More Sentence ReductionsMay 16, 2023 8:00AM EST
TABLE UPDATED July 20, 2023 8:00AM EST
Again, in both the Bullion Direct and NWTM cases, there have been sentence reductions, applied to all 3 felons at the same time.
From my understanding, once the judge sets the prison sentence, and the Bureau of Prisons is expected to keep the prisoner detained according to federal law (with no exceptions). With federal prison sentences, there is no parole, but offenders get about 15% "good conduct time" reduced from their sentence (unless forfeited). It's up to 54 days per year of the sentence. However, that does not explain what is going on here; for example, Charles McAllister had a 10 year prison sentence, but it now expected to be released after about 7 years and 7 months. The "good conduct time" of 54 days per year of the sentence works out to about 8.5 years. There is nothing in the court records explaining this, and with it happening with 2 unrelated cases, it is clearly widespread... but I cannot find anything online explaining this.
The Bureau of Prisons states that the release date "reflects the inmate's projected release date based on BOP calculations", which implies that it factors in good time. But that would mean that it should not change.
I've added a chart showing the changes, which are always in multiples of 5 days.
More Massive Sentence ReductionsMarch 31, 2023 2:45PM EST
The Bureau of Prisons is now showing Charles McAllister's release date as January 22, 2029 (about 3 months earlier than the last change).
Although the Department of Justice has alerted victims of this, no explanation was given. This is the third time in about 6 months that multiple felons have received sentence reductions in unrelated cases at about the same time. I have no idea if this is a normal occurrence, fixing widespread errors, massive federal sentence reductions, or something else.
The release date can be found at https://www.bop.gov/inmateloc/ (entering "Charles McAllister" and looking for Register #00222-480).
Massive Sentence Reductions?February 20, 2023 3:30PM EST
The Bureau of Prisons is now showing Charles McAllister's release date as April 22, 2029 (about 4 months earlier than the last change).
Although the Department of Justice has alerted victims of this, no explanation was given. This is the second time in about 4 months that multiple felons have received sentence reductions in unrelated cases at about the same time. I have no idea if this is a normal occurrence, fixing widespread errors, massive federal sentence reductions, or something else.
The release date can be found at https://www.bop.gov/inmateloc/ (entering "Charles McAllister" and looking for Register #00222-480).
Release Date Changed to August 20, 2029October 25, 2022 12:50PM EST
For reasons unknown, the release date for Charles McAllister has changed from November 18, 2029 to August 20, 2029, according to information the Department of Justice has sent to victims.
This is about 3 months less than his original sentence.
Victims of Northwest Territorial Mint's bankruptcy (NWTM) received a similar letter about a week earlier, saying that the expected release date for owner Ross Hansen was moved up by several weeks. So there may be some re-calculation going on or something.
There is no real news regarding Charles' appeal. Appeals in cases like this are common, but rarely change anything.
Charles Requested Sentence to be VacatedApril 21, 2022 1:45PM EST
Last month, Charles McAllister filed a motion to vacate his sentence, arguing ineffective counsel.
Among other things, he alleges that several of his employees may have stolen from the company, and that the government's estimate of $16M of misappropriated funds was flawed.
These were filed on March 9, 2022, with no filings since, suggesting this is not being treated by the court as an urgent issue.
One thing that I find interesting is his determination to get the $16M value of misappropriated funds reduced, while at the same time blaming the loss on others. Lowering the value of the loss would have no benefit to Charles McAllister if he was not indeed responsible for the losses.
He also points to a "celebrity net worth" website that in 2012 estimated a former manager's net worth at $15M (which Charles referred to as "newfound wealth"), which being so close to the government's $16M figure, I assume is supposed to imply that he stole all the money.
He also does not attempt to explain how one or two employees could have stolen $15M from the company in 2012 without being detected (or, if it was detected, why he didn't speak up until now -- I'm assuming he hasn't filed a police report).
Charles Expected to be Released 11/18/2029May 18, 2021 10:15AM EST
The Bureau of Prisons is showing Charles McAllister's expected release date as 11/18/2029.
This is in line with the expectations, as federal prison sentences are not subject to parole, but prisoners are usually awarded days off for "good behavior", that works out to approximately 15% of the original sentence (the actual calculation is a bit convoluted). In other words, the 8.5 years is expected.
Charles in PrisonMay 15, 2021 8:40AM EST
According to the Bureau of Prisons, Charles McAllister self-reported yesterday by 3PM EST to Montgomery FPC.
He may try filing the second appeal he told the judge he was planning, but he is now in prison.
Charles Now Due in Prison May 14, 2021 at 3PM ESTApril 15, 2021 2:25PM EST
About 45 minutes before Charles McAllister was scheduled to report to prison today, he received a partial "Hail Mary" -- Judge Yeakel ordered McAllister to remain released on bail for 1 month.
My guess is that this was designed by the judge to allow McAllister time to finish preparing and to file his appeal, at which point Judge Yeakel would consider the merits of the appeal.
Charles Due in Prison Today at 3PM EST - Hoping for Hail MaryApril 15, 2021 11:45AM EST
Yesteday evening, Charles McAllister received notice that he is to report to the Montgomery FPC federal prison today at 2:00PM CDT (3PM EST). He has filed an emergency motion requesting that he continue to be released on bail pending appeal.
Specifically, he has thrown his attorney under the bus, claiming that his attorney provided "such poor representation as to amount in ineffective assistance of counsel." McAllister is planning to file another appeal, pro se (without an attorney).
To me, this appears to be a last "hail mary" attempt to stay out of prison, from someone who was convicted of fraud but believed in hindsight that he was just a poor businessman, and is still deluded as to what has and will happen.
From what I understand, if in the next 3 hours and 15 minutes he is neither in prison nor granted an emergency order, he will be considered an escaped convict. Needless to say, I will be updating this later today!
UPDATE April 15, 2020 12:45PM EST: It appears that McAllister wrote (or had someone write) this over a year ago! He states, for example, that the BOP reports "at least 14 positive cases of COVID-19" from a site last visited March 28, 2020 (it now shows over 300 cases, with 0 active inmate cases at Montgomery FPC). On the one hand, having just hours to present an emergency order poses massive problems and errors are likely; on the other hand, a big part of his argument is based on very old information (which he could have updated over the past few months, knowing he would be getting this notice).
UPDATE April 15, 2020 1:05PM EST: Charles McAllister now appears on Judge Yeakel's calendar for today at 12:00PM (1:00PM EST), as a telephone conference. This will be 2 hours before McAllister is due in prison.
Charles McAllister's Appeal FailsFebruary 4, 2021 2:35PM EST
Charles McAllister's appeal of the judgment against him failed, with the appeals court affirming the decision of the district court.
This should mean that he will be going to prison very soon, as his release on bond was "pending appeal", and the appeal has been decided.
Charles McAllister Files for BankruptcyJuly 23, 2020 1:20PM EST
Last month, Charles McAllister and his wife filed for Chapter 7 bankruptcy (see the voluntary petition). It looks like they owe over $100,000 in credit card debt (as well as some other debts). And the elephant in the room: $16M of restitution from the criminal lawsuit. Interestingly, it shows that they owe state income tax from 2016-2019.
Creditors in the Bullion Direct case will likely not have any way to be (or benefit from being) a creditor in this personal bankruptcy (as it is Bullion Direct that owed you money, not Charles himself). From my understanding, the law does not discharge restitution debts in Chapter 7 bankrupty, meaning that Charles will still owe $16M in restitution. In other words, if in the future Charles is able to pay some of the restitution, you would still be able to get it, regardless of this bankruptcy.
What this says to me is that unfortunately (but not surprisingly) Charles used up any money that he did end up receiving from Bullion Direct (e.g. the large salary and severance pay).
McAllister Not in PrisonJuly 16, 2020 3:15PM EST
Several days before McAllister was required to report to prison, the judge allowed him to delay the beginning of his prison sentence until after his appeal is processed. If he succeeds with his appeal, he will presumably not spend a single day in prison.
However, if he is not successful with his appeal, his prison sentence should remain the same (just delayed).
I am hoping to get more information on the appeal, and when a decision may be made, but I do not know at this time.
McAllister to Report to Prison July 1, 2020April 2, 2020 1:10PM EST
Due to the way the court system works, the date Charles McAllister was supposed to report to prison was not in the public record. Many people have wondered when he will report to prison.
This information came out today, as the government requested that the unknown date be extended to July 1, 2020 (since they received a letter from the Bureau of Prisons requesting the delay, due to "the ongoing coronavirus situation"). The judge filed an order that McAllister report to the Bureau of Prisons no later than July 1, 2020.
10 Years in PrisonFebruary 13, 2020 8:35PM EST
Charles McAllister was sentenced today to 10 years in prison.
UPDATE February 29, 2020 9:40AM EST: Charles McAllister has been assigned federal inmate #00222-480. As of today, he is not yet in custody of the Bureau of Prisons (which likely means he will be voluntarily surrendering).
Sentencing Delay, Part 2January 3, 2020 3:25PM EST
Due to a scheduling conflict with a potential government witness, the sentencing hearing has been continued to February 13, 2020 at 2:00PM.
Sentencing DelayDecember 16, 2019 6:55PM EST
Charles McAllister requested a delay in the sentencing hearing to January or February, 2020. The goverment did not object, so the judge allowed the delay.
The sentencing hearing will now be on February 6, 2020 at 2:00PM.
Pre-Sentencing NotesDecember 6, 2019 9:05AM EST
The government has filed its pre-sentencing report ("PSR"), which is sealed (so we cannot view it). Charles McAllister, however, has filed objections to it, which provide some insight as to what is in there. The PSR is essentially a "blueprint" for how the government would like to see Charles sentenced; the judge makes the ultimate decision based on sentencing guidelines and weighing in factors from both sides.
The main takeaway is that Charles is trying to claim a loss of only $4.7M, not the $16.1M the government claims (or the $24M+ listed in the bankruptcy creditor list). Both the government and Charles calculate based on the amount of money received and the expected amount of profit, rather than the amount customers actually lost.
Charles also mentions that the PSR included information about at least 11 victims, 7 of whom ended up with a severe financial hardship as a result of the losses. He objects to this because of a lack of information.
Charles also objects to the fact that the PSR claims that the scheme used "sophisticated means"; from my limited understanding of the legal term, that makes sense. Bullion Direct appears to have been, if it not for the losses, a legitimate business (albeit with a "wild west" attitude, such as trying to buy a $16M gold mine in 2011, with massive losses already on the books).
If the judge were to accept the changes, the guidelines would recommend an offense level of 27 points, which would result in a 70-80 month sentence. The objection isn't clear, but it appears that the PSR suggested 35 points (35 points translates in this case to a recommended 168-210 month sentence). As a reminder, the level/points in the guidelines are just that: guidelines. In about 2 weeks (December 19) we should find out the official sentence.
Freedom DeniedOctober 30, 2019 12:15PM EST
Judge Yeakel denied McAllister's request for an acquittal and new trial.
