Information and Alerts

Government Actions 1

CFTC vs Red Rock Secured, LLC
April 25, 2024

Washington, D.C. — The Commodity Futures Trading Commission today announced Judge R. Gary Klausner of the U.S. District Court for the Central District of California entered a consent order against Red Rock Secured, LLC (Red Rock), Sean L. Kelly f/k/a Shade L. Kelly-Johnson (Kelly), and Anthony “Tony” Spencer (Spencer) on April 23. The order finds the defendants liable for making fraudulent misrepresentations to customers and rendering unlawful investment advice in connection with the purchase and sale of precious metals.

The order requires the defendants collectively to pay $38,984,313.90 in restitution to those defrauded, disgorge $5.1 million in ill-gotten gains, and pay $12.25 million in civil monetary penalties. Additionally, the order enjoins the defendants from further violations of the Commodity Exchange Act (CEA), CFTC regulations, and state law provisions, as charged, and imposes permanent trading bans in any CFTC-regulated markets as well as registration bans against the defendants. It also bars Spencer and Kelly from acting as investment advisers, broker-dealers, or commodity advisers in California and Hawaii.

The order resolves the lawsuit filed on May 15, 2023 by the CFTC and its co-plaintiffs, the California Department of Financial Protection & Innovation (DFPI) and the State of Hawaii Department of Commerce and Consumer Affairs, Securities Enforcement Branch (SEB). [See CFTC Press Release No. 8704-23]

“The defendants preyed upon elderly victims to liquidate their retirement savings to invest in a precious metals scam,” said Director of Enforcement Ian McGinley. “The CFTC remains steadfast in ridding the precious metals industry of fraud; this significant resolution announced in conjunction with state partners in California and Hawaii is yet another example of the results.”

Case Background 

The order finds the defendants executed a nationwide fraud, from approximately November 2019 through approximately June 2022, in which the defendants convinced at least 950 people to pay over $69 million for silver and gold Canadian Red-Tailed Hawk (RTH) coins worth only $30 million, reflecting mark-ups of between 91.89% and 129.97% over Red Rock’s cost to acquire the coins. Most of these customers used tax-deferred or other retirement funds to purchase the RTH coins from Red Rock. The order finds Red Rock did not disclose these mark-ups to customers, but rather Spencer (and other Red Rock salespersons) effectively engaged in bait-and-switch conduct: Spencer discussed the lower mark-up on one category of products Red Rock offered (i.e., 1% to 5% mark-up on common bullion products) but then sold customers the supposedly “premium” RTH coins, which carried the exponentially higher mark-ups.

According to the order, Red Rock sales staff, including Spencer, a senior salesperson, told customers that because Red Rock had a “direct relationship” with the Royal Canadian Mint (RCM) which produced the RTH coins, Red Rock was able to buy the coins “at wholesale” and “pass the savings” onto its customers. In fact, the order finds Red Rock did not have a direct relationship with the RCM, but bought all of its RTH coins from a wholesaler. The order also finds Red Rock marketed the RTH coins as “limited quantity,” when there was no mintage limit on the RTH coins. The order further finds Kelly, as Red Rock’s CEO, controlled the company’s operations and was responsible for the actions of its agents, including Spencer.

Government Actions 2

DFPI vs Red Rock Secured LLC

SACRAMENTO – The California Department of Financial Protection and Innovation (DFPI), in partnership with the federal Commodity Futures Trading Commission (CFTC) and the State of Hawaii securities regulator, today filed a federal lawsuit in Los Angeles against Red Rock Secured, a precious metals dealer, and its majority owner and sales agent for perpetrating an approximately $60 million fraudulent scheme that targeted customers’ retirement savings.

Southern California based Red Rock Secured, LLC, and its principal and owner, Shade Johnson-Kelly (a/k/a Sean Kelly), and sales agent Anthony Spencer, are charged with fraudulently soliciting an estimated $61.8 million in funds from more than 950 customers nationwide from November 2019 through at least February of 2022.

The lawsuit alleges that Defendants steered potential customers into purchasing silver and gold Canadian Red-Tailed Hawk (RTH) coins and misled customers into believing that Red Rock charged a relatively low markup on the sale of its RTH coins, while concealing that the actual mark-up charged to customers on the coins typically ranged from 100 to 130 percent. Because of Red Rock’s exorbitant markups, customers allegedly suffered an immediate loss on their investments, while Red Rock collected $34.4 million in markups on these purchases.

The DFPI further alleges that Red Rock provided unlicensed investment advice and used scare tactics to convince hundreds of customers nationwide to transfer funds, including funds from liquidating securities from their traditional retirement accounts, to purchase the overpriced metals.

“Engaging in commodities and investment adviser fraud to deplete customers’ hard-earned retirement funds for personal gain is despicable,” said DFPI Commissioner Clothilde V. Hewlett. “Today’s filing is the DFPI’s third joint regulatory action aimed at cleaning up fraud in the precious metals industry. We are committed to protecting consumers by holding these corrupt individuals accountable.”

The complaint seeks a permanent injunction, disgorgement, full restitution, rescission, and civil monetary penalties. The DFPI wishes to thank the CFTC, the State of Hawaii, and the Securities and Exchange Commission for their assistance in this matter.

The DFPI encourages consumers who have experienced fraudulent practices in connection with investment advisory services or the sale of commodities, and any unfair, unlawful, deceptive, and abusive practices from a financial service provider, to file a complaint with the Department online: https://dfpi.ca.gov/file-a-complaint/.

Government Actions 3

SEC vs Red Rock Secured LLC

On April 23, 2024, the United States District Court for the Central District of California entered a final consent judgment against defendants Red Rock Secured (which now operates under the name American Coin Co.), its CEO Sean Kelly, and managers Anthony Spencer and Jeffrey Ward, ordering defendants to pay more than $76.4 million dollars in disgorgement, interest, and penalties. The judgment resolves the SEC’s charges against defendants for their roles in a scheme to defraud retirement account holders out of more than $50 million in connection with defendants’ sales of gold and silver coins between 2017 and 2022.

According to the SEC’s complaint (filed on May 15, 2023, and amended on August 11, 2023), since at least 2017, the defendants repeatedly solicited investors through false and misleading statements, telling them to “protect” their retirement savings by selling securities held in their retirement accounts—including federal employee Thrift Savings Plan accounts, 401(k) plans, and Individual Retirement Accounts—to invest in gold or silver coins at only a 1 to 5 percent markup. The complaint alleges that in reality, Red Rock charged as much as 130 percent in markups on the precious metal coins they sold to investors. Through this scheme, defendants allegedly defrauded at least 700 investors out of more than $50 million.

Without admitting or denying the SEC’s allegations, defendants consented to entry of a final judgment permanently enjoining them from violations of the antifraud provisions of Section 10(b) the Securities Exchange Act of 1934 and Rule 10b-5 thereunder and Sections 206(1) and (2) of the Investment Advisers Act of 1940; ordering Red Rock to pay disgorgement in the amount of $50,150,000, plus prejudgment interest thereon in the amount of $6,110,000, and $10,000,000 in civil penalties; ordering Kelly to pay disgorgement in the amount of $1,841,727.89, plus prejudgment interest thereon in the amount of $224,241.37, and $1,500,000 in civil penalties and prohibiting Kelly from serving as an officer or director of a public company; ordering Spencer to pay disgorgement in the amount of $2,156,905.15, plus prejudgment interest thereon in the amount of $262,616.15, and $580,478.70 in civil penalties; and ordering Ward to pay disgorgement in the amount of $1,224,215.28, plus prejudgment interest thereon in the amount of $149,055.46, and $200,464 in civil penalties.