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March 7, 2014 1:35PM

Tulving Post Mortem

13 Oct 2014 Update: While the facts have not changed, more information is now known. It now seems unlikely that Tulving was speculating in the futures market. One new piece of information is that it appears that Tulving may not have owned as much inventory as believed, but may have either had the option to buy it or borrowed money to buy it (in which case they may not have had access to the inventory to sell). Another possibility is financed metal (e.g. buying $40M of metal by paying $10M and owing $30M). And there may have been massive expenses outside of normal business expenses (such as grossly inflated salaries). All of this suggests that my original conclusion (futures/options speculation) was not on the mark, although it may have been somewhat close.

This page discusses what happened to The Tulving Company. Much of this is factual, but there is some speculation here (but with evidence supporting it).

Quick links on the page:
Stage 1 (~1995-2011), Stage 2 (~2011-2012), Stage 3 (mid-April, 2013), Stage 4 (Jun 2013 - Jan 2014), Stage 5 (mid-Feb 2014), Stage 6 (February 28, 2014), What Happened, When laws were broken, Timeline.

Stage 1: A Decade of Great Business

Hannes Tulving, Jr. started The Tulving Company in 1995, as an online bullion dealer. In 1997, you could buy 1oz gold Eagles for $19 over spot.

At first, he had lots of ads in coin magazines. At times he had minimum orders as low as around $300. You could call or E-mail your order. He was known for almost always having the best prices, and often would ship the same day he received payment (and often with free overnight shipping). He also became known for high minimum orders (for the past year, the smallest order was likely just over $10,000). Has also became known as a most trustworthy dealer. When a dealer can take your order on the phone in less than 2 minutes, takes your call personally, and you have your metal within 48 hours, it's hard to complain. He did as much as $85M/month in sales at his peak.

The only complaints were typically either that he was gruff, and were usually from people who could not meet the minimum order or who wanted hand-holding. But he had a reputation that nobody could match, despite his early 1990s fiasco (more here), which many customers were aware of.

During Stage 1, it appears that he always had the products in stock at his Costa Mesa warehouse (except when pre-ordering new products such as ASEs), and would ship as soon as he possibly could (usually within 24 hours after receiving good funds). This business model was nearly fail-proof, for two reasons: [1] He only had perhaps 1-2 days worth of customer funds, and [2] He had no incentive to delay orders (doing so would hurt his reputation, with no financial gain).

Stage 2: Drop-shipping

At some point around 2011-2012, The Tulving Company started drop-shipping some of their orders. One of their drop-shippers was Coins 'N Things of Bridgewater, MA (one of the biggest suppliers of gold, and buyers of ASEs, from the U.S. Mint). So a customer would wire The Tulving Company money (or send a check), Hannes would pay the drop-shipper money, and the drop-shipper would send out the order.

I believe this seemingly minor change to Tulving's business model allowed his business to fail, causing many customers to collectively lose millions of dollars.

This method was no longer fool-proof. If Tulving thought that the price of gold or silver was going to go down, he had an incentive to delay the order. For a monster box of ASEs, he might have a spread of $395. After shipping costs, insurance, payroll, etc., he might be lucky to get $20 profit out of it. If he thinks the price of silver is going to go down, he can wait to send out the order. He gets paid at, say, $25/oz, and then pays his reseller a week later based on the new price of silver at $24/oz. His profit goes from $20 to $520!

Problems compound, as not only is there an incentive to delay orders, but with delays you are increasing the amount of customer money at risk. Shipping within 1 day might put $1M of customer money at risk, whereas shipping within 10 days would then put $10M of customer money at risk.

In 2010, he had 0 BBB complaints. In 2011, he only had 2 complaints with the BBB. In the first half of 2012, he only had 1 complaint. However, in the second half of 2012, he had at least 8 BBB complaints. Something changed, and that appears to have been the start of his problems. Given those 8 complaints, it appears that he first had (relatively) serious issues around June, 2012. In December, 2012 one person reported it taking 2 weeks from the time funds were received until the order was shipped (through a drop-shipper). Another person in December, 2012 reported their order arriving 2 days after Tulving received the funds (likely an item Tulving had in their own inventory). It appears that at that same time, Tulving was offering the in-stock items as a 'special' (with a lower spread), and the drop-shipped items at the regular prices, steering customers towards his in-stock items.

From the evidence, it appears around September, 2011, Tulving was cash-short and bullion-rich. He still had his existing bullion inventory that he had had for many years (at times worth over $20M), but it appears that Tulving started selling off the inventory for some unknown reason. With specials on items he had in stock (rather than ones he would have to drop-ship and pay for), he could ship immediately, which would allow him to raise money to pay whatever debt he may have had.

