Desks lined up closely one behind another like rows of corn, telephones connected to WATS lines for each desk, and 80 or more salespeople working in two shifts and making on estimated 16,000 telephone calls a week.
As U.S. District Court Judge Edward Weinfeld of New York described them, the offices of U.S. Metals Depository Corp. were "a classical boiler room."
The 16,000 phone calls a week brought in millions of dollars from investors who heeded the promptings of a script that was followed carefully by the U.S. Metals phone callers, say investigators from the Commodity Futures Trading Commission.
The lure was gold. A report from what the script called "our research department" promised that gold prices would more than double in six months and investors could profit by buying what U.S. Metals called "deferred delivery contracts" for gold.
But U.S. Metals had no research department, Judge Weinfeld ruled this week; the gold contracts the company was selling were in fact illegal, unregistered commodity options.
None of the 80 salespersons was licensed to sell commodity investments, Weinfeld said. Three officers of the company were convicted commodities conmen whose previous employer was closed down by a government injunction only last October.
Weinfeld shut down U.S. Metals as well, issuing a permanent injunction that he said "is necessary because of the pervasive illegality of the firm's operations."
The New York City boiler room is the latest to be closed by a Commodity Futures Trading Commission investigation of more than 100 firms that are selling various gold and silver investments.
Since the Lloyd Carr & Co. scandal involving illegal sale of London Commodity options broke in Boston last year, federal investigators have found dozens of other firms offering similar schemes.
Weinfeld's decision to shut down U.S. Metals is being touted as a major victory by the commodity agency, which released his ruling yesterday.
Upholding a broad interpretation of the CFTC's power, the judge said the federal commodity laws apply to U.S. Metals despite the company's claim that what it was selling were not commodity futures or commodity options and therefore not subject to CFTC jurisdiction.
Weinfeld called that claim a "thinly disguised and clearly calculated attempt to circumvent the congressional prohibition against option transactions aimed to protect the American public.
"This is a most significant decision for us," commented CFTC public information director William Monahan, who said the agency's legal staff has faced repeated challenges to its authority.
The decision also provides a case study in how a commodities investment scheme works, detailing an operation that Monahan says "took in millions" from investors who sent in checks to salesmen they never met, who offered investments they never heard of before.
The judge said the CFTC showed U.S. Metals "conducted a boiler room operation calculated to sell as large a volume of options as possible to customs throughout the country without regard to the suitability of the investment for the customers, the soundness of the investment, or the accuracy and completeness of representations made."
Weinfeld said U.S. Metals not only sold options that were illegal under federal law, but also failed to disclose risks and costs of the investment to customers and made false and misleading claims in its sales presentation.
None of the more than 80 "account executives" working for U.S. Metals office in midtown Manhattan was registered with the CFTC, the judge noted. The company did not have the research department it claimed, and the "performance bond" that supposedly guaranteed investors would get what they paid for did not exist.
The CFTC investigation disclosed that "much of the furniture and some of the personnel" of U.S. Metals Depository came from J. M. King & Associates. Last October the CFTC obtained a permanent injunction closing down the King firm for fraudulent practices in commodity sales.
The ruling identified three U.S. Metals officials-William Rodman, William Druge and James Morse-as former employes of J. M. King. Rodman, the marketing director of U.S. Metals, was convicted of stock fraud in California.
CFTC investigators said they believe most investors in the U.S. Metals lost money because the price of gold did not go up as much as the company predicted. Commissions and other fees of morethan investors to make any money.
Although the contracts allowed customers to buy gold, CFTC investigators said they found only two persons who actually got the metal. Out of more than 1 million sales calls made in six months, only a pound and a half of gold actually was delivered.