41 Wash. & Lee L. Rev. 943 (1984)
Precious Metals Trading--The Last Frontier of Unregulated Investment

handle is hein.journals/waslee41 and id is 953 raw text is: PRECIOUS METALS TRADING-THE LAST
FRONTIER OF UNREGULATED INVESTMENT
DAvm J. GILBERG*
The trading of precious metals, principally gold and silver bullion and
coins, has long been a primary focus of investors worldwide and, indeed, has
often been the yardstick by which the success of economies, currencies and
even governments has been measured. Precious metals currently are offered
to the public throughout much of the free world by banks, brokerage firms
and cash metals dealers engaged in the business of metals trading. While many
of these entities may be subject to Securities and Exchange Commission (SEC)
or Commodity Futures Trading Commission (CFTC) jurisdiction through their
other activities, their precious metals products are often completely beyond
the authority of these agencies. Moreover, firms engaged exclusively in
unregulated metals transactions may be subject to little or no federal regulatory
controls whatsoever.
This article will first describe the nature of the precious metals markets
and the manner in which metals products are offered to the public. The status
of these metals and the instruments traded thereon will then be analyzed under
the federal securities and commodities laws. Finally, the article will discuss
the extent to which the trading of precious metals may become subject to SEC,
CFTC or other forms of regulation in the future.
I. INTRODUCTION
In late 1983 and early 1984, federal and state authorities initiated a long-
awaited crackdown on precious metals dealers operating fraudulent boiler
room schemes across the country, which allegedly had bilked investors out
of several hundred million dollars.' Indeed, in the two most celebrated of these
* B.A., University of Pennsylvania; M.A. University of Pennsylvania (1978); J.D., Harvard
University (1981). Mr. Gilberg is associated with the law firm of Rogers & Wells in New York.
1. See Commodity Investment Fraud II, Hearings Before the Permanent Subcommittee
on Investigations of the Senate Committee on Governmental Affairs, 98th Cong., 2d Sess. 145-88
(1984) [hereinafter cited as PSI Hearings]; see also War on Florida Boiler Rooms, N.Y. Times,
Nov. 14, 1983; Regulating Bullion Dealers, N.Y. Times, Oct. 31, 1983; Senate to Study Gold
Dealers, N.Y. Times, Oct. 27, 1983; Bullion Fraud: Who Protects the Investor?, Chicago Tribune,
Oct. 25, 1983. These boiler room schemes involved numerous types of commodity investment
fraud schemes, including precious metals trading. PSI Hearings, supra, at 145-88. Most of the
schemes, as discussed more fully below, were centered in Florida and Southern California. Id. at 149.
The nature of a boiler room operation previously had been reviewed in detail by the
Senate Permanent Subcommittee on Investigations (PSI). Commodity Investment Fraud, Report
of the Senate Committee on Governmental Affairs Made by the Permanent Subcommittee on
Investigations, S. REP. No. 495, 97th Cong., 2d Sess. 10-13 (1982) [hereinafter cited as 1982
PSI REPoRT]. The 1982 PSI Report concluded that more than $200 million per year had been
lost in commodity investment fraud schemes between 1975 and 1982, including boiler rooms

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