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Tulving, CFTC, and the Truth (Oh my!)

[UPDATE 2: In September, 2017 the CFTC filed a lawsuit against Monex, alleging that their customers lost $290M. The Monex lawsuit appears to have been meticulously prepared, and the CFTC appears to be completely on the side of traditional (non-leveraged) bullion dealers and their customers. I feel much more confident about the CFTC now.]

[UPDATE #1: As of mid-January 2016, I have not heard back from the CFTC Media Contact regarding this. Their press release remains online as it was, although behind the scenes the CFTC has changed the story -- no longer alleging, for example, that money was used for improper purposes. But they have not admitted that they screwed up, and still make it look like Tulving's customers were the victim of some fly-by-night con artist. The CFTC does not appear to be on the side of bullion dealers or their customers.]

[This is about a CFTC press release and complaint about Tulving that I found very disturbing. I think part of the reason it bothers me so much is that it treats customers as fools: people who got suckered by an obvious scam, when in fact most customers had either gotten metal from Tulving in the past, or were referred by someone who did. I normally don't comment on legal issues to this extent, but I'm all about the truth, and the picture the CFTC has painted is simply impossible. You just cannot do that!]

On September 11, 2015, a Tulving creditor alerted me to a press release by the CFTC regarding charges against Hannes Tulving, Jr. and The Tulving Company.

I was flabergasted, to say the least.

If I set up shop one day, making wild claims about how I had sold billions of dollars of gold over 15+ years, took $17.8M and squandered it on fast cars, fancy meals, gold watches and so forth -- I could see the CFTC writing the press release they did. But for someone who had been in business over 20 years, who *did* sell over $2B of metal, who took in $123M during the Relevant Period, and used most of that $17.8M of lost money to fulfill older orders? That $17.8M loss is terrible, and Mr. Tulving did agree to plead guilty to fraud. But these are two very different stories.

I have read many CFTC press releases and complaints (for my bullion fraud page). I had seen a few cases where the numbers didn't quite add up, and now I know why. It seems that the CFTC blows things out of proportion, and cherry-picks facts ("lying by omission"). This press release gives me grave doubts about other press releases I have read from the CFTC, and the CFTC complaints that I have read

I am analyzing this as someone very knowledgable about what happened at The Tulving Company, but without any legal or other related professional training.

Relevant Period

The civil complaint defines the Relevant Period as "about August 2013 through in or about January 2014." Given that they refer to 381 customers during the Relevant Period, and the 381 customers refers to the 381 customers that filed Proof of Claim forms, and those range from early April, 2013 through about February 28, 2014, the Relevant Period must be April, 2013 through February, 2014. This becomes important later.

[For fact-checkers: the number 381 is first seen on June 4, 2015 in Docket 4 in the criminal case against Hannes Tulving ("The Trustee received approximately 381 claims by victim creditors"). That is likely the 385 claims referred to on October 11, 2014, minus the few non-customer claims. A spot-check of 15 Proof of Claim forms shows 5 outside the August->January time period, with one claim for an order placed on May 1, 2013 and another for an order placed on February 24, 2014.]

How Many Customers? 381 or 2,000?

The CFTC says that there were "at least 381 customers" during the Relevant Period. What they do not specify is that during the Relevant Period there were approximately 3,800 invoices generated, for perhaps around 2,000 customers.

[For fact-checkers: Quite a few people had 2 invoices for their orders if multiple products were ordered. On the other hand, this does not include purchase orders (for people selling metal to Tulving). There were at least some repeat orders, but likely a very small number given the unexpected lengthy shipping delays]

Did 0% of orders get shipped or 85%?

The CFTC stated "Defendants purchased and sold little or no precious metals with the funds they collected from customers." If you add that they "received at least $17.8 million" and "misappropriated approximately $17.8 million of customer funds", it seems like Tulving must not have shipped any orders, right?

Wrong. The fact is Tulving received about $123M in the Relevant Period. If only $18.6M was owed creditors, Tulving must have shipped out approximately $105M of metal to customers (86%).

[For fact-checkers: In 2013 they received $231M per court documents. From January 3, 2013 to January 2, 2014 they went through 7,100 invoices, so in 2013 they averaged about $32,552 per invoice. In the Relevant Period they went through about 3,800 invoices. 3,800 times $32,552 is ~$123.7M. Court records show a total of $18,671,529.98 owed customers]

Was Money Lost Starting August, 2013 or January, 2011?

The CFTC paints a picture of a fraud that was started up one day (presumably around August, 2013), using all money from that day forth. In other words, there was nothing wrong before the "starting day" around August, 2013.

The fact is, there is evidence showing that money was "lost" (used for blatantly inappropriate uses) going back as far as at least January, 2011. There are reports of 3-week delays going back to around May, 2012, about a year before the Relevant Period began, suggesting financial difficulties at that time. Note that all evidence I have seen shows that every order placed by the end of March, 2013 was delivered (although many later than expected, due to the losses that were being absorbed by shipping delays).

This is important because it helps show that most, if not all, of the $17.8M owed customers went towards buying metal for customers who had purchased earlier.

Was money used for improper and unauthorized uses?

Maybe by the legal definition, but not by my definition.

