High gold prices bring threat of scams
July 5, 2004
As gold prices remain near $400 an ounce, industry officials are keeping a watchful eye for outfits skilled at mining the pocketbooks of gullible investors.
So far, officials say, the current boom hasn’t produced a scam that has led to prosecution.
But the state historically has seen the emergence of mining-related scams whenever metals prices rise, and there’s no reason to think this strong market will be any different.
Alan Coyner, administrator of the Nevada Division of Minerals, says many of the scams are little changed since the days that Mark Twain watched them unfold at Virginia City.
Overblown claims, questionable drilling results and whispered secrets about new mining techniques are decades old.
But these days scam artists are likely to use publicly held companies and a flurry of press releases to bilk investors who want a piece of Nevada’s gold industry.
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And that causes problems for the legitimate companies in the industry, says Russ Fields, president of the Nevada Mining Association.
About 7 million ounces of gold annually are mined in Nevada, the third largest gold producer in the world, and companies large and small work in the state.
Scam artists tar all of them, particularly the junior mining companies that rely on the public markets for capital as they search for prospects they can sell to big mining outfits.
“It causes confusion in the financial markets about the legitimacy of mining stocks,” Fields says.
“It puts a bad light on the mining industry.”
But prosecution of scam artists is rare, Coyner says.
For starters, embarrassed investors are slow to step forward after they’ve been bilked.
It’s all the more difficult for investors to seek out official help because many of the scam artists prey on family members or close friends, Coyner says.
And then state officials prosecutors, securities specialists, mining experts are well aware that no prosecution will come easy.
“We have a difficult time prosecuting these cases,” Coyner says.
“Fraud is difficult to prove.
It takes a considerable amount of resources.”
Given those difficulties, mining officials instead place a big importance on education of investors.
The division of minerals, for instance, maintains a Web site with fraud-prevention tips (http://minerals.state.nv.us/programs/m in_fraudami.htm).
In many instances, Coyner says, mining frauds could be prevented if the potential investor simply talks it before acting.
“It’s best to talk to someone else your stockbroker, your priest, anybody besides the person you’re dealing with,” he says.