|Private Commodity Transactions and Internet Fraud: Gold, Silver, and Crude Oil|
|Wednesday, 10 October 2007|
Private Commodity Transactions and Internet Fraud: Gold, Silver, and Crude Oil
NEW YORK, NY, (NAMC) - Most investors have heard of commodity trading, where an investor can trade gold, silver, crude oil, wheat or soy futures contracts on the Chicago Board of Trade or New York Mercantile Exchange. Now this is something that most commodity investors may not know about and that is the growing market for private commodity transactions.
Private commodity transactions are just that, they are off-market private transactions between a buyer and a seller, plain and simple. The seller/provider sells and ships the physical commodity to the buyer, for the buyers own use or for it to be traded off to their resale clientele..
To better understand this process just take a look at how the old west trading houses used to operate, or how through out the ages traders would actually go to a region with ships to acquire a commodity and then either sell if off when they arrived at their base and in some cases these traders were commissioned to acquire the commodity for a buyer or group of buyers.
Now today this process still takes place in its raw form, but with the use of technology it has made it more difficult for buyers and sellers to actually complete more transactions. The reason for this is that the use of the Internet has made it easy for anyone with an Internet connection and a small understanding of private commodity transactions to put themselves in a position to contact actual physical commodity buyers and sellers.
Some of these newbees in the private commodity transaction arena jump right into the private commodity trading world and we’ll just call them “Internet Brokers”, these Internet Brokers come from either a mortgage or insurance sales background or answer an advertisement in the paper or Craigslist for salespeople needed to target private commodity buyers and sellers.
You would think that this is no big issue and in a perfect world it wouldn’t be an issue, but what you have is a door open not only for legitimate individuals or trading companies working feverish to supply their services to both buyers and sellers, but also for fraud.
One way fraud occurs is when a group or individual poses as a seller or sellers representative but requires an upfront fee of a few thousand dollars to facilitate the transaction. Needless to say that the buyer receiving their commodity may never occur but the money put down is gone.
Another way is when such a group actually puts the buyer in a position which they need to open up a financial instrument in the form of a Bank Guarantee, which guarantees the payment for anywhere from 2 to 6 months supply of the commodity that has yet to be delivered. Once the instrument is issued to the group/seller, and typically the group would require for this instrument to be operative, unconditional and transferable, then the buyer then waits in anticipation for their scheduled delivery or proof of product.
Little do they know that an such an instrument allows the group/seller to attempt to place such an instrument in some form of High Yield Investment Program (HYIP) to generate revenue while the instrument is in their possession. Granted some of these groups may actually seek out to supply the buyer with the actual commodity but chances are that they do not actually own the commodity at that moment and would use an opened instrument such as a Bank Guarantee to firstly attempt to generate revenue for themselves via a HYIP and/or leverage that instrument to secure the actual commodity for the end buyer.
Now, the groups that actually deliver the commodity normally make a significant profit on the transaction which is fine as long as the buyer gets what they are paying for, but as I said the Internet has produced a breeding ground for individuals and groups with fraud on their agenda to take advantage of buyers and in some cases sellers as well.
The use of Ebay’s (NASDAQ: EBAY) Skype system is a perfect example of how Internet fraud in the private commodity transaction arena is running wild. Granted there are legitimate businesses that utilize Skype as a tool for conducting private commodity transaction business but you also have those that abuse the system and use it to contact legitimate companies with the notion of fraud as their main agenda.
Unfortunately for the companies that come in contact with such groups they find themselves in a time consuming situation as they sift through all the offers they receive via the Internet, disposing of the fraudulent offers in order to find exactly what they need.
Now this is not limited to the United States, but it’s a worldwide situation, where you have individuals from Europe, the Middle East, China, Thailand, South America and even Africa putting their fraudulent offers into effect which puts a black cloud on those offers from legitimate sellers/providers of physical commodities.
Some private trading groups have compiled a “Black List” of such fraudulent individuals and groups that are still at large, some of these groups actually have been reported to Interpol as fraud cases.
This is going to be the first in a series of articles that I will be writing on this topic over the next several weeks and get feedback from legitimate private commodity trading firms.
We will touch on everything from bogus corporate offers to altered safe keeping receipts and documents.
NAMC Newswire Note:
NAMC Worldwide provides Investment Banking consulting services to both publicly traded and privately held companies, everything from capital raising to mergers and acquisitions. Other areas of focus are Private Equity Capital Raising and Private Commodity Transactions.
This article can be republished either online or in print as long as credit is given to the author and the NAMC Newswire.