In February, 2012, The Tulving Company stopped reporting the total number of ounces of silver they had in stock. Starting mid-March, 2012 complaints were starting to mount online about orders that were taking about 2-3 weeks to deliver. I believe that by this time, Tulving's stock was nearly completely gone, and he was drop-shipping everything. The orders took longer for one or both of these reasons: [1] Drop-shipping will delay the delivery process to some extent, and [2] He may have already started losing customer's money.

In December, 2012, Tulving was quoting 3 weeks for trades. Why would a trade take longer than paying with cash? It sounds like he had to sell the metal he received, wait to get the cash, then place an order with a drop-shipper. In other words, he was cash poor at the time.

In December, 2012 he was also reporting items as "in stock" that were in fact being drop-shipped, and therefore almost certainly not really in stock.

At this point, the delays of 2-3 weeks were noticable by repeat customers, who were used to getting their orders in a couple of days (and was the reason for the complaints). However, many businesses ship in such a timeframe, and few were concerned about problems.

Stage 3: The Collapse

Things weren't great in early 2013, but few serious issues (there was one complaint of a $70K order taking 5 weeks, and split into 2 shipments when it happened).

"D Day" appears to have been Friday, April 11, 2013. That is when the price of silver and gold started plummeting, going down about 20% within a week. Between April 12, 2013 and April 22, 2013, there were are least 3 orders that took The Tulving Company over 20 weeks to ship. There was one complaint of an order placed April 8, 2013 that took 11 weeks to deliver.

So it appears that there was a huge shift in Tulving's ability to ship products starting when the price of silver and gold dropped. They were already somewhat behind, but rarely taking over a month to deliver (in other words, they were operating within the law). From what I can tell, they were able to ship out every order placed before that week, but even after close to a year they were unable to ship out all orders placed that week, with almost all orders placed after that week being delayed by at least several months.

Oddly, the BBB showed only 2 complaints between March 10, 2013 and July 1, 2013. It seems like few people were willing to complain until after it had taken a couple months for their order to be delivered.

It was only around September/October of 2013 that the word really got out in Internet forums, at which point people were more likely to complain (knowing that it was not just their order, and that there could be financial problems with Tulving).

Stage 4: The New Normal

Complaints increased every month from June through the end of Tulving's operations in March, 2014. In October, he was up to 2 complaints a day. By February, he was getting about 5 complaints per day.

So Tulving came up with a new system. Rather than picking and choosing what orders he was going to send, as he was before, he gave priority to complaints coming in from official channels (mostly the BBB and BCA, as well as a handful of lawsuits and such). Things became a bit easier, and more routine. There were still orders piling up, but at least Tulving had a way of doing business that prevented him from going out of business. Not a viable business model, but it kept things going.

Stage 5: The Tipping Point

Around February 19, 2014, I reported that Tulving had reached 'The Tipping Point.'

He was receiving as many complaints per day as new orders. If you are getting 5 orders a day, and have to ship out 5 old orders, that is sustainable -- but only if complaints do not rise and orders do not dwindle. However, with complaints rising steadily over 8 months, and orders slowly dwindling over that time, new complaints were going to exceed new orders at any point.

This was the beginning of the short end of The Tulving Company.

Stage 6: The End

On Friday, February 28, 2014, I reported 'The End?'. I stated "As far as we can tell, The Tulving Company is effectively out of business (and likely just tying up loose ends and/or filing for bankruptcy)."

This was because The Tulving Company had stopped responding to BBB and BCA complaints. Coming less than 10 days after I discovered that their complaint volume was close to exceeding their new order volume, it was clear that the end was here. On Friday, someone actually asked Karen if The Tulving Company was insolvent, and ironically she said that nobody had told her not to come in on Monday.

I also put out a public plea to Hannes on March 2, 2014 - "Hannes, could you please do the right thing, and either file bankruptcy or if you are not insolvent come clean and explain the situation?"

On Monday, March 3, The Tulving Company ceased operations.

My Theory on What Happened

There are many facts out there, but nothing definitive about what happened.

The short version: I believe that Hannes Tulving may have been speculating in the futures market (either long and/or selling naked put options), and lost a large amount of money in doing so (in the order of $40M-$60M). He started paying that debt by selling off his inventory, and then with customer money (and possibly income from writing naked put options). The only way to stay in business paying debt with customer money was to delay orders, resulting in this fiasco.

