The precious metals dealer Red Rock Secured LLC (Red Rock), its owner and CEO Shade-Johnson Kelly, and senior account executive Anthony Spencer have all been charged by the CFTC and state regulators in California and Hawaii for operating a $61.8m nationwide fraud scheme.
According to the CFTC’s complaint, the defendants repeatedly made false and misleading representations to customers about purchasing precious metals from Red Rock, especially silver and gold Canadian Red-Tailed Hawk (RTH) coins.
“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 M Apps, Director, SEC New York Regional Office
Allegedly, from November 2019 through February 2022, hundreds of customers were convinced to transfer funds in their tax-deferred retirement accounts, including individual retirement accounts (IRAs), 401(k) plans, and the US Government Thrift Savings Plan – and then use those monies to buy the RTH coins via self-directed IRAs.
Hundreds of customers also purchased precious metals by using non-retirement funds.
Misled customers
The customers, who were told that they would “protect” their retirement funds by investing in the coins, were instead misled on the mark-up on these coins, which were said to fall between 4% to 29% or, in some instances, 1% to 5%.
In reality, Red Rock charged mark-ups ranging from 100% to 130% on the RTH coins, and did not disclose it to customers. The defendants also made other false representations and omissions about the company’s relationship with various mints, and did not disclose pricing and mintage of the RTH coins, “bonuses” and “discounts” that were offered to customers, or the purported “retail/market value” of the RTH coins.
In total, about $61.8m was fraudulently solicited from more than 950 customers to buy RTH coins. The customers were charged approximately $34.4m by Red Rock in mark-ups on those purchases.
With the charges, the CFTC, the California Department of Financial Protection and Innovation, and the Hawaii Department of Commerce and Consumer Affairs seek disgorgement of ill-gotten gains, civil monetary penalties, restitution, permanent registration and trading bans – including a permanent injunction against further violations of the Commodity Exchange Act, CFTC regulations, and various provisions of state law.
SEC charges
The SEC has also brought charges against Red Rock, the CEO Sean Kelly, Anthony Spencer and Jeffrey Ward – another former senior account executive – in connection with the fraud scheme. According to the CFTC, these reckless misrepresentations started in 2019, but the SEC says that the scheme started as early as 2017.
“As our complaint alleges, the defendants used fear and lies to defraud investors out of millions of dollars from their hard-earned retirement savings,” said Antonia M Apps, Director of the SEC’s New York Regional Office.
The SEC’s complaint charges Red Rock, Kelly, Spencer, and Ward with violating the antifraud provisions of the federal securities laws. It seeks permanent injunctions, disgorgement of allegedly ill-gotten gains, plus interest, and civil penalties. Including an officer and director bar on Kelly.