Undercover Agent’s Account : Affidavit Says Metals Trading Firm Flouted Law

Just before the end came, the precious-metals trading firm of M.S. Sawyer had given up even the pretense of legitimacy, an undercover agent has claimed in court papers.

Oscar Smith, a jeweler who was hired by a Michigan investor to go undercover at the now-defunct investment firm, said in an affidavit that an official of M.S. Sawyer told other employees during the firm’s waning days that federal regulators were running out of time and money to take any action against the unlicensed and unregistered company. Smith indicated that he worked at the company for parts of its three final days.

The company, which had been in operation under that name for only about three weeks, closed suddenly Sept. 26, when another irate out-of-state customer brought his lawyer and a private investigator into M.S. Sawyer’s office in Irvine and started taking pictures of about 20 salespeople as they solicited investors by telephone.

Sawyer and its predecessor firm, B.N. Goldberg & Associates in Laguna Hills, reportedly took in $6 million in the past year, and dozens of customers are complaining to state and federal authorities that they cannot find the operators and do not know what happened to their money or to the profits they supposedly made.

Smith’s affidavit provides a rare glimpse into the inner workings of an alleged investment scam.

Smith, who has since moved out of Orange County, went undercover and posed as a Sawyer salesman to gain information for the investor about the two firms and their principals.

‘He Knew About the Illegality’

The alleged boasts of Sawyer official Blaine Riley to the salespeople “indicated he knew about the illegality” of the company’s operations, Smith said in the sworn statement, which was attached to a federal lawsuit filed by investor Ronald Schaupeter of St. Clair Shores, Mich.

Both the Orange County district attorney’s office and the U.S. Commodity Futures Trading Commission are investigating the firms, law-enforcement sources said, though officials of the two agencies would neither confirm nor deny that an investigation is being conducted.

Local and federal authorities are trying to find Mark Ott and Barry N. Goldberg, the operators of M.S. Sawyer and B.N. Goldberg & Associates, to question them about their trading activities.

Efforts to reach Riley, Ott and Goldberg since the lawsuit was filed Sept. 29 in U.S. District Court in Los Angeles have been unsuccessful. Riley’s attorney, Ronald G. Brower of Santa Ana, said his client was not an operator of the Sawyer firm and was not doing anything improper.

Smith, in his affidavit, identified Riley as sales manager of the Sawyer firm and Ott as the manager. They hired him Sept. 24 and began training him that afternoon, he said. Smith said that during the training the two men “instructed me to use a fraudulent sales technique in order to generate sales.”

As part of the sales technique, Smith was to call potential investors after the commodity exchanges in Chicago and New York had closed for the day and quote the closing price of a futures contract on those exchanges.

“I was also instructed by Riley, however, to tell the prospect that trading in the commodity was presently taking place in the ‘after-market’ in Australia,” Smith said in his statement. “I was also told by him to quote the prospective customer a fictitious Australia trading price, which was significantly higher than the price at which the commodity actually closed in the United States, and to offer the customer the opportunity to get in the market at the lower actual closing price.”

Smith stated that on Sept. 25, the day before the office closed, Riley told salespeople at a meeting that “he wasn’t worried about the Commodity Futures Trading Commission because the agency’s fiscal year ended on Oct. 1 and it would therefore not have sufficient time and funds to pursue enforcement efforts.”

Congress has failed in recent years to adopt spending bills before the start of fiscal years, but it usually adopts stopgap measures. Two years ago, a delay caused many CFTC and other federal employees to lose from half a day to a full day of work, but no investigations were halted and no such problem has occurred this year, officials of the agency said.

Defense attorney Brower said Riley denied training or coaching any salesperson to do anything fraudulent. “He’s done nothing illegal,” Brower said.

Smith said he also overheard Riley’s end of five telephone conversations with customers who were irate over the firm’s failure to send funds due them.

One out-of-state customer, who claimed he was due more than $100,000, walked into the company’s office Sept. 26 with his attorney and private investigator and began taking pictures of everyone in sight.

“Their entrance caused a great deal of commotion and, as the men entered the main trading room, all of the other employees except the receptionist and myself hurriedly left through the back door,” Smith said.