With that out of the way, we are now awaiting sentencing on December 19, 2019.
McAllister Wants FreedomOctober 21, 2019 9:30AM EST
Charles McAllister filed 2 documents with the court on Friday, hoping to change the results of the trial.
In the first, he moves for an acquittal, arguing that the government did not prove specific intent, based on McAllister's belief that he was honoring the contract with customers.
In the second, he makes a motion for a new trial, because the government stated that McAllister could have, but did not, call on Bullion Direct's corporate counsel to testify. That, according to the filing, may have led jurors to believe that McAllister had the duty to prove his innocence (rather than the government proving his guilt).
GUILTYOctober 4, 2019 9:40PM EST
Charles McAllister today was convicted on 2 counts of wire fraud and 1 count of engaging in a monetary transaction with criminally derived property. Thanks to KVUE for breaking the news.
Sentencing is scheduled for December 19, 2019. It looks like the maximum possible sentence would be 50 years in prison.
TRIAL: Day 1 SummaryOctober 1, 2019 8:15AM EST
Yesterday was the first day of the criminal trial of Charles McAllister.
I have heard from one source that Charles is arguing that the government can't prove there were 6,000 victims who lost $16M-$25M because they didn't interview everyone. He is also arguing that a "use" clause that he added to the terms of service ("BullionDirect may use such [stored] Products") clears him of any wrongdoing (I'm not clear how this would work, since an attorney reportedly advised against that, it doesn't address issues before 2012, doesn't address customer orders (as opposed to stored), and doesn't address IRA accounts).
An article in the Austin American-Statesman says that Charles' attorney chalked up the losses to "bad business decisions and bad business judgment", but not criminal behavior. The article also states that a federal agent subpoenaed Charles' email account, and found the folders for all email empty.
I will update as I hear more throughout the trial.
Trial UnderwaySeptember 30, 2019 8:40AM EST
The trial in the criminal case against Charles McAllister begins at 9:00AM CDT.
It is expected to last about 2 weeks, with 200 exhibits (some reserved), and 23 witnesses (including 5 customers and about 8 former employees; 5 of the witnesses are on my list of people who "knew or should have known" about the fraud over 5 years ago).
If anyone has any information on what goes on at the trial, please let me know (see "Contact:" above, or go to the anonymous tips page).
Unexpected Hearing TodaySeptember 9, 2019 6:15PM EST
Today, the court docket showed an entry: "Minute Entry for proceedings held before Judge Lee Yeakel:Telephone Conference as to Charles McAllister held on 9/9/2019".
I was not expecting a hearing today, and double-checked, and do not see any reference to a hearing today. The trial is not scheduled to start on September 30, 2019. No further information was given, and the minute entry documents have their access restricted, preventing me from finding out what was discussed (and whether this was a normal pre-trial hearing, or something more important like discussing a plea agreement).
UPDATE September 10, 2019 7:10PM EST: A filing today shows this was benign: a likely Government witness is married to a member of the court's staff. This will not cause any issues.
Trial UpdateAugust 26, 2019 12:25PM EST
There have been a flurry of court filings in preparation for the upcoming trial starting on September 30, 2019 at 9:00AM.
This has included things like the government filung proposed jury instructions, as well as suggested questions to ask jury members.
Bankruptcy Officially ClosedAugust 3, 2019 12:40PM EST
The judge has signed an order with a final decree, stating that the bankruptcy case is closed.
Chapter 11 to CloseJuly 3, 2019 9:35PM EST
The Trustee has filed a motion with the court to close out the Chapter 11 bankruptcy, as nearly all the funds were distributed, and there are no other assets left. The remaining funds would be use to pay remaining expenses (e.g. U.S. Trustee fees).
Trial Delayed Until September 30May 8, 2019 9:00AM EST
Judge Yeakel allowed the trial to be delayed. It is now scheduled to start September 30, 2019 at 9:00AM. If a plea agreement is made, it will need to be on or before August 6, 2019.
McAllister Trial May be DelayedMarch 5, 2019 2:45PM EST
Charles McAllister is requesting a 60+ day delay for the trial, mainly due to the amount of time it will take to review documents. The prosecution is OK with the delay, so I imagine it will likely be approved.
Bullion Direct Checks BouncingFebruary 9, 2019 11:15AM EST
I have heard from two people now that the checks Bullion Direct were rejected by their bank.
I am guessing that the checks have the incorrect routing number or account number.
It may be worth waiting to deposit the check until this has been cleared up.
Bullion Direct Distribution and TaxesFebruary 4, 2019 12:55PM EST
I've had a few people asking me about taxes. I do not have legal or tax training, but have researched this a fair bit.
I originally put up a page about how to take a tax loss. I have gone ahead and added a section "2019 Update" with further details (the rest of the page is unchanged).
It outlines 5 different scenarios, depending on whether you already took the loss, and if so, whether it was taken as a theft loss or capital loss.
Checks ArrivingFebruary 3, 2019 11:15AM EST
A number of people have reported that they have received checks from Bullion Direct.
It looks like the checks are for about 2.75% of what creditors are owed (so if you are owed $1,000, you would get a check for about $27.50). The reason for this is that Bullion Direct owed creditors around $30M, but only had assets of roughly $1M. Without having any other money, there was no way for them to provide a larger distribution.
Checks (To Be) SentJanuary 25, 2019 8:30AM EST
Yesterday, the Trustee filed the latest post-confirmation report.
It shows that Bullion Direct sent a check for $633,437.93 to North American Credit Services, which is presumably the company that will or has handled sending out payments to creditors. The report further states that "Final Distribtion to be made in January, 2019". Once the checks have been deposited, or enough time passes by that the money gets sent to the court, they plan to close the case. I have not heard from anyone who has received a check yet, but people should be receiving them soon.
As a reminder, the latest status on the Charles McAllister criminal case is that the jury selection and trial is scheduled for May 13, 2019 at 9:00AM.
Equity Trust LetterJanuary 25, 2019 8:25AM EST
I heard yesterday that Equity Trust, the company that handled the Bullion Direct IRAs, has sent out a letter to some of their customers.
The letter discusses arbitration. It informs customers that they have the option of opting out of arbitration by March 31, 2019; otherwise, they will be bound by arbitration. "Bound by arbitration" means that if you want to sue them, you have to instead go to an arbitrator (the American Arbitration Association), who gets to decide without the failsafe of the appeal process in the legal system. Arbitration tends to be cheaper, but with more concerns of bias.
For Bullion Direct customers, this likely is not going to matter much: I can only see it being an issue if you wanted to sue Equity Trust, or join a class action lawsuit against Equity Trust (I am not aware of any regarding Bullion Direct, and it may well be too late to do so). However, if someone were to file a class action lawsuit against Equity Trust, you would not be able to particpate unless you opt out. Therefore, if it were me (remember, I do not have legal training), I would opt out.
Distribution ApprovedDecember 14, 2018 7:55AM EST
Yesterday, Judge Tony Davis signed an order approving the distribution of remaining funds, estimated to be 2.5-3.5 cents for every dollar owed. So if you are listed as having a General Unsecured Claim of $1,000, you could expect a check for $25-$35.
While that amount is very small, it is at least better than the Tulving Company or the Northwest Territorial Mint bankruptcies (where creditors either will get or are expected to get nothing).
Motion for a Small DistributionNovember 9, 2018 1:10PM EST
The Trustee has filed a motion to distribute about $700K to Bullion Direct creditors.
The motion states that the Trustee expects that creditors will receive about 2.5% to 3.5% of what they are owed.
Criminal Case StatusSeptember 20, 2018 1:00PM EST
I have had a few people asking about the criminal case against Charles McAllister, who faces up to 50 years in prison if found guilty of the 3 felonly counts of fraud from the indictment.
The latest status is that the jury selection and trial is scheduled for May 13, 2019 at 9:00AM. Any plea bargain or plea agreement needs to be entered by April 26, 2019. These dates were extended due to a request by McAllister, due to the volume of documents.
'Proposed Amounts'September 6, 2018 3:40PM EST
Creditors whose claims are being objected to should have received a letter from the Trustee.
Please note that it may state "Proposed Allowed Claim Amount." Note that this is the proposed amount of your claim, not the amount that you will actually receive from the bankruptcy estate. Right now, there is only about $700,000 of cash in the bankruptcy estate, and $24M of claims, or about $.03 for every dollar owed.
Objection to ClaimsSeptember 6, 2018 3:20PM EST
The Trustee has filed an omnibus objection to claims (this was in July; sorry, I've fallen behind!).
This is being done to make sure claims are equal. For example, if one person valued their silver at $15/oz and another valued theirs at $16/oz, it wouldn't be fair. Some people reported that their claims were secured or priority claims (it wouldn't be fair for one creditor to be paid while another similarly situation creditors didn't get anything). It also handles duplicate claims, and claims that were filed after the deadline. Finally, it handles claims where no dollar amount was listed ("unliquidated" claims).
For the most part, these seem fair, and get all creditors on even footing. However, for people who filed late or did not list a dollar amount, it could be a problem (in other words, your claim could be denied if you take no action).
CFTC Complaint FiledJuly 24, 2018 8:20PM EST
I just found out today that the CFTC quietly filed a civil complaint against Charles McAllister on April 26, 2018.
The case is a typical CFTC case against bullion dealers, basically requesting an injunction banning McAllister from doing various commodity transactions in the future, and repayment of the amount owed customers (which would likely be impossible, given the amount customers are owed) and a penalty.
A default judgment was issued (as McAllister did not respond within the timeframe required), but was reversed, as the non-response was due to a miscommunication between attorneys.
Case to be Closed, ~2% PayoutJuly 18, 2018 5:45PM EST
The Trustee filed the latest quarterly post-confirmation report.
In it, he says "The Liquidating Trustee is currently reviewing and objecting to claims in preparation for making a final distribution to all allowed creditors, then closing the case."
So it sounds like he is expecting to close the case fairly soon, paying roughly 2% of what creditors are owed ($700K of cash is in the bank, versus an expected $33M customers are owed).
What is not discussed is what Charles' Mom did with Bullion Universe. It appears to have crashed and burned, with no evidence of a single sale. Perhaps when Charles' Mom realized her son is facing prison time, she couldn't quite focus on being a bullion dealer. I wonder if she will be required to prove that she spent the $100K that she promised the court she would to start the business?
Some Claims to be DisputedJuly 18, 2018 5:10PM EST
The Trustee of the BullionDirect Litigation Trust, Gregory S. Milligan, has filed a motion to dispute various claims.
From what I can tell, these disputes are legitimate: for example, duplicate claims, claims in the wrong amount (e.g. someone basing a claim on the spot price on some date other than the one that Bullion Direct is using), secured claims (which only applies when there are assets that the claim is secured by, which does not apply here). The only controversial dispute I see is that the Trustee is taking the position that § 507(a)(7) priority does not apply (claims “arising from the deposit, before the commencement of the case, of money in connection with the purchase, lease, or rental of property, or the purchase of services, for the personal, family, or household use of such individuals, that were not delivered or provided.”).
