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Regulation and Compliance > Litigation

Precious Metals Firm Ordered to Pay $6M Over Hidden Commissions

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What You Need to Know

  • L.A. firm Lear Capital allegedly failed to disclose millions of dollars in commissions it charged older and other investors in New York.
  • The company also allegedly violated New York laws requiring commodity broker-dealers and telemarketers to register with the state.
  • N.Y. Attorney General Letitia James had sued the firm in June.

A Los Angeles-based precious metals dealer and its founder have been ordered to pay $6 million for allegedly failing to disclose millions of dollars in commissions the company charged investors in New York. The firm also failed to register properly with the state.

As part of a consent order that was filed in New York Supreme Court in Erie County on Monday, Lear Capital and its founder, Kevin DeMeritt, were also ordered to modify their business practices in New York.

Lear agreed to provide New York residents with “clear and conspicuous disclosures of its fees and to provide a 24-hour cancellation period for retirement and certain higher fee transactions,” according to Letitia James, New York attorney general. Lear will also enhance its New York complaint tracking procedures and provide training to its staff, she said.

The funds will be distributed to eligible New York customers harmed by Lear’s misconduct, she pointed out while announcing the consent order.

“Lear is pleased to put this matter behind it,” according to Seth E. Pierce, counsel for Lear, who is a partner at the law firm Mitchell Silberberg & Knupp in Los Angeles. “Lear has always believed that its transaction process was best in class, but looks forward to further enhancing that process and resuming operations in New York,” he said in a statement provided to ThinkAdvisor on Tuesday.

In her complaint, filed June 17, James alleged that Lear connived investors — many of whom were senior residents of Western New York who were looking to safeguard their retirement savings — to invest tens of millions in precious metals.

The suit alleged that Lear did that while fraudulently charging undisclosed commissions of as much as 33% on millions of dollars in sales, and in violation of New York laws requiring commodity broker-dealers and telemarketers to register with the state.

The “hidden commissions” were charged by Lear on over $43 million sales of precious metals since 2014, “all while failing to register as a commodity broker-dealer, commodity investment advisor, and a telemarketer” in New York as required by state law, according to the complaint.

“Virtually every step of the sales beginning, Lear falsely told them that Lear’s success was directly related to the investors’ success and that investors’ financial security was Lear’s main concern,” the complaint alleged.

“In truth, Lear’s success was in conflict with investors’ interests: Lear profited immediately by charging a hidden up-front commission of up to 33% that caused the investments to instantly lose up to one-third of their value,” the complaint claimed.

“The higher the commission the salesperson could charge on a transaction, the more profit for the salesperson and Lear to the detriment of the investor,” according to the suit.

Clients’ “long-term financial security is our main concern,” the firm says at its website.

“We can help you diversify your portfolio by purchasing bullion, acquiring premium rare coins, or by adding physical gold and silver to your existing IRA account,” according to the firm. “Whether you’re looking to realign your asset allocation, maintain an aggressive hedge against global volatility, or secure tangible retirement protection, Lear Capital has a plan for you.”

(Image: Shutterstock)


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