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The exterior of the Royal Canadian Mint in Winnipeg on July 15, 2005.MARIANNE HELM/The Canadian Press

U.S. regulators are suing a California company, its chief executive officer and two of its former employees, alleging they participated in a fraudulent scheme to convince customers to cash out their retirement investments and buy millions of dollars of Royal Canadian Mint coins at large markups.

The joint actions came from the U.S. Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and state regulators in California and Hawaii.

The CFTC alleges the company, Red Rock Secured LLC, falsely told customers it had a “direct relationship” with the Royal Canadian Mint and could “pass the savings” on to buyers.

Instead, the company bought silver and gold Canadian coins with images of red-tailed hawks on them from one of the Royal Canadian Mint’s U.S. dealers and marked up their prices by more than 100 per cent over the wholesale costs.

In its court filing, the CFTC says Red Rock collected US$61.8-million from more than 950 customers who bought red-tailed hawk coins, beginning no later than November, 2019, and ending no earlier than February, 2022. The company charged about US$34.4-million in markups, the regulator alleges.

The allegations have not been tested in court.

Michael Schafler, a lawyer who represents the company and its CEO, Sean Kelly, said in an e-mailed statement that Red Rock “has been completely cooperative.”

“The Company has nothing to hide,” he wrote. “Red Rock has demonstrated that it is focused on compliance and providing clients with information necessary to make reasoned and informed decisions about purchasing precious metals ... It looks forward to the opportunity to defend itself against the government’s allegations in court.”

The CFTC says the Royal Canadian Mint, a Crown corporation, produced the red-tailed hawk coins and sold them to one of its U.S. distributors. That distributor, in turn, sold the coins exclusively to a wholesaler. That wholesaler then sold them exclusively to Red Rock.

“The Royal Canadian Mint has fully cooperated with US regulatory authorities,” Mint spokesperson Alex Reeves said in e-mailed comments. “We denounce any misuse of our name or products for illicit purposes. We have never had any interaction with Red Rock Secured LLC. The Mint does not control the resale prices of its coins. We cannot comment further on an active legal proceeding.”

The CFTC says the wholesaler advised Red Rock that there was no mintage limit on the red-tailed hawk coins, which meant the Royal Canadian Mint would produce as many of the coins as Red Rock could sell. The CFTC says that despite this, Red Rock “misleadingly classified and promoted the silver and gold RTH coins as ‘monetized bullion (limited quantity).’”

While Red Rock sales representatives described the company’s markups to customers as being 1 per cent to 5 per cent, or in some cases 4 per cent to 29 per cent, the actual markups were between 100 per cent and 130 per cent, the regulators allege.

The SEC’s action also alleges that two now-former Red Rock employees and Mr. Kelly, an 80-per-cent owner of the company, acted as unregistered investment advisers by persuading hundreds of retirement account investors to sell their existing securities, transfer the proceeds into self-directed individual retirement accounts that Red Rock helped clients establish and invest the proceeds in the coins.

The SEC alleges about 700 Red Rock customers transferred about US$50-million to the new accounts to purchase coins.

In court documents, the SEC says Red Rock targeted participants in the Thrift Savings Plan for federal employees, including military members, falsely claiming that all their investment options available within the plan were equity funds.

The coins would allow buyers to diversify their portfolios into a “safe” asset, Red Rock said, and provide “a possible path” so that they “don’t end up living a minimal existence after a life of [government] service.”

The SEC’s court filing says an e-mail from a Red Rock employee described people in the company’s target demographic as including “Right Wing Conservative” and those “59+ years of age.”

The CFTC’s action, made in conjunction with state regulators, also names Anthony Spencer, who was a senior sales executive at Red Rock until August, 2022. The SEC alleges Mr. Spencer made false and misleading statements that included saying he had a PhD in economics and international markets. Red Rock employees referred to him as “Dr. Tony Spencer” in customer calls.

The SEC complaint names Mr. Spencer, Mr. Kelly and Jeffrey Ward, who was a senior sales executive with Red Rock until September, 2022. Mr. Ward also held the title of director of IRA services, the SEC says.

Attempts to reach Mr. Spencer and Mr. Ward through their lawyers Tuesday afternoon were unsuccessful.

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