For any theory to work, there are some relevent facts (some well known to be true, others fairly reliable) that must to be addressed:

  • Tulving used to have a large inventory (over $20M worth at one point in 2011, if his records are accurate)
  • Tulving used to always ship very quickly, often the same day as receiving payment.
  • The first known delays started around April, 2012, and he went from 1 BBB complaint in the first half of 2012 to 8+ in the second half.
  • Hannes lost complete control of the company in mid-April, 2013, unable to ship most orders in the timeframe allowed by law.
  • The money appears to have been suddenly owed rather than spent. In other words, he did not buy a mansion, island, or yacht (which require money upfront). A bank isn't going to lend money if the only way to pay is to sell assets if the assets are worth less than what you are purchasing, and a huge purchase would have required the immediate sale of the inventory (whereas it appears that happened over a number of months).
  • The money was not likely spent on extravagance (he has led a modest lifestyle for decades, even answering the phone 24 hours a day 7 days a week).
  • Hannes switched from selling items from his inventory to drop-shipping around 2011-2012.
  • The price of gold and silver plummeted the week that Tulving lost complete control of the company.
  • On August 23, 2011 Tulving listed 600,000oz of silver in stock, with a value of about $25M.
  • By December 29, 2011 Tulving listed 300,000oz of silver in stock, with a value of about $8M.
  • By February 15, 2012 Tulving no longer listed their total silver stock in ounces.
  • By July, 2012, Tulving was only listing about 50,000oz of silver products as in stock, worth less than $1.5M.
  • The Tulving Company was in a business that commonly uses the futures market for legitimate hedging. It is also known that The Tulving Company had an account with a broker whose primary business was futures.
What did not likely cause this:
  • The value of his inventory decreasing did not cause this. If the price of gold goes down, he still has the metal, and makes profit from the spread. The company's value would go down, but it would not affect orders.
  • The problem was not caused by getting 'backed up' by taking too many orders, and a big price change causing him to lose money (e.g. getting paid by customers with silver at $25/oz and paying drop-shippers a few days later at $26/oz). The prices were going down in mid-April when things went out of control, which would have generated a profit in that scenario.
My detailed theory/analysis:

  • Around the time that the price of gold hit its peak (September 5, 2011), Tulving started losing money. I believe Tulving started speculating on the futures market at or before this point (he may have been long gold and silver during the bull market).
    • Tulving would have been either purchasing long gold/silver contracts, or writing put options (at first covered with his inventory, then naked). Both would cause him to lose money if the prices went down, a huge amount with options.
  • As the price of gold went down in late 2011, I believe Tulving owed quite a bit of money, and ended up selling off his inventory over the next 6 months or so.
    • At this point, he had made a big mistake, and lost most/all of his life savings (the $25M+ of bullion the company owned). But customers were unaffected (and unaware).
  • By the middle of 2012, he still owed money, and had no inventory left to sell [12 Mar 2013 update: Proven true, per June, 2012 report that The Tulving Company had no merchandise in their possession]. So he started using money from customer orders to pay his debt, which he could do without inventory because he now had resellers.
    • By floating customer orders 2-3 weeks, at $350M/year business in 2012, he could pay off another $15M-$20M in debt.
    • At this point -- circa June, 2012 -- I believe The Tulving Company was insolvent, never to become solvent again.
  • By mid-April, 2013, he still had a backlog of about several weeks, which was managable. But I believe he still was in the futures markets; perhaps he tried to "double down" and increase his speculation in hopes of getting rid of the backlog.
  • on Friday, April 12, 2013, the price of gold went down 5.4% in a single day, and went down 8.7% the next trading day. At this point, Hannes would have owed a huge amount of money.
  • To pay that debt, Hannes would have to continue delaying customer orders, using the money coming in from new customers to pay his debt.
A few notes about this theory:

If he owed, for example, $10M in margin on long futures contracts, then he would have had to have been long about $180M worth of gold or $100M worth of silver. This is well beyond his own inventory, and clearly would have been speculation. It also likely well exceeeded the reportability limits (meaning that the CFTC would have considered him a Larger Trader).

Another scenario is that he was writing naked put options. As an example of a put option, let's say the price of silver is $21. Someone might pay me $2 for the option to sell an ounce of silver for $18 by the end of next month. If silver is over $18 by the end of the month, I keep the $2. But if silver went down to $10/oz, I would owe the person $8 (much more than what I received).