From what I can tell, most of the $18M or so was lost was lost before the Relevant Period, and most of the money that came from the 381 customers ($17.8M) was mixed in with all the money received during that time (~$123M), and most of that money went towards buying metal to be shipped to people who had ordered both during and before the Relevant Period.

What this really means is that the CFTC just doesn't get it. If the $17.8M was used improperly, then the whole $123M was (the $17.8M wasn't segregated in any way). But with what must have been over $100M of orders shipped during that time, most of the money received during the Relevant Period was used properly. I have seen signs of improper spending, but almost all of that was outside of the Relevant Period (and the part in the Relevant Period, as far as I can tell, was certainly not the sole responsibility of Mr. Tulving).

This is a bullion business: to ship ~$120M worth of orders, you have to buy metal wholesale for about ~$117M. And pay insurance, salaries and the like. So which part of that was improper and unauthorized?

I'm not trying to say that what happened was right -- just because you have $18M or so in debt does not mean you can take orders that you know cannot be delivered in time. I'm trying to point out that what the CFTC alleges defies logic, given the facts that are known.

[For fact-checkers: I have evidence (e.g. from resolved BBB complaints) that during the Relevant Period at least $9.8M of metal was shipped to customers. Given how few orders will end up in public complaints (especially those towards the end), it is hard to believe that less than $17.8M was spent during the Relevant Period on precious metal that got shipped to customers]

Was money used for Defendants' own financial benefit?

The CFTC states "During the Relevant Period, Defendants misappropriated customer funds for Defendants' own financial benefit and for purposes unrelated to the purchase and sale of precious metals."

That does appear true, to some extent -- but only to the extent that it is true for any company. For example, Mr. Tulving took a salary ($62,983 from April 15, 2013 through February 28, 2014 -- a $72K salary, compared to the $300K that the Bullion Direct CEO took out when his company owed ~$33M). But that is just 0.35% of what those 381 customers sent in (and 0.05% of all money taken in during the Relevant Period). And that is less than the Chapter 7 Trustee charged for about 1 month full-time work (154.7 billable hours).

I am not aware of any expenses unrelated to the purchase of sale of precious metals that Mr. Tulving authorized.

The only way I can think of that the money could be construed as being used for the Defendants' own financial benefit is if the CFTC is referring to something like "keeping the business alive." That would be correct to some extent (but only to a minor extent, as the vast majority of the money that came in went to fulfilling customer orders).

Was This the sole Work of Hannes Tulving?

There appears to be no question that Hannes Tulving was aware that the company was taking orders that could not be shipped within the stated timeframe, and that the company was insolvent. He has owned up to this, and agreed to plead guilty to wire fraud.

That said, the CFTC goes beyond this, saying things like Tulving "handled all customer funds received by Tulving Company" and "Tulving was the sole person responsible for making all business decisions on behalf of Tulving Company."

The fact is, there was an accountant working at The Tulving Company from 2010-2014 and a bookkeeper working there from 2013-2014. The accountant had full control over the books and records. Mr. Tulving was not a signatory on the bank account. Someone other than Mr. Tulving was signing leases. The accountant signed nearly all checks during the Relevant Period. I have heard from a reliable source that someone in the company other than Mr. Tulving accidentally made mistakes worth millions of dollars. During the relevant period, a business partner of Mr. Tulving removed a line of credit.

So the CFTC's statements are at best highly misleading.

[For fact-checkers: Although court document shows the accountant as starting in 2011, I have been told the account started working in October, 2010, and I have a copy of a document he signed on January 1, 2011, making it unlikely he truly started in 2011.]

Was it a scam from the start?

The picture the CFTC paints is that Mr. Tulving set up shop, collected $17.8M, and shut down.

However, what actually happened is he set up shop, ran a highly reputable business for around 20 years, with over 99% of the money he took resulting in orders to customers.

The exact words used to describe the problems (fraud, wire fraud, Ponzi, scheme, scam, etc.) are up for the courts to determine. What happened was definitely wrong, and Mr. Tulving did agree to plead guilty to wire fraud. But what really happened is extremely different than what the CFTC alleges.

Did The Tulving Company do $350M of Sales in 2012?

The CFTC states "The website also represented that Tulving Company sold more than $350 million in precious metals during 2012." It apparently then states that the representation was false.

Court records show that The Tulving Company's records show it receiving $349,960,214.00 in income in 2012. While not exactly $350M, I have been told that the records may not accurately reflect metal bought from customers (e.g. if one day customers bought $1,000,000 of metal, and a customer sold $100,000 of metal, the records might show $900,000 of income instead of $1,000,000 of income). So they very likely did more than $350M in sales, and if not, was extremely close (99.98% of it; a single order away).

Did The Tulving Company do $2.1B in business?

The CFTC alleges that Tulving's claim that it bought and sold in excess of $2.1 billion in precious metals from 1999 through March 2013 was false.

Court documents show that The Tulving Company did approximately $1.2 billion of business in just the 3 years before the bankruptcy. Court documents confirm that The Tulving Company's representations of sales for the years 2011 and 2012 are correct.

I have looked closely at Tulving's claims over the years, compared them to data in court documents, and have seen no signs that the $2.1B claim is false.

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