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Dirt Pile phony mining share scams


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Facts for Consumers from the Federal Trade Commission

Dirt-Pile Scams: Mining for Gold -- December 1993

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.

7/90

(Downloaded from CompuServe's Consumer Forum (go SAVE) )






 
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