A California man accused of conning elderly clients out of millions while acting as an investment advisor is now facing a host of charges from state and federal authorities.
This week, Jeffrey Santulan and his company, Safeguard Metals LLC, became the target of enforcement actions by the SEC, the Commodity Futures Trading Commission and 27 state securities regulatory agencies that are members of the NASAA.
Santulan then convinced targets to invest those proceeds into gold and silver coins by making false and misleading statements about the “safety and liquidity of the investors’ securities investments, Safeguard’s business and its compensation,” according to the SEC.
CFTC and NASAA officials said the defendants fraudulently solicited and received $68 million in customer funds from at least 450 victims nationwide.
In response, the SEC filed charges of violating the antifraud provisions of the federal securities laws in U.S. District Court for the Central District of California. A joint civil enforcement action from the CFTC and NASAA charges Safeguard Metals and Santulan, also known as Jeffrey Hill, with executing an ongoing nationwide fraud.
"The federal securities laws prohibit deceptive conduct and material misrepresentations in the purchase or sale of securities," Kathryn A. Pyszka, an associate director in the SEC’s Chicago Regional Office, said in a statement. "We will take action when, as alleged, parties fraudulently induce investors to sell their securities through lies and deception."
Court documents explain the lengths defendants went to keep the deception up and running. When questioned by customers about the value of the precious metals they purchased, the defendants claimed the silver coins were rare and carried a premium far above the base melt, according to court documents.
In reality, the silver coins were significantly less valuable than the defendants claimed based on resale prices the firm marketed and promoted. Investigators said Santulan and Safeguard were charging average markups of approximately 64% on its sales of silver coins instead of the 4% to 33% markups that they disclosed to investors.
In addition to the millions made from the sale of coins, court documents said defendants kept approximately $25.5 million in markups.
Safeguard also fraudulently marketed itself as a full-service investment firm — with offices in London, New York City and Beverly Hills — with $11 billion in assets under management, court documents said. But Santulan allegedly powered the entire company with sales agents working in a small leased space in Woodland Hills, California.
The complaint further alleges that Safeguard’s sales agents used prepared scripts penned by Santulan that were filled with false and misleading statements about how the market was going to crash and how their retirement accounts would be frozen under a new “unpublicized” law.
Securities litigation consultant and former regulator Louis Straney said in cases like this, perpetrators rely on products with relatively low regulatory oversight and high return on minimal effort via call centers staffed by individuals with no licensing requirements.
With a sales pitch laced with scare tactics and bogus “doomsday” scenarios in tow, Straney said con artists operate as if they’re following “The Art of War.”
Strike swiftly, cripple your enemy, then move on to the next reward.
“From this and other examples, it's easy to craft a scenario or a doomsday story where somebody is going to raise taxes or your mortgage rates are going to double or the stock market's going to crash,” Straney said. “The various scenarios have been used throughout the years to really alarm unsophisticated investors and entice them into what they believe are safe areas for them — gold and silver. And in most cases, it’s far from safe.”
Joseph P. Borg, co-chair of NASAA’s Enforcement Section and director of the Alabama Securities Commission, said the joint action shows the commitment of state and federal regulators to work together to prevent investment fraud, noting that the increasing complexity of investment products has made their jobs more important and demanding than ever.
He added that this week’s filing is the second large-scale precious metals deception tackled by CFTC and state regulators in recent memory. Borg noted a
Borg warned that more scams may be in the works as con artists continue to prey on the uncertainty building within their targets.
“What has occurred — especially since the beginning of the pandemic, although it's not limited to that — is as the market has gotten more and more volatile and people get a little nervous, there has been quite a bit of activity and looking at alternatives. Specifically precious metals like gold, silver,” Borg said. “Everybody says if the market is going to crash, go to gold. That's the old saying. Whether it's true or not is immaterial, but people believe it.”
Knowing this, Borg said scammers play up the volatility of the market and then move folks into something they can be sold. But before that happens, they need to build trust.
“In affinity fraud, it’s the guy in your local church or rotary club or something … so how do you get something specific like gold and metal sold with folks you don't know about? How do you get that trust factor?” Borg said. “Well, you will see as the case develops that a lot of this money came out of IRA accounts and went into self-directed IRAs. And if I say the word IRA to most folks they say, ‘Oh yeah. Government program. Put money in, defer your income, and somebody's watching this for me.’ Unfortunately with a self-directed IRA, people are not there watching it for you.”
Borg also urges investors to reach out to state securities regulators if confronted with doomsday outlooks and to-good-be-true deals in precious metals. From there, authorities can help determine who is operating unlicensed and if someone claiming they have the ability to operate in a specific state is being deceptive.
“Before you send over your hard-earned money, call the state securities regulator and say, ‘hey, I've got this guy who wants me to buy $10,000 worth of gold coins. Does he have a license,’” Borg said. “If the answer is ‘nope, he doesn’t have a license’ … hang on to your wallet because somebody's about to pick it.”
The SEC, CFTC and state securities regulators are seeking a barrage of penalties, including permanent injunctions, the return of ill-gotten gains, civil monetary penalties and permanent registration/trading bans.
Attempts to reach Santulan and his attorneys for comment were unsuccessful.