Combining these, he may have been long gold and/or silver futures contracts. When the position started to go bad, he sold off his inventory. When that was gone, he may have sold naked put options hoping to generate cash, to help reduce the several-week shipping delays. These naked put options may have been at $1,600, at which point he would have had to have come up with perhaps a couple million dollars in mid-February, which was possible. Then in mid-April, the amount owed would have ballooned, to the order of around $30-$40M (the amount of outstanding orders when Tulving ceased operations, minus any outstanding orders in mid-April).

Many people believed that Tulving did not do any hedging. It is known, however, that many bullion dealers hedge, so Hannes was likely familiar with the futures market. It is also known that he had an account with a futures broker, and may well have used it at times to hedge (especially with larger orders).

Essentially, we saw evidence suggesting that The Tulving Company ended up losing about $20M worth of inventory in less than a year (mid-to-late 2011 to early-to-mid 2012), and then around April, 2013 another $40M or so. Although there are certainly other possibilities, I cannot think of any other scenarios that could explain what happened as easily as this theory.

Were Laws Broken, and When?

Assuming that my theory is correct, as sole owner of The Tulving Company, Hannes likely had every right to speculate on the futures market, and risk his entire inventory (assuming it was fully paid for).

Things become less clear when he first started using customer funds to pay the debt (which appears to be around March, 2012, but could be as late as April, 2013). As soon as he spent enough customer funds that he was insolvent (owing more in customer funds than he had in assets), that line was likely crossed. I am not aware of laws directly requiring businesses not to dip into customer funds like that, but it very quickly got to the point where he was taking customer orders that he knew he could not fulfill in the time required by law (typically 28-30 days).


