Safeguard Metals settles with CFTC over alleged $68M fraud

Another company is settling fraud charges from regulators amid a widespread crackdown on precious metals dealers that target retirees.

The firm, Safeguard Metals, along with its sole owner, Jeffrey Ikahn, allegedly defrauded customers to whom it marketed gold IRAs of $68 million, according to two separate lawsuits brought by the Securities and Exchange Commission and the Commodity Futures Trading Commission and numerous states in early 2022.

Safeguard misrepresented key figures about itself to more than 450 customers, and it used a markup averaging 50% more than it disclosed on the coins it sold — most often silver collectibles it steered clients toward, the plaintiffs alleged in the lawsuits. For example, it grossly overstated its assets under management, claiming them to be $11 billion when the figure was close to $75 million, court records stated. It also allegedly inflated its employee head count and qualifications.

The company and Ikahn, who previously was known as Jeffrey Santulan, agreed with CTFC and numerous states to permanent injunctions from violating securities laws as well as to pay yet-to-be-determined restitutions and monetary penalties. A similar agreement was reached in July with the SEC.

Between 2017 and 2021, the firm dramatically understated the markups on the products it sold, and its sales reps pressured older customers to move money out of their retirement accounts to buy silver coins, according to court records. For example, one Arkansas retiree was told by a sales rep that “the stock market was in for a major correction and was overvalued,” that “the Federal Reserve was devaluing the dollar by excessive printing and how the rise of inflation was going to make precious metals more valuable,” and that silver coins were a safe investment choice. That customer liquidated his IRA, which held bond funds, and poured $1 million into precious metals, the CFTC wrote.

The markups the firm charged customers ranged from 51% to 71%, while its customer agreements represented that its “operating margins” were 23% to 42%, court records stated.

“Safeguard Metals steered over 97% of its sales from mostly inexperienced investors into overpriced silver coins which had significantly higher markups than gold coins and generated approximately $66 million for Safeguard,” the CFTC settlement notice read.

Safeguard did not respond to a request for comment. As part of the settlement, Ikahn agreed to be barred from having any employment or control in an investment advisor, broker-dealer or commodity advisor in various states, as well as nationally.

While precious metals can be a reasonable component of a portfolio, financial advisors have cautioned about over-allocating to them and warned investors to be cautious about the vehicles they use to get exposure to them. But companies that offer gold and other precious metal IRAs have peppered internet search results with pages about why advisors shun gold — that advisors allegedly misunderstand the asset class or have financial incentives to avoid recommending physical metals over ETFs.

Over the past several years, physical gold providers have marketed heavily to older viewers on conservative-leaning TV channels and websites. That has gotten much attention from regulators, which have brought numerous actions against precious metals firms that have charged high markups or misrepresented themselves or their products.