWeek.com will also continue to follow the issue and provide updates whenever new information arises.
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