Unpause: Pool Metal Less than 90% Backed
April 28, 2017 3:55PM ESTThe webpage for Kitco Pool states "Kitco Pool Account holders own a share of a pool of precious metals held securely by Kitco Metals Inc." That sounds reassuring.
However, it turns out that things aren't quite as nice and safe as Kitco leads customers to believe. As of December 31, 2016, Kitco's Rhodium Pool held 9,000 ounces of rhodium (per their bankruptcy/CCAA documents, specifically Report #30). So far, so good.
However, what Kitco doesn't want you to know is that precious metals company Heraeus holds 908.41oz of the rhodium backing the pool -- slightly over 10% of the reported size of the Kitco Rhodium Pool. Heraeus claims that Kitco opened the account in October, 2008 under the name "Kitco Metals Inc.", that Kitco never said that the metal was for its customers, and that Kitco agreed to have this metal used as collateral for money Kitco owed Heraeus. Heraeus also stated that when Kitco sold metal, the proceeds went to Kitco, not a segregated customer account.
At some point after Kitco discovered that they were under investigation by Revenu Quebec (but before they were raided), Kitco tried to get the name on the account changed. However, Heraeus refused, as the agreement was that this metal was (according to Heraeus) colleratal for a loan.
That means that slightly over 10% of the metal backing the Kitco Rhodium Pool is in a vault controlled by Heraeus. And that means that if 100% of Kitco Rhodium Pool customers tried withdrawing all their metal, Kitco would only have 90% of the metal they need to give to customers. So no, the Kitco Pool is not 100% backed. At best, it is a bit under 90% backed.
End/Pause in page updating...
April 21, 2015 8:35PM ESTI am pausing updates to this page, and may not do any further updates.
The most serious concern -- that the Kitco Pool may not have been fully backed -- is no longer an issue. I now have proof that it was verified in June, 2011.
Although there are further concerns, given the lack of interest from Kitco customers and non-customers alike (perhaps 10% of the interest of Tulving, despite over 10 times as much money "in play"), I cannot justify spending the time to further investigate at this point. If things change, however, I will update this page in the future as needed. Given that Kitco censored the Tulving bankruptcy, I feel it very important to provide further updates if there any.
Kitco Pool backing verified in 2011
April 21, 2015 8:30PM ESTAfter a lot of waiting, pushing, and prodding, I finally got an interesting document yesterday from the Monitor.
It shows that (unknown to the public until now) the Monitor verified that inventory backing the Kitco Pool, CAS, and customer bank accounts in June, 2011.
The court document states (apologies for any typos): "... [The Monitor] sent letters to all known depositories and banks ... requesting that they confirm the balance of inventory and/or funds on hand ... In addition, [The Monitor] performed test counts of physical inventory stored at Kitco's Montreal head office as well as at a facility utilized by its subsidiary, Kitco Logistics Inc., located in Rouses Point, NY. ... based on the responses received as well as reconcilliations performed, to date, no material discrepancies have been noted with respect to Kitco's records relating to inventory located at Kitco or at third parties in support of customer pool obligations and the CAS program."
[UPDATE:: See the 'Unpause' article above this. They forgot to see if the companies holding metal backing the pool considered the metal collateral. Oops!]
I therefore believe that as of June, 2011, the Kitco Pool and CAS were fully backed with metal.
It does leave some potential issues (e.g. changes since then, whether part was backed by third-party pools then, etc.). However, it has addressed my most pressing concerns, and I fully believe that at least in June, 2011 the Kitco Pool was 100% backed by metal.
At this point, the Kitco Pool appears to be much safer than I believed when I started investigating the Kitco Pool. That said, there are still some big holes with the Kitco Pool (e.g. it is now at least partially backed by other pools, is likely partially backed by Kitco inventory, Kitco is in insolvency proceedings, no serial numbers, no comment from Kitco, etc.). I also believe that any storage account where you cannot view your metal has inherent risk.
620 Cathcart Street
April 16, 2015 2:50PM EST620 Cathcart Street is where Kitco's offices are, the same location where the raid occurred in 2011.
What I did not know until today is that 620 Cathcart (about 10 stories tall) houses many jewelers. The building, at least in 2011, was "filled with manufacturers, importers and wholesalers of jewelry" according to one newspaper.
And at least 6 of those jewelers were sued by Revenue Quebec for filing false invoices, the same scheme that Revenue Quebec claims Kitco was involved in.
What if Kitco liquidated in bankruptcy?
April 15, 2015 3:50PM ESTAnyone who has money in the Kitco Pool needs to know the answer to this question.
So I asked the Monitor: "Any prudent Kitco Pool holder (or prospective holder) needs to know what would happen to their money if Kitco is liquidated in bankruptcy. If you cannot answer that, I cannot see how any prudent investor would be able to have money in the Kitco Pool."
His response? "It is not our policy to respond to hypothetical situations." I'm not sure how a bankruptcy liquidation can be considered a hypothetical situation (from what I can tell, it's pretty much guaranteed if Revenue Quebec gets their way). Either way, I find it odd that the Monitor has a policy that ought to cause a business to lose one of its few sources of revenue. It is ludicrous to think that an informed investor would purchase (or keep money in) an unallocated account from a company in bankruptcy (CCAA) without understanding what would happen to their investment should the company be liquidated. Especially where we are talking about a company with a $300M+ liability from the taxing authority!
Well, if Kitco won't answer, and the Monitor won't, I will take a stab at it. However, please remember that I am no expert at bankruptcy, let alone Canadian bankruptcy.
