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
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
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
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
Be suspicious of guaranteed, high-return, risk-free investments in
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
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
Don't be taken in by slick brochures and reports by so-called
The claims made in the brochure are only as good as the company that
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
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
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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