The U.S. Commodity Futures Trading Commission (CFTC) announced that on April 23, Judge R. Gary Klausner of the Central District of California federal court issued a consent order against Red Rock Secured, LLC (Red Rock), Sean L. Kelly f/k/a Shade L. Kelly-Johnson, and Anthony "Tony" Spencer. The order found that the defendants made fraudulent statements to customers in connection with the purchase and sale of precious metals and provided illegal investment advice.

The order requires the defendants collectively to pay restitution of $38,984,313.90 to defrauded customers, disgorgement of $5.1 million in illegal profits, and a civil monetary penalty of $12.25 million. Additionally, the order prohibits the defendants from further violations of the Commodity Exchange Act (CEA), CFTC regulations, and the state laws alleged, and imposes permanent trading bans enforced on any CFTC-regulated market, as well as registration bans on the defendants. It also prohibits Spencer and Kelly from acting as investment advisors, brokers, or commodity advisors in California and Hawaii.

The order resolves a lawsuit filed by the CFTC and its co-plaintiffs, the California Department of Financial Protection and Innovation (DFPI), and the Securities Enforcement Branch (SEB) of the Hawaii Department of Commerce and Consumer Affairs, on May 15, 2023.

Director of Enforcement Ian MacKenzie stated, "The defendants exploited elderly victims to liquidate their retirement savings in a precious metals scheme. The CFTC is committed to rooting out fraud in the precious metals industry, and this significant resolution announced in cooperation with California and Hawaii is yet another example of our accomplishments."

Red Rock Secured Case

The order found that the defendants engaged in a nationwide scheme of fraud from approximately November 2019 to June 2022, convincing at least 950 individuals to pay over $69 million to purchase Canadian Red Tail Hawk (RTH) silver and gold coins valued at only $30 million. The coins were priced between 91.89% and 129.97% above the cost basis for purchasing them from Red Rock, with most customers using tax-deferred or other retirement funds to purchase RTH coins from Red Rock.

The order found that Red Rock did not disclose these markups to customers and that Spencer (along with other Red Rock salespersons) engaged in deceptive conduct: Spencer discussed lower markups on a class of products offered by Red Rock (1% to 5% markups on ordinary gold bar products) and then sold purportedly "premium" RTH coins to customers at markups far above ordinary products.

According to the order, Red Rock's salespersons, including senior salesperson Spencer, told customers that Red Rock could purchase coins at a "wholesale price" due to a "direct relationship" with the Royal Canadian Mint (RCM) that produced the RTH coins and that they would pass on the "savings" to their customers.

In fact, the order found that Red Rock had no direct relationship with the RCM and purchased all its RTH coins from wholesalers. The order also found that Red Rock marketed RTH coins as "limited quantity," though there were no restrictions on the issuance of RTH coins. Additionally, the order found that Kelly, as CEO of Red Rock, controlled the company's operations and was responsible for the actions of its agents, including Spencer.

Parallel Civil Litigation

On May 15, 2023, the U.S. Securities and Exchange Commission (SEC) filed a lawsuit against the defendants and another individual for violating precious metals fraud and providing illegal investment advice.

The CFTC expressed appreciation for and acknowledged the assistance of the SEC, as well as its co-plaintiffs, the California DFPI, and the Hawaii SEB, in their cooperation.

The CFTC warned that orders to pay funds to victims may not result in the recovery of any lost funds, as wrongdoers may not have sufficient funds or assets. The CFTC will continue to actively strive to protect customer rights and ensure that wrongdoers are punished.