2 Gem Dealers Seized After Action by FTC : Investments: The agency says the Southland firms allegedly ran ‘boiler rooms’ to sell gemstones at inflated prices.
The Federal Trade Commission announced Friday that it has filed a complaint against two Southland gemstone dealers for allegedly engaging in deceptive sales practices that defrauded hundreds of investors out of millions of dollars.
A court-appointed receiver took control Thursday of Newport Gems in Newport Beach and RIME in Beverly Hills at the FTC’s request after U.S. District Judge Manuel L. Real granted a temporary restaining order barring the firms from using further illegal sales tactics.
Newport Gems, operating under the name Capital Assets International, and RIME, doing business as First Capital Trading Co., boasted that they had 28,000 to 30,000 customers. FTC officials said they were still investigating the claims, but are sure that the clients numbered at least in the hundreds.
“We’ll know in the next few days how big they were, but all our indications were that they are sizable,” said Michael McCarey, an attorney in the FTC’s Bureau of Consumer Protection in Washington.
The judge also ordered a freeze on the assets of Richard Harmon and Mark Zigner, co-owners of Capital Assets. Zigner is sole owner of First Capital, and Harmon is chief financial officer of both firms. In addition, the asset freeze was extended to Paul R. Sherman, sales manager for First Capital. Capital Assets closed late last year and First Capital has remained in business. The complaint, filed Monday and held under court seal until Thursday, states that the two companies operated telephone “boiler-room” sales operations in which they sold such semiprecious gems as tourmalines to customers at markups of 400% to 900% over their actual wholesale value.
According to court papers, one investor reported being sold a tourmaline for $2,170 that was worth $210 wholesale; another investor purchased a sapphire for $8,965 that went wholesale for $1,055.
The high-pressure sales pitch sometimes led buyers to believe that the gems were from the estate of Liberace, from the late Philippine President Ferdinand Marcos or were somehow involved in the Iran-Contra scandal, said Marcy J. K. Tiffany, an FTC attorney in Los Angeles.
“I would say this is a very typical boiler room,” Tiffany said. “This one simply happened to be selling gems. . . . It’s one of many scams that people fall into every day.”
With a staff of about 10, the complaint alleges, First Capital employees made unsolicited calls to thousands of people in hopes of finding customers. The customers then were told that they were being sold gems at or near market value, when in fact they were actually worth hundreds or thousands of dollars less.
They were also told that the gemstones they were buying were a low-risk investment, had appreciated in value substantially and that their investment could easily be rebrokered or liquidated, the complaint states.
“In fact, at the prices charged by the defendants, an investment in gemstones purchased from defendants is not a low-risk investment and customers cannot reasonably expect to resell said gemstones at a substantial profit within the stated time,” the complaint adds.
No criminal charges were filed. A court hearing has been scheduled Thursday to consider an FTC request to continue suspension of the company’s alleged illegal practices.
Neither Harmon nor Zigner could be reached for comment Friday. Their attorney could also not be contacted.
Harmon and Zigner are known in Orange County as the former owners of the swank Zeppe Ristorante near the Newport Beach Pier, which had been scheduled to reopen in November in the Newport Center shopping center. Harmon also operated Palm Gallery, a gem supplier to Capital Assets and First Capital.