The "deposit" priority, if allowed, would essentially allow all the people who filed a Proof of Claim that way to get money (up to a certain dollar amount, such as $2,850) before any other creditors. If disallowed, everyone gets treated the same (paid a percentage of what they are owed). If allowed for everyone (an option that would likely require a motion from a creditor to allow), everyone would get up to that certain dollar amount before anyone got paid beyond that (which would benefit people with small claims, some of whom might get paid 100% of what they are owed, at the expense of creditors who are owed more money).
If your claim is being disputed, you should get a letter about it in the mail.
Trial Date Set for September 10, 2018March 20, 2018 7:50AM EST
Judge Yeakel has set a date of August 27, 2018 9:00AM for the Docket Call, and Jury Selection / Trial are set for September 10, 2018 at 9:00AM.
McAllister Allowed to Bullion Universe TownMarch 1, 2018 4:10PM EST
Today, Judge Andrew W. Austin signed an order allowing McAllister's request to travel to The Woodlands, TX (and Houston, TX) for purposes of meeting with his Houston based attorney.
As I previously reported, the law firm that McAllister's attorney works for has a law office in The Woodlands, which is just about next door to the building that Charles McAllister's mother (who bought the Bullion Direct assets and is running them as Bullion Universe) works. The mailing address for Bullion Universe is farther away in The Woodlands, TX.
More on RestrictionsFebruary 22, 2018 9:15AM EST
Charles McAllister filed a motion yesterday to change the restrictions imposed on him for travelling.
It clarified that it is indeed Alabama, not Texas, that he is restricted to (which the court documents had neglected to specify). He also wants to change "Lee County, AL and surrounding counties" to "Middle District Alabama". This would allow him to travel to 23 different counties, as opposed to the current 5 (or perhaps a few more if travel into Georgia is allowed). He is also requesting clarification that he is also allowed to travel to Houston, TX and apparently The Woodlands, TX "for the purpose of meeting with his counsel."
The motion is unopposed, mainly because the Judge had stated at a hearing that Charles McAllister could travel to Houston, TX for purposes of meeting with his counsel (but it did not get reflected on the written order).
The catch is that while his attorney has an office in Houston (at 811 Main Street, per the law firm's website), McAllister states that his attorney also has an office in The Woodlands, TX, about 30 miles from Houston, and McAllister wishes to go "to the Houston area (Harris and Montgomery Counties) for the purpose of meeting with his counsel", which would of course allow him to go to The Woodlands to meet with his attorney at a different office. That would be fine, except Bullion Universe -- the company that can't seem to start up, that was based on the remains of Bullion Direct -- is located in The Woodlands. And Charles' mother, who started that company, works as a lawyer 2 blocks away from the law firm's The Woodlands office. And she lives in The Woodlands. And the CFTC believed that as of May, 2016, Charles was living in The Woodlands.
A Few ClarificationsFebruary 5, 2018 8:40AM EST
A reader mentioned to me that Lee County (where Charles is restricted to) refers to Lee County, AL rather than Lee County, TX. This helps clear things up: Lee County, TX is very, very small. However, the documents are vague: the conditions of release do not mention a state, which one usually infers to mean the only state mentioned in the documents (Texas). Also, the last official report of Charles' location was that he was living with or very close to his mother in Texas (from the CFTC's documents). But Lee County, AL is where Auburn, AL is located, which is where Charles originally went after shutting down Bullion Direct. Also, the conditions of release part 7 secion d does not have the box checked for "surrender any passport to:" -- but it does list "PRETRIAL SERVICES" there, making it unclear if he was required to turn in his passport.
Hearing March 1, 2018 - Trial March 18, 2018January 31, 2018 7:00AM EST
Yesterday, U.S. District Judge Lee Yeakel filed an order, which sets a March 1, 2018 9:00AM "Hearing on all Pending Pretrial Motions and Docket Call." He also stated that the case is set March 12, 2018 9:00AM for "Jury Selection and Trial."
Investigation ReportJanuary 28, 2018 1:05PM EST
On January 26, the Trustee filed an Investigation Report discussing the results of the investigation that the estate of Bullion Direct conducted.
There is not a lot of new information, except:
"BullionDirect was advised in 2012 by legal counsel against continuing to “use” customer metals under a “use” clause in non-IRA customer agreements without adequate disclosure to customers. BullionDirect ignored this advice, and instead threatened legal action against insiders who favored such disclosure, and who resigned in 2012 after learning that BullionDirect would not follow this advice. BullionDirect ultimately did not disclose its true financial status to customers in 2012, and instead continued using customer metals to fund operations, including paying McAllister and other insiders."
"As for lawyers, BullionDirect appeared to employ a rotating cast of law firms, and it appears that each separate firm was only provided limited information about BullionDirect. For example, the law firm that provided legal advice against the use of customer metals apparently did not know the extent to which BullionDirect’s operations were in fact funded by those metals, and a different law firm that may have had a fuller picture of BullionDirect’s overall financial situation did not advise BullionDirect on its customer-facing operations, and also ceased performing services for BullionDirect after becoming aware of its overall financial services."
Charles McAllister IndictedJanuary 24, 2018 3:20PM EST
UPDATED January 28, 2018 12:05PM EST
Bullion Direct owner Charles (Chad) McAllister was arrested on Tuesday January 23, 2018, indicted with 2 counts of wire fraud and 1 count of money laundering, facing 50 years in prison. He pleaded not guilty, and was released on bail. The conditions of release require him not to leave Lee County, TX or surrounding counties (except to travel to Austin, TX for court purposes). The Government is also seeking forfeiture of up to $16,186,212.56.
I imagine most of my readers have a very clear picture in their mind of whether Chad is guilty or not. The indictment, however, does not mean that he is guilty: the Justice Department states "It is important to note that an indictment is merely a charge and should not be considered as evidence of guilt. The defendant is presumed innocent until proven guilty in a court of law."
I had planned on writing a lot about the arrest and indictment, but there just isn't much to say. The indictment and Charles McAllister's arrest warrant do not provide much in the way of details I wasn't already aware of.
The one question in my mind is where the government came up with the $16.1M figure. There are $24.2M in claims from customers, broken down into $17.2M of Regular claims and $6.8M of IRA claims. The $16.1M figure may refer to claims that date back no farther than January, 2009 (the latest date that the Government believes the "scheme" may have started).
As reference, Hannes Tulving, Jr. (owner of The Tulving Company) was charged with 1 count of wire fraud (with a maximum 20 years of jailtime). He was sentenced to 2.5 years in prison (reduced mainly for cooperation and his health). In the Tulving case, the accounting records reportedly showed assets roughly equal to liabilities (the asset valuations were heavily exaggerated, but apparently prepared without input from Hannes), whereas in Bullion Direct the accounting records showed the massive liability (e.g. at one point around 2010 showing $20M of customer obligations and only $8.3M of assets, with total equity of $-14.3M). In the Tulving case, money from customer orders was used to pay for expenses, but in the Bullion Direct case there was also the issue of metal apparently owned by customers (storage) being sold without their permission.
Dillon Gage to Help Platform UniverseOctober 26, 2017 12:35PM EST
Yesterday, the Bullion Direct litigation trust filed a proposed settlement agreement with Dillon Gage. Dillon Gage had received $775K from Bullion Direct in the 90 days before its demise, which appears to have been in the normal course of business. Dillon Gage representatives "have consistently testified under oath that Dillon Gage believed that BDI was an ordinary retailer of precious metals and was unaware that BDI offering purported “depository” services as well."
With the Settlement Agreement, Dillon Gage would pay the Bullion Direct litigation trust $324,500. Dillon Gage would also be obligated to provide support to Platform Universe (the company that started up earlier this year from the ashes of Bullion Direct). Dillon Gage can get up to half their money back, if Platform Universe becomes profitable (half the profits would go to Dillon Gage until the full $162,250 is returned).
It is interesting to note that an anonymous group of investors bought large online bullion dealer Provident Metals recently, and they have a management agreement in place with Dillon Gage.
Other information gleaned from the motion are that Cheryl Huseman (Charles McAllister's mother) is President of Platform Universe, C. Jack Murph (her husband) is Vice President, and that they have been providing financial reports to the Trustee.
Update: Some ProgressOctober 19, 2017 5:05PM EST
On October 10, 2017, Gregory S. Milligan (the Trustee for the BullionDirect Litigation Trust) filed a motion that would allow the filing of certain court documents without having to send copies to creditors. This makes sense, as it is costly to send copies to creditors, and the Trustee gets dozens of unrelated calls/E-mails after each one.
However, what the motion also does is supply us with some new information:
"Along with reviewing the books and records of BDI itself, the Trustee and his team have obtained document production from third-parties such as the Debtor’s business partners, lawyers, and accountants. Both informal interviews and depositions under oath pursuant to Bankruptcy Rule 2004 have been conducted. Tolling agreements to preserve claims for future prosecution have been entered as appropriate. Negotiations over potential settlements have been commenced."
That said, it appears that Bullion Universe a/k/a Platform Universe never got anywhere. Specifically, there still are no prices listed on any products after it has been "live" for about 6 months. So it appears that any litigation is the best source of recovery at this point.
E-mail re: Bullion Direct, Bullion UniverseJune 20, 2017 12:35PM EST
The Trustee of the BDI Litigation Trust sent out an E-mail today to Bullion Direct creditors, to clarify a few things.
Basically, he is pointing out that  Bullion Universe (the name being used by Platform Direct, the new company that is offering customer-to-customer metals trading) is not in any way involved with claims against Bullion Direct, and  Bullion Direct creditors will benefit if Bullion Universe is profitable.
Platform Universe is the company that was formed to buy some of the Bullion Direct assets. It is doing business as Bullion Universe. You should contact Bullion Universe with any questions about the new company (such as how to do business with them). The BDI Litigation Trust is responsible for creditor claims (e.g. sending any payments or handling a change of address).
The E-mail also points out how the principals of Platform Universe will put an extra $100,000 into Platform Universe if it reaches 3,000 transactions within 6 months or 5,000 transactions within 1 year. Therefore, the Trustee states "it is in the best interest of the Trust and the former customers and other creditors of BDI that Platform Universe is both successful and profitable."
No Criminal Charges YetJune 16, 2017 8:30AM EST
So far, it appears that no criminal charges have been filed related to Bullion Direct.
Given that a man in an Austin suburb was recently charged with theft over not delivering a single $9.7K silver order, one would think that not delivering thousands of orders and stored metal totalling $25M would be thoroughly investigated.
Nobody has suggested that what happened was not fraud. Bullion Direct even stated "Many [employees, officers, lawyers, accountants, and vendors] knew or should have known that the Debtor was acting in a massively fraudulent matter." Wow. That's a $25M theft from thousands of people (there are 7,500-or-so entries in the creditor list, although that does include some duplicates).
