The US Commodity Futures Trading Commission (CFTC) today charged a Texas-based commodity pool operator and his firm in a case involving the operation of a fraudulent precious metals vault, according to a CFTC statement.
Charles H. McAllister and his company BullionDirect, Inc. (BDI) were accused of taking money from customers who thought they were getting gold, silver, palladium, and platinum in return. Customers were lulled into the false belief that precious metals had been purchased and were stored in Bullion Direct’s vault, but $16 million worth of their bullions vanished over two years.
The complaint also charges McAllister with making several misleading representations to actual and prospective investors. As also alleged, the defendant assured the victims that they were pooling their funds for buying standard-sized bars of gold and silver, while he was actually running a Ponzi scheme.
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An estimated 1,400 ounces of platinum and palladium were also lost, according to the complaint that accuses the defendants of fraud, misappropriation, registration violations, and issuing false statements.
The CFTC added that McAllister was indicted in January 2018 on federal wire fraud and money laundering charges in connection with BDI’s scheme to defraud customers.
The U.S. derivatives regulator alleged in its complaint, filed on January 23, that from 2009 to 2015, the money sent to BullionDirect was not used to purchase precious metals on its clients’ behalf. Prosecutors said that instead of buying the precious metals ordered by his customers, McAllister spent the money on company expenses, investment activities and for his own personal use and benefit.
As a result of the actions and misappropriation, the commission seeks full restitution to defrauded participants, disgorgement of any ill-gotten gains, a civil monetary penalty, permanent registration and trading bans, and a permanent injunction against violations of federal commodities laws, as charged.