March 10, 2014 8:30AM EST
October 25, 1990 Hannes Tulving, Jr. incorporates The Tulving Company.
October 20, 1995 The tulving.com domain name is registered. The saga begins.
June 17, 2005 Hannes Tulving, Jr. has a stroke. It was about a year before he started going to the office everyday. However, there appears to have been minimal impact on the operations of The Tulving Company.
07 Feb 2006 Rsm formed
16 Aug 2006 Hannes signs his residential and home office leases at way-above-market rents.
01 Oct 2008 The Tulving Company moves from 3140-A Airway Ave to 750 W 16th Street (both Costa Mesa, CA). Rent was around market rent, perhaps slightly higher.
27 Oct 2008 Tulving starts borrowing money from CFC (A-Mark) using coins as collateral.
2009 Tulving claims $285M in sales.
~Jan 2009 Tulving moves from Airway Ave to 750 W 17th St, Suite A (both in Costa Mesa).
Feburary 4, 2010 Tulving claims best sales day, $5.3M.
July, 2010 The Tulving Company takes out a 1-year shipping insurance policy for $100,000 with HWWoods.
November 5, 2010 Hannes traded in his 2010 Mustang (6,500 miles) to buy a Ford E-350, borrowing $37,043.20. Possible sign of financial issues.
2010 Tulving claims $370M in sales.
01 Jan 2011 Tulving Costa Mesa and residential leases are signed reallocated "without any apparent authorization". They are signed by Levon Gugasian's friend, David Seyller, the Tulving Company accountant. The residential leases go down to market rent, the main office lease goes way above market rent.
2011 Q1 Tulving claims $150M in sales in the first quarter of 2011 (January through March).
Feb 2011 YouTube videos appear.
Mar 2011 First delivery delay complaints surface. One took 6 weeks to receive.
15 Apr 2011 First payment to Levon Gugasian for consulting; Chapter 7 Trustee alleges Levon Gugasian "provided no such services".
15 Apr 2011 First payment to Armen Gugasian for consulting; Chapter 7 Trustee alleges Armen Gugasian "provided no such services".
23 May 2011 First rent payment to Levon Gugasian for unoccupied(?) 740 W 16th Street car repair shop
July, 2011 The Tulving Company takes out a 1-year shipping insurance policy for $250,000 with HWWoods.
August 23, 2011 The Tulving Company reports having 600,000oz of silver in stock, worth about $25M.
~August 25, 2011 Tulving switches from using coininfo.com prices to Kitco prices. I believe this was due to starting to use drop-shippers, who all used the Kitco prices.
(Tulving used coininfo.com prices starting around June 7, 2011, when Kitco's offices were raided by tax authorities, involving 175 agents).
August, 2011 Tulving claims $83.5M+ in sales for August, 2011 (equivalent to $1B/year).
~01 Sep 2011 The Tulving Company starts using 1xxxxx series of checks. For employee payments only?
~01 Sep 2011 The Tulving Company starts using 5xxxxx series of invoice numbers.
September 5, 2011 Gold hits its peak of $1,895.
September 29, 2011Gold goes down to $1,613, a drop of 15% in just over 3 weeks.
September, 2011 Tulving claims $13M in sales in one day.
October, 2011 I believe Tulving started selling down his inventory, likely to pay off debt.
2011 Tulving claims $675M in sales, their best year.
03 Jan 2012 Final "consulting" payment to Levon Gugasian.
03 Jan 2012 Final "consulting" payment to Armen Gugasian.
February, 2012 Between February 6, 2012 and February 15, 2012, The Tulving Company stops reporting how much silver they have in stock. I believe they had sold off most of their inventory.
07 Mar 2012 Final rent payment to Levon Gugasian for unoccupied(?) 740 W 16th Street car repair shop
May, 2012 Tulving no longer shows how many ounces of any silver item are in stock.
July 1, 2012 The Tulving Company starts getting an influx in BBB complaints. He gets 8 BBB complaints between July 1, 2012 and mid-December, 2012. He had 0 in 2010, 2 in 2011, and just 1 in the first half of 2012.
July, 2012 The Tulving Company takes out a 1-year shipping insurance policy for $140,000 with Willis.
December, 2012 One customer reports a 2 week delay, while another reports getting their order within 48 hours of the wire being receieved by Tulving. I believe Tulving may have still been selling the remains of his inventory at this point.
2012 Tulving claims $350M in sales.
April 12, 2013 Gold goes down 13.6% in two trading days (Friday April 12 and Monday April 15).
June 2013 The Tulving Company may have lost access to a line of credit.
June 20, 2013 The Tulving Company pays their bankruptcy attorney the first installment for their bankruptcy.
June 21, 2013 The last rent checks were paid to Levon Gugasian.
June 2013 The Tulving Company tried to get a bullion wholesaler to work on a Chapter 11 plan.
July 1, 2013 The BBB only reports 2 complaints since March. Behind the scenes, on this date there were about 70 people who had ordered products who would later complain.
July, 2013 The Tulving Company takes out a 1-year shipping insurance policy for $140,000 with Willis.
September 20, 2013Word starts getting out on the Internet about major delays at The Tulving Company, after someone posts of a $200,000 order that was 5 months overdue.
September 23, 2013The BBB now has 21 complaints on file. Behind the scenes, on this date over 200 people had ordered and would later complain.
October 11, 2013 I realize that The Tulving Company has a serious problem, and start warning people.
October 14, 2013 I first explained the game online: Tulving has outstanding orders worth lots of money, but likely no money in the bank. I also wrote "If people stopped buying from him altogether and he only had the $1M in the bank rather than $100M, he would go bankrupt and those 1,000-or-so people would get no silver/gold and no money." I explained that the big red flag was a $300K cash payment Tulving owed and was not paying. If you have $100M in the bank, you don't have problems paying for $300K of metal.
October 14, 2013 I start keeping track of complaints.
October 15, 2013 I start the page about.ag/tulving.htm.
October, 2013 The Tulving Company was getting about 2 complaints (BBB and similar) per day.
December 10, 2013 Any person who received metal or cash from The Tulving Company on or after this date may be subject to bankruptcy 'preference' (a/k/a 'clawback'), and be required to return the metal or cash..
January 29, 2014 A company becomes aware that public is aware that The Tulving Company has serious issues.
February, 2014 The Tulving Company was now up to about 5 complaints (BBB and similar) per day.
February 10, 2014 The local newspaper reports on someone that ordered from Tulving and did not receive their order.
February 19, 2014 about.ag reported that Tulving has reached 'The Tipping Point', with complaint volume exceeding order volume, meaning the end was near.
February 28, 2014
about.ag reported that The Tulving Company was effectively out of business. When an about.ag visitor called The Tulving Company later that day, one employee stated she was 'not told to not come into work Monday.' On Monday she was told to go home.
February 28, 2014
End of day: A company checks latest update here
March 3, 2014
about.ag reported that The Tulving Company shut down, and employees were sent home. Nobody was answering the phones or responding to E-mail. Oddly, many people in online forums refused to believe they were out of business.
March 3, 2014
The Tulving Company visits their bankruptcy attorney to pay the 2nd $10,000 installment.
March 6, 2014
The local newspaper discovers that The Tulving Company shut down.
March 6, 2014
A class action lawsuit is filed.
March 7, 2014
A temporary restraining order is requested on behalf of the class action lawsuit.
March 8, 2014
The Secret Service raids The Tulving Company's headquarters, seizing computers and many coins.
March 10, 2014
The judge approves the temporary restraining order.

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