We're not talking about some hit-and-run type of robbery, with no evidence and long-gone suspects. The suspects are known, and have not fled. There is beyond ample evidence. Nobody claims that the $25M bankruptcy filing is imaginary; it is proof that $25M is owed customers who had placed orders with the company or stored metal there. The owner of The Tulving Company went to prison for a similar scheme. Bullion Direct even went much farther: beyond its unshipped catalog orders (the "Tulving" scheme), it also had $21M of metal it claimed to be storing for customers (including at least $6M in metal for IRA customers!), and even $220K of cash it was supposedly holding for IRA customers.
It has been 2 years since I contacted Bullion Direct asking about the situation, and nearly that long since the bankruptcy filing. It does take a long time to investigate large crimes, so it may not be unusual that nothing has happened yet. The problem is that in most cases, investigators refuse to say when they have closed an investigation. So you have to keep open the possibility that the investigation died out a long time ago.
This leads us to 3 possibilities.  The case is still open. This is the most obvious possibility.  The case was closed because they couldn't crack it (they couldn't figure out who was behind the fraud, couldn't find evidence, didn't have the resources, etc.). For a $25M crime, this is a massive strech.  The case was closed because they determined no crime occurred. This, too, is a massive stretch (just one of several pieces is nearly identical to the Tulving case). My analysis is simplistic (e.g. it doesn't distinguish between the investigators and prosecutors, or the multiple investigators), but it should get the point across.
Ultimately, I imagine the case must still be open, barring extreme incompetence.
Bullion Universe LiveApril 25, 2017 1:35PM EST
Bullion Universe has sent an E-mail to Bullion Direct creditors letting them know that the website is now live.
Good luck, Bullion Universe! Let's spread the word.
Bullion Universe Preview ReadyApril 19, 2017 3:00PM EST
The Bullion Universe website was turned on this morning, and Bullion Direct creditors have been invited to preview it.
The E-mail that creditors received says that final testing and product configurations are underway, and they expect to announce a soft launch soon.
Bullion Universe to Start SoonApril 6, 2017 1:50PM EST
This morning, I checked again to see if there was any news about Platform Universe, and didn't find anything. Just a couple hours later, they sent out an E-mail to what appears to be all Bullion Direct creditors, implying that they are starting up as Bullion Universe (although there is no site available there right now). The E-mail was worded as though it was intended for a larger audience.
The Bullion Universe domain name was one of the assets transferred to Platform Universe. Platform Universe registered Bullion Universe as an assumed name, signed by Cheryl Huseman as President of Platform Universe. So the business name was chosen roughly a decade ago.
The site is described as "A website for self-directed bullion transactions," and presumably will be similar to what Nucleo was (trading with other individuals, coordinated by Bullion Universe). It makes it clear that customer funds cannot be used for any other reason than fulfilling customer orders (and will be held in a separate bank account), that precious metals will be held by Brinks, and that there will be annual audits be independent auditors. The E-mail also had a (cryptic to me) message: "Your participation and support will help regain the participation of all 60,000 customers that accounted for over $1.5 Billion in successfully completed transactions during fifteen years of Bullion Direct, Inc. operation."
Having to trust the Mom of the person most creditors are accusing of stealing their money is not going to be easy (and harder for me, as she hasn't responded to my queries; that's not the best way of being transparent). However, creditors have two things going for them here:  the company will be under a lot of scrutiny, and  should there be any fraud with the new company (which I doubt), claiming ignorance would be hard (e.g. due to the clearer claims from the beginning, and the fact that it is starting from the ashes of a bankrupt fraudulent company).
Platform Universe to Start SoonMarch 10, 2017 8:55AM EST
A long time has gone by since the Chapter 11 reorganization plan was approved by the court. And a lot of people have started asking me if Platform Universe is really going to start up, or if it was all just a sham.
The Bullion Direct assets were bought by Cheryl Huseman (the mother of Bullion Direct founder/owner Charles McAllister) and her husband C. Jack Murph. I E-mailed Ms. Huseman on Monday (at the E-mail address she uses to receive legal E-mails regarding the asset sale), and as of this morning I have received no response. Hopefully the customer service for Platform Universe, when it starts up, will be better. Creditors need this company to succeed as it is likely their best chance of getting paid.
Despite the lack of response there, however, I have heard that they are indeed working on the company, are in final stages of testing, and expect to start within the next few weeks.
Trustee To Pursue Litigation ClaimsJanuary 19, 2017 3:45PM EST
Bullion Direct has filed a motion, which the court allowed, to extend the time for objecting to claims from January 20, 2017 to January 22, 2018.
Among the reasons for doing this are that the Trustee of the BullionDirect, Inc. Litigation Trust is "currently focused on overseeing an investigation of potential litigation claims that could be asserted to attempt to recover further funds for the victims of [Bullion Direct]." It further says that they have hired litigation counsel to do a preliminary investigation.
This is encouraging, given how quiet it has been lately. I really haven't heard much of anything lately, especially regarding Platform Universe (the company that Charles' parents set up to hopefully bring in money to creditors).
Information From Expense ReportsSeptember 1, 2016 1:30PM EST
I have spent quite a bit of time going through the Bullion Direct expense reports, getting what information I can from them.
The most important information, which I stumbled upon accidentally, was some details of a CFTC investigation into what happened at Bullion Direct (see the Application to Show Cause and the Suggestions in Support (large; 375pg, 9MB), which I have written about in an earlier post. In a nutshell, the CFTC started investigating Bullion Direct before it shut down, subpoenaed Charles in December, Charles through his lawyer tried to use his Fifth Amendment rights to not testify or produce documents he has, and he has 'bigger fish to fry' (FBI involvement and criminal implications).
It also shows some sort of arrangement between Dillon Gage (the bullion wholesaler than supplied Bullion Direct with metal, that also owns the IDS vault where metal was stored at the end). It mentions a compromise and settlement, but it is unclear what that is in regards to. It appears that Dillon Gage tried to put in a bid for the platform.
It also shows that the Missouri Attorney General and Business Consumer Alliance were receiving information from Bullion Direct as of the beginning of this year. It also shows that in August, Bullion Direct mailed "attorney files" to the CFTC (which appear to have been obtained from attorneys that Bullion Direct had used in the past).
CFTC Opened Investigation Before Charles Shut DownAugust 31, 2016 4:15PM EST
According to court documents I found, the CFTC (U.S. Commodity Futures Trading Commission) started investigating Bullion Direct no later than May, 2015 -- over a month before Charles shut down operations. It is investigating "actions and omissions" (perhaps among other things).
The CFTC has uncovered evidence that Bullion Direct and Charles McAllister may have violated the Commodity Exchange Act.
Charles is aware of the investigation, and was subpoenaed in December, 2015. Charles did not produce the documents, and instead plead asserted his Fifth Amendment rights against self-incrimination.
Charles Living With His Mom?August 31, 2016 3:40PM EST
The CFTC believes that at least as of May, 2016, Charles was living at an unknown address in the same planned community that his mother lives in, and that the new Bullion Direct ("Platform Universe") uses as its mailing address. This conflicts with the information we currently had, which was when Joe Martinec stated in August, 2015 under oath that Charles abruptly moved to Auburn, AL, where his daughter is in school, and that his wife had a teaching job there.
What is really concerning is that  presumably Joe Martinec knew Charles was living in the same ZIP code as his mother, and  this was not disclosed before the sale of Bullion Direct assets to his mother. Remember, in June I discovered that Charles had been working on starting a business called "Austin Platforms," suggesting that he was working on a use for the Bullion Direct assets. Between that, and him living at his mother's house (or very close by), suggests that at the very least he intends to have a very strong role (formal or not) in the new company.
BD Final Expenses: Blaming Costs on MeAugust 31, 2016 1:40PM EST
Dan Bensimon (Bullion Direct CRO) and Joe Martinec (Bullion Direct's attorney) have filed their final fee applications. Their first fee applications were in November, 2015 (Joe with Exhibits and Dan). You can also see the new ones for Joe and Dan. I put together a page with issues I had with the expenses from the first fee application here.
Joe never answered any E-mails I sent him, and Dan just responded to my introductory E-mail, but nothing after that. They did, however, act on E-mails that I had sent. For example, after sending them an E-mail politely explaining that the 2010 tax return did exist, Dan and Joe had a meeting, and the next day wrote a check to the IRS to get a copy of the return. The only way they have chosen to communicate back to me is through public documents. I only knew of that meeting and their request for the 2010 tax return through expense reports.
In this case, their communication to me was through their current fee application. It stated "Many [of the 5,000 claimants] relied instead on “facts” posted at websites, message boards and on blogs [instead of paying for legal representation]" The fact (pun intended) that Joe used quote marks around the word "fact" (note my non-sarcastic use of quotes) is an obvious insult to me: the quotation marks change the sentence from benign (creditors relying on my information) to an implication that I was posting erroneous statements as facts, and creditors had to contact Dan as a result of these errors (which I am sure is untrue -- perhaps I should hire an attorney and sue him for defamation?).
Joe then writes "In some instances, it appears that a blog post would suggest a certain email message to Debtor’s counsel, resulting in large numbers of nearly identical inquiries." In this case, Joe had filed a creditor list with the court showing every claim as disputed. That means that either  Bullion Direct would need to update the creditor list with the court, or  all creditors would need to file a Proof of Claim (which is highly undesirable, for privacy reasons, and to reduce expenses). I made a post on August 17 telling customers they would have to contact Joe to find out if he planned to file an amended creditor list. Why? Because I E-mailed Dan and Joe on August 13, and they refused to respond. I E-mailed them again on August 15, this time Cc:'ing the U.S. Trustee (so there is proof I sent the E-mail), explaining that having them communicate with me would help preserve the assets of the estate, and that if they did not respond, I would need to let creditors know they would need to contact Joe directly. So the large expense of responding to nearly identical inquiries was their choosing. Should they really get paid for that?
Next, Joe writes "One blogger, not an attorney, made multiple demands that he be treated as the legal representative of a group of claimants he was advising." Obviously, he is referring to me. However I never in any way suggested that I wanted to be a legal representative to anyone, nor provide legal advice to anyone. My communications with Joe and Dan were simply  asking questions, or  giving them information that I felt would be useful to them, with one exception. On September 10, 2015, I wrote to them (Cc:'ing the U.S. Trustee), making what could be seen as a demand to either communicate with me or acknowledge that they refuse to. I just asked for the same level of information that he would be required to give me if I had been a creditor (for example, if I had bought an ounce of silver for $15 before the bankruptcy), and even added that information be limited "to the extent the law allows" (so his suggestion that I was demanding something illegal only would be possible if Joe chose to violate the law against my desires). It is a shame that Joe will give financial information to a creditor, but not me. Who knows what I might have uncovered, given how much I was able to uncover without this level of information?
