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PREMIUM LEGAL RESOURCES LEGAL FORMS ASK A LAWYER

Among the endless number of telephone investment frauds going on around the country, one variety is called the "dirt-pile scam." With this, a caller offers you the opportunity to invest in a gold mining operation. What you would buy is a quantity of unprocessed dirt from the mine, "guaranteed" to contain enough gold to more than cover your investment. In reality, the mine contains little if any gold, and your investment is nearly worthless.

Unfortunately, consumers from all walks of life have invested in these dirt-pile scams and were cheated out of millions of dollars. This fact sheet tells you how to recognize the scam, how to protect yourself, and what to do if you become a victim.

How Dirt-Pile Scams Work

Although there are many versions of this scheme, most dirt-pile scams have similar features. Typically, a promoter will either lease or buy a mining claim (a tract of land that legally can be mined) in one state and then set up "boiler room" sales operations in several other states.

The mining claim, company headquarters, and boiler rooms are purposely located in different states to make it more difficult for law-enforcement officials to locate and investigate the company's activities.

Usually, a boiler room is a rented space filled with desks and telephones, where experienced salespeople call hundreds of potential investors like you. These callers use high pressure tactics to sell you unprocessed dirt, also called "ore." Preying on most people's limited knowledge of "ore," they make false and exaggerated claims about the precious-metal content.

A central feature of the dirt-pile scam is that you will be asked to invest several thousand dollars upfront, but will not be entitled to a return on your investment for at least one to three years. This gives the promoters time to get money from many investors, before anyone suspects foul play.

There are a number of twists to this scam. In one variation, you buy the ore from the mining claim for one fee, then, for a second fee, you buy the services of an "independent" mining contractor who will process the ore and extract the precious metal. You will not be told, of course, that the contractor is also part of the scam.

In another variation, you pay one fee for both mining and refining the ore. Some investment schemes allow you to make monthly installment payments to the mining company. The sales pitch may change slightly, but the basic message is the same -- pay now and receive a substantial return later.

If you express interest in investing, the salesperson will follow up the phone call with a prospectus or a company publication. It often is a slick-looking brochure, which promoters hope will increase the credibility of their offering. The brochure may contain photographs of the mining site with mining equipment on it, a map of the area, pictures and resumes of company officials, and references for you to call.

The brochure also may include a report from an assayist, one who analyzes a sample of dirt from the mining claim to determine the precious-metal content. Often the report will be from either a fraudulent assayist who inflates the amount of precious metal found in the ore, or from a legitimate assayist who is given a "salted" sample, one that contains added amounts of the precious metal. The packet may include a contract for you to sign and return, locking you into the investment.

If the caller senses any reluctance, you may be offered a "risk-free" investment to clinch the deal. Your investment will be "guaranteed" to contain a minimum quantity of precious metal per ton of ore, and, if your claim does not produce the specified amount of precious metal, the company will refine additional ore to satisfy the terms of the guarantee. Some companies or salespersons even will promise to make up the difference out of their own pocket.

Once you have invested money in a dirt-pile scam, you may receive periodic progress reports or "lull letters." Their purpose is to keep you up-to-date on the fictitious progress of the mining operation and to keep you content with your investment.

Because the mines often are not located in the state where you live, it is unlikely that you will visit the mine. If you do visit, you may recognize the worthless value of your investment and demand a refund. Promoters may willingly refund your money, possibly with newly invested money, in order to avoid complaints to law-enforcement officials. In some cases, promoters actually haul equipment out to the mining site and hire temporary employees to make it look as if work is in progress.

Finally, when it is time for a return on your investment, if the promoters are still around, they will conveniently blame faulty equipment, bad weather, a labor shortage, or even the Government for any delay. They will assure you that they will resolve all problems quickly. Since you have already put considerable time and money into this investment, you may be satisfied to wait for a while. In the meantime, the promoters try to get more money from new customers or to get safely out of town.

No matter how these scams unfold, they always end the same way: You are left with nothing -- no capital and no profit.

How To Protect Yourself

The typical dirt-pile scam involves a highly sophisticated interstate network of swindlers. By the time you suspect the investment may be phony, it could be difficult to locate the promoter, the project manager, the salespeople, or anyone else connected with the company. Because the crux of the scam requires you to wait at least a year to realize a return on your investment, promoters are often long gone by the time law-enforcement officials are alerted to the scheme and can begin an investigation.

The best protection you have is not to invest in a dirt-pile scam in the first place. The following suggestions may help you avoid losing money in a dirt-pile scam:

Be wary of unsolicited investment opportunities.

If this is such a great investment, why isn't the company getting traditional financing from a bank instead of from you, a total stranger?

Be suspicious of guaranteed, high-return, risk-free investments in precious metals.

The market for gold and other precious metals is unstable; be wary of any exaggerated claims. Few legitimate companies can afford to substantially undercut the market price for precious metals.

Be skeptical of extraordinary claims, such as "secret formulas" for extracting otherwise unrecoverable precious metals from dirt.

Ask yourself, why am I hearing about this for the first time over the telephone?

Don't let telephone salespeople convince you to invest on the spot.

A person selling a legitimate investment opportunity will allow you to take some time to look over the company literature and to check out the credibility of the claims with someone whose financial advice you respect.

Don't be taken in by slick brochures and reports by so-called experts.

The claims made in the brochure are only as good as the company that makes them.

Don't be impressed by statements that the mining claim is on land managed by the Bureau of Land Management or the Forest Service.

It is relatively simple to file a claim on federally managed land, but that does not mean the land is worth mining.

Check out all the claims made in the sales call and in the written materials.

Call the state Bureau of Mines in the state where the mine is located to get general information about the mineral content in the area to be mined. Get an independent, credentialed geologist to inspect the written materials. Call the state securities office in your state or in the state where the mine is located. They can tell you if the promoter has violated state securities laws in the past.

When in doubt, say no.

If you are not completely confident that you are investing in a legitimate offer, do not take a chance. Once a swindler has your money, it is very hard to recover it.

What To Do If You Are A Victim Of A Dirt-Pile Scam

If you thought you were investing in a legitimate mining operation and it turned out to be a dirt-pile scam, speak up. First, try to contact the mining company and attempt to get your money back. If you are not successful, report your problem to the state securities agency, state mining agency, Better Business Bureau, and Attorney General's office in your state and in the state where the mine is located. If law enforcement agencies are already looking into the company, your information will help in an investigation. If they do not know about the problem, your information may alert them to the need for one.

You also may contact the Federal Trade Commission. Write: Correspondence Branch, Federal Trade Commission, Washington, D.C. 20580. Although the FTC generally does not intervene in individual disputes, the information you provide may indicate a pattern of possible law violations requiring action by the Commission.

For More Information

Additional information about telephone investment scams and how to protect yourself is found in the FTC fact sheet Telephone Investment Fraud. For a free copy, contact: Public Reference, Federal Trade Commission, Washington, DC 20580; 202-326-2222. You also may request Best Sellers, which lists all of the FTC's consumer and business publications.

Facts for Consumers from the Federal Trade Commission

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