Hunter Wise: Interest on Loans It Never Made

The Hunter Wise leveraged metals fraud action led a federal court to order $52.6 million in restitution for customers charged interest on nonexistent loans and storage fees for metal never bought for them. For someone working in dealer operations, financing or custody, the case exposes a specific mismatch: customer statements showed purchases and loans that the business had never carried out.

The Commodity Futures Trading Commission brought the action, and the U.S. District Court for the Southern District of Florida found fraud after a trial before a judge. Its May 16, 2014 opinion follows the money through retail dealers to Hunter Wise. The company controlled the customer paperwork, took the money and used it to support its own trading positions.

How Hunter Wise Sold the Promise of Metal

Hunter Wise built its precious metals fraud around dealers who appeared to be selling physical gold, silver, platinum, palladium and copper. Customers put down part of the purchase price and were told that a loan would cover the rest. The metals would supposedly stay in a secure depository, with interest and storage charges attached.

Hunter Wise’s training materials gave dealers a reassuring version of the arrangement, describing physical ownership of metal that would always have value. The court found that those materials also pitched the transactions as carrying medium risk and producing substantial returns.

Hunter Wise supplied much more than sales training. It prepared customer agreements and ran an online portal that produced trade confirmations, transfer notices, tax forms and account statements. Those documents appeared on dealers’ letterhead, although Hunter Wise generated them. Even the dealer and customer portals carried the dealer’s name and logo.

The funds traveled in the opposite direction from the branding. Dealers sent customer deposits and account information to Hunter Wise, sometimes through the intermediary Lloyds, and Hunter Wise sent the dealers their share of fees and interest. A customer could see a local dealer’s name throughout the transaction without being told who controlled the money and the records behind it.

The Interest Was Real, the Customer Loans Were Not

The court found that Hunter Wise never disbursed the loans customers were paying for. Its customer agreement described cash advances to buy physical commodities, delivery to a depository and storage arrangements. The agreement gave the interest charge a plausible explanation while the underlying loan never happened.

The dealer side of that arrangement came through in testimony from a former dealer who later worked in Hunter Wise’s operations. Her dealer business had not made the loans it offered customers because it lacked the money to do so. It depended on Hunter Wise to handle the lending and the metals, while customer funds flowed to Hunter Wise and commissions came back.

For an accounting or financing insider, that distinction reaches beyond an excessive rate. A loan agreement, an interest entry and an actual advance of funds describe different parts of a transaction. Here, the court found that the paperwork and the charge existed while the promised advance did not. We see a business charging customers for financing it never provided.

Customer Deposits Funded Hunter Wise’s Own Positions

Hunter Wise used the remaining customer funds for its own margin trades with metals suppliers after paying the dealers’ share. Those positions offset Hunter Wise’s exposure, but the supplier agreements did not give it ownership of the metal. Ownership never passed through to the retail customers.

Hunter Wise itself faced margin calls: if its account equity fell far enough, it had to put up more money or risk losing the position. It could also demand more money from customers whose account equity fell below a specified level and liquidate part of their positions if it fell further. The company controlled those customer decisions through the same system that presented them with supposed metal purchases and financing.

The Depository Statement Repeated Hunter Wise’s Books

A custody document helped make the supposed purchases look independently confirmed. The opinion describes a retired customer who received a Position Reconciliation statement from Delaware Depository Service Company showing a purchase of thirty ounces of gold. The statement relied on Hunter Wise’s records and identified the gold as the customer’s.

The court found that neither Hunter Wise nor the dealer had bought gold in that customer’s name. It also found that the depository had not verified the existence of the metal before issuing these forms. When the customer later asked his dealer for delivery, the dealer persuaded him to leave the investment in place.

That is the operational question behind the reassuring paperwork: whose information produced the confirmation? The customer’s statement, the dealer’s portal and a depository form all appeared to support ownership, yet Hunter Wise supplied the information behind them. We would want to know whether a custody employee verified inventory or simply received a position file to turn into a customer notice.