What should come from all this? If anyone wants to have an attorney object to the final fee applications, I would be more than happy to provide as much information as needed. I find the behavior of Joe and Dan to be deplorable, using information I provided to fix massive errors but refusing to even give me information the media had access to, and taking tens of thousands of dollars to do so (money that belongs to Bullion Direct creditors, not them), just because they can get away with it. Note, too, that Joe's firm is billing $433/hr to respond to these duplicate queries, something that if a legal assistance could do, the bankruptcy court feels $50/hr is appropriate (or $100/hr using Joe's personal paralegal).
Joe & Dan's Final Fee ApplicationsAugust 26, 2016 5:45PM EST
Joe Bensimon of Unique Strategies Group is requesting $75,732.00 for fees and expenses from 01 Nov 2015 through 20 Aug 2016 (in addition to the $81,201.90 of approved fees/expenses before that, of which about $60K was already paid). That totals $156,933.90 of compensation since the case started.
Joe Martinec of Martinec, Winn & Vickers, P.C. is requesting $113,480.00 for fees and $2,679.20 for expenses from 16 Nov 2015 through 19 Aug 2016 (in addition to the $124,183.26 of approved fees/expenses before that, of which about $95K was already paid). That totals $240,342.46 of compensation since the case started.
I expect to make another post within a few days with information gleaned from the expense reports.
Dan's $1.8M TypoAugust 11, 2016 10:15AM EST
The bank account balance at Bullion Direct, as of July 31, 2016, was almost certainly $189,578.67.
However, in the latest Monthly Operating Report that Dan Bensimon filed, the "Cash Account Reconciliation" page shows $1,895,768.67 in 4 places on the page. While someone familiar with the case (like myself) can figure out which numbers are in error, and someone unfamiliar with the case could make a good guess as to which numbers were in error (by looking at other pages), it is another example of Dan's sloppy work.
But while we're at it, for the record, I should point out that every Monthly Operating Report that Dan has filed is very fuzzy, almost as if it has been saved using very high compression (very "lossy"). For example (from the top right of page 7):
For those born with human eyes, and not those of an eagle, that says "FILING TO DATE" and "$181,216.62". I think. I have no idea why he uses this fuzzy text, whether it is simply more sloppiness (he once saved a picture with very high compression, and the software defaults to that setting, and he didn't notice it was so fuzzy), or whether it is intentional (e.g. to keep people like me from finding out what he is up to). But all his monthly operating reports are like this (minus the $1.8M error).
Reorganization Plan ApprovedJuly 29, 2016 11:20AM EST
Judge Tony M. Davis ordered the approval of the Chapter 11 Plan of Reorganization, allowing Bullion Direct founder Charles McAllister's mother and step-father to buy the assets of the company, and start a new business to hopefully pay back creditors much of what they are owed.
This means that the deal that Bullion Direct has hoped for, and the Unsecured Creditors' Committee also felt was the best option, will go through as intended.
As I get more information about the new company, I will be sure to provide updates.
Did Charles Try to Buy Bullion Direct Assets?June 22, 2016 2:20PM EST
Either Charles, or someone impersonating him, spent at least a bit of time and energy late last year working on creating at least a skeleton of a company, called Austin Platforms. It was listed at AngelList (a website for startups to get funding and employees), with Charles listed as the founder. It also has an (unused) website, austinplatforms.com, which was originally registered late last year to a mysterious "C McAllister" and then later switched to anonymous ownership.
Oddly, there is no sign of the company in the usual sources. For example, it does not appear in the records of Texas Secretary of State or as a Travis County DBA.
The name -- including "Platforms", very similar to his Mom's "Platform Universe" -- strongly suggests that he was creating his new company in an attempt to buy the assets of Bullion Direct.
Interestingly, someone registered a domain "platformuniverse.com" about 2 months later, using the same anonymous service that Charles used. Presumably, this is going to be used with the Platform Universe company that Charles' mother is forming.
Ballot to be Sent to CreditorsJune 15, 2016 1:05PM EST
Judge Davis signed an order approving Bullion Direct's Disclosure Statement, and setting the times for filing acceptances or rejections of the plan.
Creditors should be receiving the ballots soon. Acceptances and/or rejections need to be filed by July 13, 2016, sent to Bullion Direct's attorney (Joe Martinec). The same date is fixed as the last day for filing written objections, with a hearing on July 25, 2016 at 9:30AM on the confirmation of the plan.
Charles VacationingJune 13, 2016 7:00AM EST
I have heard a report that seems to confirm my suspicions that Charles and his family are continuing to take vacations. This includes a beach town about a 4 hours' drive from where Charles and family are supposedly living. I have also heard that Charles traveled to a quaint Italian town within walking distance of Switzerland.
On an unrelated note, there is a new article at the Statesmen,
Joe & Dan to be PaidJune 6, 2016 12:25PM EST
Docket 180 was just filed, an order by Judge Davis allowing Joe Martinec's firm to receive $44,836 of the $124,183.26 they requested last November for work done through November 15, and allowing Dan Bensimon's firm to receive $40,050 of the $81,241.90 it requested (for work through October 31).
My understanding is that this is not a determination of how much they can be paid for those time periods, but rather that the Unsecured Creditors' Committee has agreed to disbursing those amounts now, and that the court may later approve further payment.
Objectionable ClaimsMay 31, 2016 6:40PM EST
BullionDirect has filed a lengthy document related to the asset purchase.
It includes a list of objectionable claims. Specifically, it lists claims that were filed in the Debtor's name (all those people who said their name is "BullionDirect", likely due to the bankruptcy court's 'impulse claim' system), duplicate claims, those that said their claim was secured but was not, those that claimed priority claims but did not have one, unliquidated claims, ones that have been paid already, late filed claims, and claims that exceed the amount in Bullion Direct's records.
Bullion Direct Assets Sold to Charles McAllister's MomMay 26, 2016 1:40PM EST
On Monday, the judge approved the sale of the Bullion Direct assets to Cheryl Huseman (Charles McAllister's mother) and Jack Murph. You can find the actual Asset Purchase Agreement here (note that it was subject to change; e.g. the asset allocation was to be added).
Here is my understanding of what they are paying:  The purchase price is $100,000 (which goes to the Bullion Direct estate, and to creditors after expenses),  they will provide a $100,000 "additional capitalization" on the closing date (cash the new company will use), and within 12 months will give the company another $100,000 (loan or equity investment) if warranted.
It also provides for Contingent Payments, in the amount of 80% of net profits for the first year, 60% of net profits for years 2-3, and 50% of net profits for years 4-7.
It appears that the closing has either already occurred, or is scheduled for sometime today.
This is exactly what we thought was going to happen, with the exception of the hope that another buyer might come in to increase the value to creditors.
E-mail re: Disclosure HearingMay 2, 2016 4:50PM EST
Several people have reported getting the following E-mail:
PROCESS NOTE: The Bankruptcy Court must approve a Disclosure Statement before it can be sent to creditors, along with a proposed Plan of Reorganization or Liquidation. The Plan will establish the terms for payment of creditors' claims. Creditors will have an opportunity to vote on the Plan after the Disclosure Statement has been approved. You may view the Notice of Hearing by clicking the following link:
I expect to add a link shortly for those that did not get the E-mail.
DisclosuresApril 19, 2016 8:20PM EST
Bullion Direct has filed a Disclosure Statement. Some information I found interesting includes:
However, it is also possible that BullionDirect suffered additional losses due to outright theft by McAllister and other insiders. While current management has not uncovered evidence of theft, McAllister and other insiders had ample opportunity to embezzle assets and conceal this embezzlement in subsequent years.
During 2007 ... management hired additional staff and hired consultants to assist the accounting staff in producing accurate financial information. Those efforts failed, and during Fiscal Year ending June 30, 2009, BDI management hired Randy Russell, a consultant, to help BDI create an accurate financial information system. After spending upwards of two million dollars on a new, comprehensive accounting software, the company still could not integrate the data contained in the website database system with the accounting system.
Footnote: Mayfield had served as BDI’s controller until 2009, but left and joined Randy Russell in a tax consulting firm. (I add this as interesting because she was on the payroll as late as about May, 2012 -- footnotes are usually considered even more reliable than the rest of the text).
The returns showed that by June 30, 2002, the end of BullionDirect, Inc.’s third fiscal year, the company had amassed $829,000 of operating losses on only $4.5 million in trades. Unfulfilled orders had already amounted to $722,000.
From the beginning of the company, the various terms of service agreements posted to the website were interpreted by BDI management as allowing BDI to act as “owner” of the stored metals and to “book,” but not complete, transactions. The unfulfilled transactions were referred to as “obligations”.
Equity Trust Company, a precious metals IRA account manager, sent quarterly reports to BDI customers with precious metal funded IRAs, which tended to reinforce the belief of the customer that the purchased precious metals were being held in the vault used by BDI, but, had the vault contents been inspected by Equity Trust, the much smaller amount of inventory would presumably have been noted. It does not appear that Equity Trust ever examined, audited or inspected the vault. Equity Trust has denied any liability resulting from its erroneous and misleading reports.
Management appeared to realize that not enough individuals wanted to sell its precious metals on-line, thus the company increased its volume of sales of bullion it did not own. The company monitored the current price of bullion and offered sales of that bullion on its website at prices slightly discounted from the current market price, the policy being that they would immediately purchase the item to be sold at current market price. BullionDirect continued to lose money throughout this period.
Realizing the magnitude of its problem from the 2010 tax return, management tried to make BDI a possible merger partner or target for acquisition.
BDI hired consultants, primarily, Randy Russell, to create an accounting system that would integrate the website database. This $4,000,000+ effort was not successful. In addition, Randy Russell advised BDI management to invest in other transactions, including one for over $400,000 in one of Russell’s own companies, NBFog, Inc. That company has yet to generate any return and is the target of litigation by other investors. BDI’s claims against NBFog, Russell and others are under investigation.
bank statements stopped being reconciled as of September 30, 2011.
In addition the CRO and counsel have cooperated with every state, local and federal agency that has been examining the operations of BullionDirect, including several state attorneys-general.
Administrative Expenses (taking priority over everything else) through April 19, 2016 include:
Unique Strategies Group (Bensimon) $221,500 (including $100K success fee reduced to $50K) Martinec Winn & Vickers, PC $184,800 Dykema Cox & Smith $ 60,000 TOTAL: $466,300Debtor does not believe that any amount would be available to pay unsecured creditors under a Chapter 7 liquidation. ($695K estimated at fire-sale prices).
On or after the petition date, the Debtor was the subject of inquiries or investigations by multiple attorneys general, the Travis County District Attorney and the Austin Police Department. In addition, investigations were begun by the Federal Bureau of Investigation, the Internal Revenue Service, and the Commodities Futures Trading Commission.
Given the state of BDI’s records and the legal burden of individuals asserting title to specific items, it would be virtually impossible to track or trace the ownership of the coins and bars in the vault.
Reorganization PlanApril 19, 2016 6:40PM EST
Bullion Direct has filed a Plan of Reorganization.
It is strongly recommended that creditors at least look through it.
It lists 6 classes of creditors:
It is unclear who would be entitled to be in Class 4, as some of the people who chose to file a Proof of Claim form checked that box while others did not, and the Bullion Direct creditor list does not specify which creditors would qualify to be in Class 4.
