As the price of gold has skyrocketed over the past five years, so have the number of high-pressure salesmen luring thousands of consumers into shady precious metal investments.
"We're seeing all sorts of investment scams proliferate given the down economy. People are worried about their nest egg," said David Vladeck, the director of the Federal Trade Commission's Bureau of Consumer Protection. "And these kinds of commodities, precious metals, are being touted as a safe alternative to other investments, and like any other investment they have risks and in the case of these commodities, the risk is often very high."
For example, Vladeck said that the FTC has received numerous complaints about schemes in which sellers promise that if consumers invest in gold or other precious metals, they'll see quick returns but may gloss over the exorbitant fees the sellers will collect from unsuspecting investors.
"Their sales pitch is: this is a safe investment, you'll make a lot of money quickly, there's very little risk, and it's a good way to double or triple your money in a short time," said Vladeck. "[But] they don't make money by investing in gold. They make money by charging very high commissions, very high interest rates. And so they're panning for gold in your wallet, not trying to get the profits that they claim that you can get purchasing gold or other precious metals."
In another scheme, Vladeck said sellers may pitch investments in gold coins of historical significance as opposed to bullion, sometimes purposefully overinflating the investment value to make the sale. Vladeck said that the historical significance is not as important as the gold's basic "melt value".
"That's generally a fraction of what the purchase price is," he said.
Former fraudster Jamie Campany used to own and run a precious metals telemarketing operation that bilked nearly $30 million from 1,400 investors in a Ponzi-like scheme. Now facing up to 25 years in federal prison, he decided to come clean to ABC News' Chief Investigative Correspondent Brian Ross about how brokers for his company played on his victims' economic fears in an interview that aired Thursday on "Good Morning America".
Campany is scheduled to be sentenced in mid-November, but for now he said he regrets the pain he caused his victims and he wants to atone for his crimes by educating consumers on how to avoid people like him.
Tips for Avoiding Gold Scams From a Former Fraudster
Be Wary of Sellers in a Hurry. According to Campany, any time consumers hear something like "time is of the essence" or that you should act now, that should be a red flag. Take your time and do your research, Campany said.
Check the Seller's Registration. If you're dealing with a broker, check them out to see if he or she is properly registered with the National Futures Association's website here. The scam firms are sometimes run by former commodities brokers who have been have previously sanctioned by the NFA or have lost their license.
Avoid Business Over the Phone, Deal Locally. Campany said that one easy way to make sure you can deal with any potential disputes is to keep the business local and preferably, face-to-face. "You can go down to him and look him in the eye. You can call your local authorities if you're having a problem," he said. "If it's somebody in a different state, you are going to have a hard time tracking him down and tracking down your money."
Get a Deposit Slip. Since often consumers will not actually be holding the gold they buy, Campany urges consumers to ask the brokers to produce a deposit slip to show that they have purchased the metal, on their behalf, from a reputable depository. A company that can't produce a deposit slip is likely a fraud and other official-looking statements can be easy for con-artists to produce.
Read More Official Tips. As a bonus tip courtesy of the Federal Trade Commission, the FTC urges anyone looking into buying gold to check out their website for their warnings about dealing in gold and precious metals. As the website says, "All Gold is Not Created Equal".
"The public needs to understand that investments carry risks, precious metals carry all sorts of risks that I'm not sure most members of the public are aware of," Vladeck said.