Kitco treats the assets backing the Kitco Pool as assets belonging to customers. If they legally are (e.g. they are titled in the name of "Kitco Pool" rather than "Kitco Metals, Inc."), then those assets would likely be sold and the proceeds split among Kitco Pool holders. That is similar to an allocated account, just that the assets are titled among multiple people.
However, I have seen nothing indicating that the assets are legally separate from Kitco assets. It looks like the full extent of the metal being owned by customers is that Bart says "Oh, yeah, that pile there? That's not ours. It belongs to our customers." If the assets legally belong to Kitco Metals, Inc., then they should of course be part of any bankruptcy liquidation (and as Tulving creditors can tell you, a bankruptcy is not hypothetical). If that is the case, Revenue Quebec will get their share. My understanding is that they would be considered an unsecured creditor (they are in the CCAA proceedings), but I cannot be certain of that.
Since Revenue Quebec was able to seize $25M of metal backing the Kitco Pool during the raid in June, 2011, I see no reason they would sit back and allow the metal backing the Kitco Pool to be given away to others just because Kitco feels it is the way it ought to be.
So from what I can tell, any metal backing the Kitco Pool would be part of the bankruptcy estate, and split equally among creditors. At that point, the critical question -- the one that could determine whether you got half you money back or much less -- is whether the Kitco Pool is 100% backed. But that appears to be the "hot potato" that neither Kitco nor the Monitor wants to be held answering.
CAS, too (Allocated Storage)
April 4, 2015 11:05AM ESTI am extending this page to cover CAS (Canadian Allocated Storage, now called Kitco Allocated Storage), and cash deposits with Kitco.
The reason for this is pretty simple. I had originally started this page with concerns over the Kitco Pool. Upon investigation, the concerns proved to be valid. Kitco has changed the safety of the Kitco Pool, without informing customers.
Because of that, I see no reason that Kitco could not change the safety level of these other products. The safety descriptions of CAS and cash deposits use words such as "segregated" that Kitco used seemingly inappropriately with the Kitco Pool. Unless Kitco comments, a prudent investor needs to assume that since Kitco changed the safety level of the Kitco Pool, they could do the same with CAS or cash deposits.
Why Are Kitco Pool Holders Not Creditors?
April 3, 2015 5:00PM ESTAccording to the LBMA -- the same people that determine if gold bars qualify as "Good Delivery" say that unallocated account holders are unsecured creditors. Kitco says the Kitco Pool is an unallocated account.
So why are the Kitco Pool customers not listed as Kitco creditors? For that, I asked the bankruptcy (CCAA) Monitor. Their response? No answer. So I went up a level and asked the OSB, which oversees CCAA in Canada. They said to ask the Monitor.
I found this to be extremely concerning. If people pay Kitco money, and expect it back, and the LBMA says they are creditors, there better be a very good reason for them not to be listed as creditors. The "Claims Bar Date" was July 20, 2012, and if a claim was not filed by then "the creditor's rights could be severely and irreversibly affected." The Monitor even states clearly that if no claim was filed by the bar date, the creditor "Shall not be entitled to assert any claim against Kitco Metals, Inc."
After a lot of digging, it turns out that the court considered Kitco Pool customers's claims to be "Excluded Claims." This is because the Monitor petitioned the court that Kitco Pool customers (and CAS customers, and those with cash held by Kitco) should be excluded (and not considered creditors), as their rights "are not and will not be affected" by the CCAA proceedings.
I believe the idea is that since the Kitco Pool, CAS, and cash deposits are (at least in theory) fully backed, and Kitco sells the backing when the customer gets their money, there is no need to consider them creditors.
Initial Kitco Pool Safety Analysis
March 31, 2015 4:40PM ESTI have a page with an analysis of some of the facts about the Kitco Pool that I have uncovered, the concerns, and so forth. You can read all about it at the Kitco Pool Initial Analysis page.
In short: Kitco used to state that the Kitco Pool was 100% backed by physical precious metals, the metal backing it was owned by customers, the metal backing it was not part of Kitco's assets, and the metal backing it was segregated from Kitco's own assets. I no longer see any evidence that this is still the case, and Kitco has not responded to my requests for more information. I strongly urge anyone holding the Kitco Pool to read the article, and push Kitco for answers to the questions listed in the article.
At this point, I believe most Kitco Pool customers think that the pool is 100% backed by physical metals as described above. And as the article details, this appears to no longer be the case (and Kitco has chosen not to confirm what they previously stated). I would urge people to spread the word, as I see no signs that Kitco has been letting their customers know about this material change to the Kitco Pool.
Tips?
March 31, 2015 1:35PM ESTIf anyone has any tips regarding the Kitco Pool backing -- either positive or negative -- you can get the information to me nearly anonymously at the Tips page.
I would be especially interested in copies of the audits CAS customers get, as well as any agreements that are not available on the Kitco website.
About This Page
March 31, 2015 8:45AM ESTIn 2011, I started following iShares SLV due to public concerns that the metal it holds may not exist (I have seen no signs that this is true). In 2013, I started following The Tulving Company due to concerns that it had serious financial problems that could prevent customers from getting their orders (they shut down 4 months later, owing customers about $18M).
Now, I am starting this page about the Kitco Pool, as a result of public concerns that there may be no (or not enough) metal backing the Kitco Pool. This page is designed to find out exactly what backs the Kitco Pool, and to help investors determine if it is safe for them.
I am trying to act as a "middleman," finding out where the truth lies, and what concerns (if any) are justified.
I expect to update this page as I get new relevant information.
A special thanks goes out to Ted Butler, who started alerting people to the drawbacks of pool accounts back at least as early as 2007. Without his work alerting people to the concerns of pool and unallocated accounts, it is likely that people would have not expressed concerns about the Kitco Pool accounts, and this page would not be here.
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