CFTC InvestigationApril 19, 2016 7:25AM EST
I have heard reports that some CFTC attorneys have called some Bullion Direct creditors.
It is not at all surprising that the CFTC is pursuing this. Hopefully, however, they will conduct a full investigation, and restore the damage they did to their reputation with their poor investigation of The Tulving Company. This phone call is certainly a good step. With The Tulving Company, I am not aware of them talking with customers, who certainly would have let them know that The Tulving Company had indeed been around for about 20 year and was not a fly-by-night operation.
Asset Sale/Auction HearingMarch 29, 2016 12:05PM EST
There was a hearing yesterday, regarding the sale and auction of the intellectual property.
Bullion Direct's motion to sell/auction the intellectual property was approved. The auction will take place on May 23, 2016 at 9:30AM (however, bids must be in by May 16, 2016). Hopefully word will get out to anyone who may consider bidding.
Tax InformationMarch 15, 2016 8:50AM EST
I have finally put together a page on tax information.
Basically, it looks like you can probably take a theft loss (which is normally better than taking a capital loss, which you could do instead if you wanted). It may be possible to deduct part of the loss in 2015 (the amount that cannot reasonably be expected to be recovered), but it does not need to be deducted in 2015.Mo< For full details, click on the link above. If you have questions, please let me know.
Upcoming Asset Sale and AuctionMarch 11, 2016 1:35PM EST
Bullion Direct filed a motion on Tuesday to enter a sale agreement (referred to as a 'stalking horse' bid) and auction.
Specifically, Cheryl Huseman and C. Jack Murph (Charles McAllister's mother and stepfather) have put in a bid where they would get most of the assets of the company (including the website and software), putting $100,000 into the company, and conditionally another $100K-$200K. They would try to revive the business, using a 3% commission rather than a 2% commission. They would also get a release of liability. Part of the profits would go to a creditor trust.
So what does the "stalking horse" bid mean? It means that they will be bound to make purchase the purchase, but there will also be an auction, and they can be outbid (but if they get outbid, $25,000 of the winning bid would go to them, to help cover their costs of making the purchase agreement).
$50,000 of cash will go to a Creditor Trust, along with the ~$700K of metal in the vault. All creditors will be beneficiaries of the trust. 80% of the profits from the first year would go to the trust, along with 60% of profits in years 2-3, and 50% of the profits from years 4-7.
Ultimately, what creditors want here is for people to bid on buying these assets and restarting Bullion Direct. If you would rather have, say, an existing bullion dealer running Bullion Direct than Charles' parents, let people know about the auction. It sounds like there may only be a couple weeks for bidders to prepare.
Notices from Bullion DirectMarch 11, 2016 1:35PM EST
Subject: BullionDirect, Inc. - Chapter 11 No. 15-10940-tmd - Notice of Hearing
Date: March 10
Title: Notice of Expedited Hearing on Sale Procedures Motion - March 28, 2016, at 1:30 p.m. (Judge Davis Courtroom)
Today BullionDirect, Inc. filed Notice to Creditors and Parties in Interest of Expedited Hearing on Debtor's Motion for Order (a) Authorizing Debtor to Enter Into an Agreement for the Sale of Assets Free and Clear of Claims, Interests, Liens and Encumbrances, (b) Approving Procedures and Notice with Respect to Sale, (c) Scheduling an Auction and Hearing for Approval of Sale, and (d) Granting Related Relief (Doc#148). The hearing has been set for March 28, 2016, at 1:30 p.m. in Judge Davis' Courtroom No. 1, Third Floor, Homer Thornberry Judicial Building, 903 San Jacinto Blvd., Austin, Texas (Click Notice of Expedited Hearing to see the document).
We will keep informed.
Subject: BullionDirect, Inc. - Chapter 11 - Sale Procedures Motion
We will send updates when they are available.
No News Yet On HearingMarch 1, 2016 2:35PM EST
So far, I have not heard any news on the hearing that was supposed to have been held yesterday (regarding the motion for conversion to Chapter 7), or even seen confirmation that it did indeed take place.
As soon as I have any information, I will post it here.
I have heard (but cannot confirm) that Bullion Direct may be planning to get a 'stalking horse' bid, an asset purchase agreement to buy the website platform and possibly all of Bullion Direct's intellectual property, subject to an auction.
Hearing Continued AgainFebruary 7, 2016 8:45AM EST
The hearing for the court to decide on the motion to convert to Chapter 7, as well as payment of professional fees, has been postponed again from February 3 to February 29.
Again, there is no information as to why these delays are occurring. However, delays like this usually only occur if both sides are willing to accept the delay, which suggests that Bullion Direct is working on something that could be beneficial to creditors.
Website Back OnlineFebruary 5, 2016 6:25AM EST
The Bullion Direct website is back online, and appears to have all customer data intact. No explanation is known for why it was down.
Website DarkJanuary 27, 2016 10:25AM EST
Yesterday between about 11:20 and 11:30, the Bullion Direct website went dark.
It appears that Bullion Direct (Dan Bensimon and Joe Martinec) shut down the website. However, there are other possibilities (e.g. they forgot to pay the bill, hackers, massive failure at the hosting location, a simple error that nobody noticed, etc.).
The fact that people cannot see Bullion Direct's website doesn't sound unusual, until you realize that is where people are checking their account information. The fact that the site is down yet Bullion Direct has not informed creditors is quite disturbing, as many may assume that Dan Bensimon (who is working on a deal with Charles McAllister's Mom) has skipped town like Charles. At the very least, it adds to the already adversarial relationship between Bullion Direct and creditors.
UPDATE 9:30PM: They may have shut it down on January 26 because the Proof of Claim deadline was January 25, and they figure that nobody needs to access their account information anymore. But the problem with that is that if the case is converted to Chapter 7, everyone needs to file a Proof of Claim, and would then need that information.
QuietJanuary 19, 2016 1:45PM EST
There has been nearly no activity recently in the bankruptcy and/or investigations visible from outside the 'inner circle' (Bullion Direct, investigating government agencies, and whoever they are dealing with).
The latest court document was filed 11 days ago, and simply a "We're still alive" filing -- a document stating that Bullion Direct's Master Service List has not changed.
Right before that, on January 4, a document was filed by Joe Martinec stating that the hearing on conversion to Chapter 7 (scheduled for January 6) was postponed ("will be continued to a later date as necessary"). It mentioned that there would be a status hearing on January 6, but no information is available about that hearing.
A number of people have asked about the Bar Date (Proof of Claim deadline) of January 25, 2016. I'm not allowed to give legal advice (but isn't saying "You should ask an attorney" -- what I would advise if pushed -- legal advice?). That said, my understanding is that in a Chapter 11 bankruptcy, there is no need to file a Proof of Claim form if you are properly listed in the list of creditors (see http://about.ag/pics/bk/bd/101.pdf), or the court tells you otherwise. That said, if the bankruptcy does convert to Chapter 7, you almost certainly will be required to fill out a Proof of Claim (but should be notified by the court). However, that (from a moral and logistical perspective) would have to involve a new deadline.
Objection to Professional FeesDecember 8, 2015 4:40PM EST
Today the Unsecured Creditors' Committee filed a limited objection to the professional fee applications.
Among other things, it points out that making the payments Dan and Joe request would deplete 90% of the cash available, with very limited funds left. It also points out that payment is not required at this time, and that if conversion to Chapter 7 does occur, Chapter 11 expenses would be subordinate to Chapter 7 expenses.
The objection also includes a reply to Bullion Direct's objection to the motion to convert to Chapter 7. It covers how Chapter 11 is unusual for criminal enterprises, how it can provide an advantage to criminals, and how criminal enterprises tend to have lower chances for successful reorganization.
Did Charles Act Alone?December 8, 2015 4:00PM EST
In the motion to convert to Chapter 7, the Creditors' Committee said that Charles did not act alone.
In response, Bullion Direct says that by most accounts Charles was "the man in charge," and suggests that it was limited to him.
Well, he may have been in charge (accounts vary). But, I know of at least 8 people that have known (or should have known) for years what was going on. Yes, EIGHT. Not including Charles or any of his family members. Two of them knew of the severity of the losses (but may not have had access to financial statements). Another 7 had access to financial statements (or should have, given their position).
And one person was referred to as the CEO, while another tells people he was the "leader" of Bullion Direct.
If lowly old me can find 8 people other than Charles that knew (or could/should have known) what was going on, imagine how much Dan could find out with his access to all of Bullion Direct's records. And imagine if Dan opened up communications, and could just ask me.
Dear DanDecember 8, 2015 9:15AM EST
In your latest declaration, you say your preliminary research did not turn up any real estate in Charles' name, and later say that you are unaware of Charles' family trust.
So let me tell you what *I* did. My preliminary research showed that Charles and his family owned a $200K house (I'd call that modest) that they sold in 2009. After that, no sign of anything. I'm not sure where your information about him living in a modest home comes from (unless you're referring to the home he left in 2009). Are you going by what Charles said, or the house he lived in 6 years ago, or something else?
After further research (and a bit of help, a big thank you to everyone who has sent in tips, it helps make up for zero information from Bullion Direct) led to more. Charles and Patrice have a family trust, formed in June, 2007. It bought a house in 2009, with Charles and Patrice signing an unsecured promissory note for $925,000 from Bullion Direct (which you mentioned at the creditors' meeting, so you at one time were aware of a $925K+ home -- again, Huh.). In 2010 Bullion Direct transferred the note to NBD Holdings to capitalize NBD (Charles and Patrice agreed to this). In 2011, the deed was given in exchange for forgiving the loan, and the deed was given to NBD Holdings. The house was then sold by NBD in 2013 (with Charles signing the paperwork). It is unclear when Charles and his family left.
So Dan, if you want information I have, just open up the line of communication, so you do not have to continue providing creditors with misleading or inaccurate information. Portraying Charles as living in a modest home when he borrowed nearly $1M (unsecured) from Bullion Direct to buy a 5 bedroom home complete with a game room and gallery isn't something that creditors appreciate. Please, feel free to take me up on my offer.
Why Did Cloud Bills Stop Getting Paid?December 7, 2015 3:40PM EST
Bullion Direct relied on "the cloud" for storing its database, which included accounting records. Dan and Ben have brought confusion as to whether the cloud companies were paid on time or not, implying that Charles stopped paying, which made access difficult. But that wasn't exactly the case.
Bullion Direct has recently said "All digital data was stored with third parties and “in the cloud”. None of those parties were paid for months before the filing." That seems to answer the question. "Months" means more than one month. Assuming 2 months, that would mean they were not paid since at least late May, 2015.
But then they changed the story slightly. Explaining the difficulty of the case, they said that Bullion Direct "kept its partially-posted books in the “cloud” and stopped paying cloud storage facilities and other IT storage activity weeks before filing." Weeks before filing suggests less than a month, which would be late June or early July. But it would still be true even if it was many, many weeks, so it could still work with the original explanation.
