Company first paid itself
But American Precious Metals did not invest consumers' money as promised, Brown says. Instead, it first paid itself commissions and fees of up to 40 percent of the initial investment, then deposited the remainder into the account of an associate "clearinghouse" business that recorded the investment but did not actually buy or handle precious metals. The clearinghouse instead bought financial instruments known as derivatives that rise and fall in value based on the prices of metals.
What's more, many investors were not told that their investments would be leveraged — that is, their money would form about 20 percent of an investment position, with the other 80 percent to be borrowed, at interest.
Leveraged investments can be highly risky, magnifying the financial ups and downs. Under a 20:80 split, a rise of 20 percent in the price of the commodity would double the money that an investor has put in. But the flip side is that a drop of 20 percent would completely wipe out the investor's money.
Invest more, or lose your money
"Many consumers were surprised to find out, weeks after they invested their money, that they were receiving equity calls that they needed to invest more money, or they would lose their investment money," says Brown. "Other consumers were encouraged to borrow money through home equity loans, life insurance policies and from relatives, or to tap out their IRAs. Many lost their life savings."
The FTC's complaint said that "because consumers' equity levels are constantly eroded by interest charged on the leveraged balances, consumers can be subject to equity calls even when precious metals prices remain constant."
The Tanners or other American Precious Metals officials could not be reached for comment.
The FTC's website includes tips on safely investing in precious metals.
Sid Kirchheimer writes about consumer and health issues.