Dodd-Frank brought leveraged retail metals transactions such as Hunter Wise’s under the Commodity Futures Trading Commission’s authority, with an exception for actual delivery within 28 days. The court found that Hunter Wise knew it had neither the metal nor delivery within that period. Someone familiar with the supplier accounts or depository reporting could recognize the difference between the metal being described and the position actually being carried.

The Company Knew What Its Customers Were Losing

Hunter Wise’s own records showed widespread customer losses while its promotional materials continued to sell the same story. The court found that over 90% of retail customers lost money, while Hunter Wise earned $18,481,964 from spreads, interest and service fees. The interest came from loans it had never made, and the service charges included storage for metal it had never bought for those customers. Storage. For nothing.

The chief executive’s email about Hunter Wise’s investors explained the attraction of the business:

The company investors described in that pitch were on a different side of the business from the retail customers buying supposed metals. Hunter Wise kept detailed customer records through its portal, knew how poorly customers were doing and nevertheless left its training and promotional materials unchanged. The court found that management could have corrected the customer documents and did not.

We see the significance of that combination: the business could track the losses while continuing to sell the promise. An employee familiar with both the account reports and the dealer materials could see what customers were never told. That knowledge connects the sales claim to the decisions inside the company.

Management’s answer was the risk disclosures customers signed. The court found that a general disclosure could not overcome the misrepresentations about metal ownership and profits. A signed form was part of Hunter Wise’s defense, but it did not change what customers had actually been sold.

What the Hunter Wise Trial Ordered

The court found Hunter Wise liable for fraud and for helping its dealers defraud retail customers. The Commodity Futures Trading Commission’s announcement of the trial result reports that the scheme reached more than 3,200 retail customers between July 2011 and February 2013. The findings address the central company’s conduct, including the forms, training, funds and trading arrangements it controlled.

The restitution obligation covered customer losses. Separately, the opinion imposed a civil monetary penalty of $55,445,892, which the court expressly described as triple Hunter Wise’s monetary gain. Hunter Wise and its owners shared responsibility for these obligations.

How Hunter Wise Differs From Other Retail Metals Cases

Monex concerned allegations about financed Atlas trading, misleading profit representations and customers’ control of metal. Its civil settlement addressed those allegations. The connection to Hunter Wise is the difference between the account interest sold to a customer and the ownership or control that customer actually obtained.

Metals.com presents a different sales problem. The Commodity Futures Trading Commission and state plaintiffs alleged that customers were induced to liquidate retirement investments and buy bullion at concealed markups, with supposed rarity offered as an explanation when prices were challenged. That comparison directs attention to what the metal was worth and how it was sold.

Hunter Wise’s trial went to the existence of the promised transactions themselves. Customers paid for loans, purchases and storage that had not occurred on their behalf. For a dealer, finance or custody employee, the useful knowledge may be where the customer-facing account stops matching the business’s actual transactions.

What Evidence Is Required to Prove Fraud?

In Hunter Wise, the evidence connected customer promises to account documents, the movement of money, supplier agreements and what management knew. The court heard from customers, dealers and operations personnel and examined the company’s own records. The important comparison ran across the business, from the sales pitch to the purported financing and the metal supposedly backing the account.

A dealer employee might recognize the training language and the statements sent under the dealer’s name. A finance employee might know whether an interest-bearing customer balance ever corresponded to an advance. Someone in custody or operations might know how a reconciliation form was generated and whether anyone checked the metal it described. These are different views of the same promise.

Our whistleblower experts work with you to connect that operational knowledge to a CFTC fraud report and the people who directed the conduct. Your view of the business gives the records meaning, particularly when a polished customer statement conceals a different transaction upstream.

How CFTC Whistleblower Rewards Compare

A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers. Hunter Wise was a CFTC action, and CFTC whistleblower rewards use a separate range of 10% to 30% of collected monetary sanctions for qualifying whistleblowers, taken together. Our whistleblower experts help you build the case around what you know and the program that fits it.

You Know What Backed the Customer’s Account

If you know customers were charged for loans never funded or metal never held for them, talk with our whistleblower experts about what you saw. We bring in CFTC whistleblower lawyers who understand precious-metals financing and custody, and stay beside you to build your strongest CFTC whistleblower case.