But then comes the interesting piece. When were these cloud providers actually paid? According to information I have received, Rackspace was paid for cloud hosting on June 19. Yes, June 19. That's a few days after Charles first met with Joe! He also paid Microsoft for what appears to be cloud hosting on June 12, before meeting with Joe (so it's not as if meeting Joe got him to start paying bills that hadn't been paid in months). And Charles paid Contegix (a cloud computing company that appears to have hosted the Bullion Direct website) and Amazon Web Services ("Cloud Computer Services") in early June. So it doesn't look like Charles was late on payments when he met Joe.
Certainly, Charles was in charge of paying for the cloud before meeting with Joe in June -- it was essentially his company, not in bankruptcy, and not even having talked to Joe in years. But he paid hosting fees just 4 days before meeting with Joe. So there is no evidence that cloud bills were not paid before Charles met with Joe to discuss bankruptcy in 2015.
So what happened that made Charles stop paying the cloud bills a few days after meeting with Joe? Isn't it normally right after meeting with the bankruptcy attorney that you start flying right, and paying the most important bills?
And here's the kicker: Charles may not have paid bills from June 22 through July 20, the date of the bankruptcy filing. That's 4 weeks. But it took over 10 weeks from the time Dan took over until he paid any cloud bills. Huh. Charles getting paid $130/hour stops paying the bills for 4 weeks, after he has shut down and talked to his bankruptcy attorney. Dan getting paid $350/hour doesn't pay them for another 10 weeks. Huh.
The really funny thing is that if Dan and Joe gave me information that is legal to give me, I'd be scouring that information to help creditors. Instead I'm stuck finding stuff that make them look bad.
Charles: Broke or Bespoke?December 7, 2015 10:30AM EST
Bullion Direct is painting a picture of Charles McAllister as being very different than Bernie Madoff or Allen Stanford. While certainly true, let's take a quick look.
Bullion Direct points out that Madoff and Stanford "wore their ill-gotten wealth on their bespoke sleeves, while [Charles] appeared to have a modest home and a car with 200,000 miles on it."
What Bullion Direct doesn't point out is that Charles must have had one of the nicest looking cars with 200,000 miles on it. About 24 hours before meeting with his bankruptcy attorney in June, I have it on good authority that Charles was getting his car detailed.
As for his home, until recently there was no information on his residence after leaving his $200,000 home in Wimberly, TX in late 2009. However, I have uncovered that in late 2009 he moved to a 4,300SF $1M home on a 1/2 acre property in Austin. That home has 4-5 bedrooms, 4 bathrooms, a game room, gallery, and master bedroom with a 'his and hers' walk-in closet. And how did he pay for it? A $925,000 mortgage from Bullion Direct!
To be fair -- as I always try to do -- it looks like Charles left that $1M home somewhere around early 2013 (with more recent whereabouts unknown -- although there is a rumor he was renting in Lakeway), although there is a chance he was there until very recently.
There is also evidence suggesting that the day Charles first (since 2012) met with Joe, Charles checked out of a Mariott hotel: a hotel that Mariott ranks 8 on a scale of 9 on a price scale.
Page Started on Response to Chapter 7 ConversionDecember 5, 2015 1:55PM EST
I have started a page with my commentary on Bullion Direct's response to the motion to convert to Chapter 7. I will be adding more to it.
As I have warned, it is quite biased, which is why I placed it on a separate page. I strongly feel that the people running Bullion Direct post-bankruptcy are putting creditors' needs last, which to me seems completely inappropriate.
Again: Tips WantedDecember 5, 2015 1:55PM EST
First, thank you to those who have sent in tips (especially a recent one; if you have further details to share I would be happy to hear about them). If you were an employee, shareholder, family member, partner, etc., you may well have information that would be very useful. Shareholders' report? Financial records? Information disproving what has been said so far? Files can be attached if desired.
As a reminder, I will not post any information marked as confidential. Also, I am very careful about what information I do release, even if it is not marked as confidential. Tips can be submitted using the anonymous tip form.
If you require a response, you can instead. All information sent via E-mail is considered confidential unless you state otherwise. All information is welcome; I would prefer too much than too little! Thank you.
ORDER IN THE COURT!December 5, 2015 1:40PM EST
I am working on a full writeup of Docket 128, that will be on a separate page [UPDATE: It is available here], and somewhat biased. This post is just a summary, and intends to be as unbiased as possible.
It is very, very clear that Dan and Joe and on opposite sides of the Unsecured Creditors' Committee (UCC); the two sides are fighting through their attorneys. Joe suggests that the attorney for the UCC's attorney (and, I believe, the judge as well) are inexperienced, points out that Charles shouldn't be treated like Bernie Madoff because Charles drives a car with 200,000 miles, twice appears to accuse the UCC's attorney of sabotaging potential deals, and places blame on the members of the creditors' committee (who unlike Dan and Joe get paid nothing, and didn't ask to be in this mess). Both sides accuse the other of not cooperating. And on the flip side, the UCC's attorney accuses Dan and Joe of not getting a serious proposal together, and attacked the potential Huseman proposal.
That said, it does appear that there is some value to the Nucleo deals that are in the works and potentially with Bullion Direct itself. If the deals could be done and Bullion Direct re-started, it could provide a great opportunity for creditors.
From my somewhat limited knowledge of bankruptcy, I would love to see a Chapter 11 Trustee be appointed. Chapter 7 limits the ability to pursue the potential deals that are in the works and/or turning Bullion Direct into a viable business. A Chapter 11 Trustee, from my understanding, would also eliminate Dan and Joe from the process (as a Chapter 7 conversion would), who don't seem to care too much (more details in my biased, scathing report to follow). [UPDATE: Although I think this would be a great option, logistically it may well not be possible -- I am not actively advocating do this].
As for the Huseman proposal, it's also hard for me to be unbiased, as the only information I have comes from the motion to convert to Chapter 7 and the response, as neither Dan/Joe nor Ms. Huseman are willing to communicate with me. Ms. Huseman read a draft of my "Request to Convert to Chapter 7" post, and chose not to comment on it. "No Comment" is not an admission of guilt in any way. However, if you look and at act like the professionals that appear to be against the creditors, it's hard not to place you in that category. Remember, there is a world of difference between "Sorry, I cannot discuss that" and no response combined with alienation.
The Huseman proposal does seem inappropriate to me, but worth considering. It involves a $200,000 investment, putting a decent amount of "skin in the game." However, it is a loan due within 4 months. And they would use nearly all assets of Bullion Direct and subsidiaries as collateral, and would apparently own them. I feel that the 12% interest rate is negligible (about $8,000), and not a concern. The loan would be a "super priority", which I believe means that Ms. Huseman would get paid back before attorneys or creditors, making this a low-risk deal for her. The Proforma shows sales of $80M at minimum by year 4, a bit higher than the average Bullion Direct sales over the past 10 years. Remember, the online bullion dealer competition has been very fierce for about 4 years now.
What is important about the Huseman proposal is that it is a 'stalking horse bid.' In general, that means that they are willing to commit to a bid, and allow others to out-bid them (with some provisions so they would benefit to some extent if outbid). This happened with the Tulving bankruptcy: there was a stalking-horse bidder, and then others were allowed to bid. So if the proposal were accepted, and it really is an inappropriate offer, someone else can come in with a better offer. With two other serious interested parties, there is the potential (perhaps unlikely, but possible) of a bidding war.
In short, the attorneys are fighting, which is not good for the creditors. If two parties cannot work together, usually either one side or both are at fault. Whose fault it is, I cannot say (but can speculate).
Response to Chapter 7 - More Info to FollowDecember 5, 2015 6:35AM EST
Yesterday, Bullion Direct filed their response to the motion by the Unsecured Creditors' Committee to convert to a Chapter 7 bankruptcy.
I will be posting more about it later. I am going to try hard to be unbiased, but that will be very difficult. The initial read is like watching my two children arguing, knowing that one side has to be right and the other side lying -- but one of those children is the just-adopted teenager who just told me he would never speak to me again in his life, while the other had previously pledged allegiance to my other children. Yes, you want to give both sides a fair chance, but it isn't easy.
Creditors' Committee ContactsDecember 3, 2015 9:10AM EST
For those that are looking for contact information for the members of the Unsecured Creditors' Committee, you can find it in Docket 65.
Admitted Unnecessary Expenses?December 3, 2015 1:10PM EST
Please try to follow my logic here.
Dan Bensimon (CRO) and Joe Martinec (Bullion Direct's attorney) made a voluntary decision to stop communications with me, despite my requests otherwise. I would be happy to post the relevant E-mails if anyone wishes. Their first and only E-mail to me was the day after the bankruptcy petition was filed. So the vast majority of expenses were after they chose not to communicate with me.
By choosing not to communicate with me, they are essentially saying that doing so is not necessary. Obviously, if it was necessary, they would communicate with me, right? I assumed it would be negligent not to do something necessary. So they have made it clear that communicating with me is unnecessary (of course, that isn't really true, but that is what they appear to be saying).
The problem, though, is that I have given them information they have acted on. For example, I alerted them to the $9.8M in bogus claims, which they then fixed. I alerted them to the fact that a 2010 tax return had been filed (after they implied (Docket 44) and clearly stated under oath (creditors' meeting) that none had been filed), and they took action to get a copy of the return. I guess if I unintentionally lied under oath I wouldn't be happy (the expression "Shooting the Messenger" comes to mind).
So the problem is this: if they have decided my input in unnecessary, how can they say that expenses for acting on my input is necessary?
[I have a separate page with full details on issues I have found so far with the professional fees]
Happy ThanksgivingNovember 26, 2015 8:55AM EST
I hope everyone has a happy Thanksgiving.
I also hope that everyone who is involved in the bankruptcy, but fortunate enough not to be owed anything by Bullion Direct (which includes myself), will remember that unlike most Chapter 11 bankruptcies the creditors had no way of knowing they would be in a situation like this.
For the IRS, dealing with a bankruptcy is just part of their job. For American Express, it's a risk that they chose to take, and factored that into their fees. A small business offering 30-day terms knows there is a chance of non-payment, and takes that risk. An individual customer of a typical bankruptcy might be out $50 or even $500 for an order. Shareholders know that there is always a chance they might not see any of their money back (and if they saw financial statements, would be aware of the situation). Even the professionals choose to take on the risk of not getting paid. But these customers trusted Bullion Direct to store their precious metals, at an average of about $5,000 per customer. Many lost much of their life savings. Barring crime of some sort, it is hard to imagine any situation where they would not get their metal back.
Typical court cases involve two sides, and professionals need to protect the innocent as well as the guilty. That's how the system works. But here, the guilty parties are for the most part gone. Bullion Direct, the company, is not still in the bullion business, and doesn't even have a single employee from the past. The professionals involved in the bankruptcy need to all realize that the creditors are the victims here; there is no doubt about that. None of them asked for this. The creditors deserve to be treated with the utmost respect.
All professionals have varying legal and ethical obligations, but to the extent the law and ethics allow, I hope we all can do our best to help the creditors, and put their interests first (again, to the extent law and ethics allow) when negotiating, charging fees, communicating, etc.
Professional FeesNovember 26, 2015 8:25AM EST
I have moved my details about the reasonableness of professional fees to its own page, as those posts don't really belong on this page.
While fairly scathing, these professionals charge fees that warrant scrutiny (e.g. charging $450/hour when anything over $175/hour requires justification). And these professionals have opted to refuse to communicate with creditors through me, despite many creditors saying they would know nothing if it were not for what I write. They also chose to take on the risk of not getting paid some or all of what they are owed (compared to creditors who did not voluntarily take on any such risk).
My point is not to say that these fees are unreasonable -- that's something for the lawyers to argue and the court to decide, if necessary. I just see a number of potential issues with the fees (which I did not in the Tulving case, with their even high priced professionals), such as charging creditors $27K to "communicate" with them, and $34K to understand the database. Remember, the judge almost certainly does not read what I write. If any creditors feel that fees are unreasonable, it is up to them to take action (e.g. contact their attorney, or suggest to the creditors' committee that they look into it).
Bullion Direct to Contest Chapter 7 ConversionNovember 23, 2015 2:40PM EST
Today, Bullion Direct filed the October Monthly Operating Report.
It doesn't contain much useful information. However, it does state that Bullion Direct plans to contest the motion to convert to a Chapter 7 bankruptcy. Also, they deposited $29K of checks that had been sent (ones the senders did not object to being deposited).
Request to Convert to Chapter 7November 17, 2015 1:10PM EST
A motion was made yesterday by the unsecured creditors' committee to convert the bankruptcy from Chapter 11 (reorganization) to Chapter 7 (liquidation).
The main reason for the request to convert to Chapter 7 seems to be that the Chapter 11 reorganization is not going anywhere, with no signs of deals being finalized that Dan Bensimon (CRO) thought would quickly occur if a reorganization was possible. The case is also nearing administrative insolvency (when there is not enough cash to pay administrative expenses; normally Chapter 11s convert to Chapter 7 at that point).
The motion mentions that there were employees, officers, lawyers, accountants, and vendors, many of whom knew or should have known that Bullion Direct was acting "in a massively fraudulent matter," and that none blew the whistle in time to stop this criminal enterprise. It also stated that "Numerous insiders and business partners seem to have known about this fraud and aided and abetted it."
It was also disclosed that Cheryl Huseman, a patent attorney and small shareholder Bullion Direct who helped with the Bullion Direct trademark and patent applications in its early years, is Charles McAllisters' mother. Apparently, last month she expressed interest in investing in Bullion Direct and restarting operations. The motion suggests that she was involved in drafting the 2012 Customer Agreement. That is the agreement that Bullion Direct interpreted as meaning they did not have to actually purchase metal for customers placing orders, although Bullion Direct had been operating that way for over a decade, and had very large losses at the time the terms were changed. The modified terms were written within days of a $100,000 retainer being paid to Bullion Directs' bankruptcy attorney (in 2012).
It mentions that around the time that bankruptcy was first being pursued in 2012, there were likely enough assets to at least have covered the IRA accounts.
The motion also suggests that Dan Bensimon has chosen to focus on matters other than investigation and litigation, with him reportedly having said that he does not have the time to do an accounting review, even for the larger transfers. I find that to be extremely concerning; without having even the most basic understanding of where the money went, it is nearly impossible to recover it (unless someone voluntarily chooses to return money). This is not a typical bankruptcy; Bullion Direct's attorney admitted that there was possible fraud, and there are credible allegations that money was taken out of the company for non-business purposes (e.g. investments in companies employees were working on). How can you recover money for creditors that you don't even have time to look for?
Moving SlowlyOctober 21, 2015 9:40AM EST
There just hasn't been much going on recently (that can be seen from outside of Bullion Direct, at least).
Yesterday, the September Monthly Operating Report was released. It doesn't show much. It does show that as of the end of September, no unexpected money came in (e.g. from licensing) -- although any such money might show up as Nucleo income (which we might not find out about for a while). At the creditors meeting, it was said that they expected the initial sale (licensing) to occur within a few weeks, and that would determine if it is a viable Chapter 11 bankruptcy. Two people at the meeting referred to 'a few weeks'; it has now been 8 weeks. It's quite possible they have made a deal and are being silent about it (but that, too, would be disturbing), or that it is taking a lot longer than expected.
It also shows that a reorganization plan is proposed for November 17.
The other thing that concerns me is that the balance sheet shows unsecured debt of $16,938,925.11. That number is from the total unsecured nonpriority claims from the original Schedule F (Docket 44) -- which we knew at the time was not representative of what was actually owed (e.g. not including the dollar value of the metal stored for customers). The corrected amount is $24,231,140.60. I don't understand how a balance sheet dated September 30, 2015 can not include debt known on September 18, 2015. But I'm neither an accountant nor a lawyer.
It also shows professional fees accrued so far (but not paid yet) as $159,220.97 (the legal potion of that only goes through September 15, 2015).
Audio Summary of Creditors' MeetingSeptember 28, 2015 2:35PM EST
I now have a page with a summary of what was said at the creditors' meeting. It is not a transcript, but paraphrases much of what was said.
You can also download the audio (you may need to right-click and choose 'Save Target As' to download it).
Joe Martinec: You Have to Pay to PlaySeptember 25, 2015 4:30PM EST
As you may be aware, neither Bullion Direct's sole officer (Dan Bensimon) nor their attorney (Joe Martinec) are willing to communicate with me, even though the vast majority of creditors are relying on me as their sole source of information.
In listening to the audio, I found out that Mr. Martinec and Mr. Bensimon had a meeting on August 24, 2015 with several attorneys for creditors, and gave them a summary of 10 years' worth of taxes for Bullion Direct. This information was useful enough to one attorney to lead him to ask several questions about it at the creditors' meeting. The meeting also discussed when Charles McAllister left Texas, which had been unknown to creditors.
The creditors' meeting is supposed to give creditors a chance to confront the debtor, and find out about their chances of getting money back. How can a creditor know what questions to ask if information is being withheld from them?
In essence, Mr. Martinec is saying "You must pay to play": if you pay for an attorney, he will give you information. Otherwise, you will not get it . Maybe I have an odd moral code, but that just seems totally reprehensible to me, and just reinforces the stereotype of bankruptcy attorneys just bleeding companies dry taking out as much money as possible for themselves and their buddies in the "old boys club".
How can you be acting in the best interest of creditors if you have information you can share, yet only share it with those willing to pay attorneys, rather than getting that information to as many creditors as possible at no cost? Unless you're just out for the money, I don't see the reasoning for this. Even a simple "My father was an attorney, and his father was an attorney, and his father... this is how it has always been done; we say 'Bros before Foes'" would be better than no explanation.
If there are attorneys reading this who feel that Bullion Direct's position is unacceptable, please remember that I have an anonymous tip form that you can use to share information with me. The same holds true for ex-employees or anyone else with information they would like to share. I would prefer information that I can share publicly, but can also accept confidential information if marked as such.
Charles Real Worried by 2007September 25, 2015 4:00PM EST
At the creditors' meeting, someone somehow thought to ask Dan Bensimon when Charles McAllister started worrying about these matters. Dan Bensimon answered by saying that in his discussions with Charles, Charles indicated that the fiscal year ending June 30, 2007 was the year he became 'real worried about fulfillment'.
In that fiscal year year, sales doubled, but the cost of goods sold was $4M more than what Bullion Direct was paid. That is explained by Bullion Direct buying metal after funds cleared (e.g. you pay them $10K, they deposit the check, and buy the gold when the check clears a week or two later, when the price of gold may have gone up).
In that fiscal year, Bullion Direct went from having used $3.3M of customer metal to using $10.1M.
This is the type of information that I believe creditors really want to know about, and Dan Bensimon and/or Joe Martinec have, but do not seem to be willing to share unless pushed.
$1M Lost in Speculation?September 25, 2015 3:25PM EST
We learned on September 9 (in Docket 93) that BDI Trust is a 100% owned subsidiary of Bullion Direct, with cash of $20,158.45. We also were told that it was used for market hedging for 2011 through part of 2013. That shouts "Nothing to see here!"
The audio of the creditors' meeting, however, says otherwise. It turns out that BDI Trust was funded to the tune of something like $1,000,000. It also seems clear that there was no point in time where hedging was appropriate: Bullion Direct had no inventory to hedge. Taking orders without inventory and hedging the price is not a viable business strategy if you lose $1M doing so. Nor is hedging the price of metals that you sold that belongs to customers.
What this boils down to is Bullion Direct lost $1M in speculating. If I were on the creditors' committee, I would ask to see the R. J. O'Brien statements to see what types of trades were done (e.g. if these were things like deep out-of-the-money options), and see if it was Charles that opened the account. Given the time period, there is a good chance it may have been opened by (or at the suggestion of) someone else.
Charles Owes Bullion Direct $500,000September 25, 2015 11:00AM EST
Despite taking out an estimated $3M out of the company as a salary over the years, it looks like Charles McAllister owes Bullion Direct $500,000.
This was for expenses paid for on a Bullion Direct American Express card through about 2010, that were apparently personal expenses. The details aren't fully clear, as the audio refers to the Bullion Direct American Express card, but also refers to "over-reimbursement" (which by itself suggests that Bullion Direct *also* paid Mr. McAllister for such expenses, as if it were his own personal credit card). But despite the confusion, it is clear that "That $500,000 is still due today."
Bullion Direct's PlanSeptember 25, 2015 7:30AM EST
I still haven't made it through the 4-or-so hours of audio, but am working on it.
One important discovery has to do with Bullion Direct's plan: Dan Bensimon is working on having Nucleo license technology from and to some companies. There are letters of intent in place to license a technology, and two potential customers with letters of intent already signed. Dan Bensimon is hoping to use this to get some immediate cash flow (although not a huge amount).
He made it sound like if the deals could not be reached, this would likely turn into a Chapter 7 liquidation.
The cash flow, if obtained, would then be used towards improving some deficiencies of the platform that Bullion Direct uses, and then licensing it. He states that the potential of licensing it for a million dollars or more a year is real. Two options that were brought up were having the profits go towards paying off customers, or possibly having customers trade the money they are owed for shares of Bullion Direct or Nucleo.
The deals were expected to be done within a few weeks; it has now been just over 4 weeks. So they may well have already been signed, or not worked out.
What I find very disturbing is that while Dan Bensimon was very willing to discuss this at the meeting of creditors, he and Joe Martinec have shown no desire to share information with creditors outside of the creditors' meeting. It would have taken all of about 5 minutes to respond to an E-mail of mine and let me know, and I could have told creditors. It could have eliminated a lot of worry, as well as speculation. Why allow creditors to speculate about something you are willing to share with them? It makes no sense to me. It does remain clear that they have this strong desire to keep most creditors in the dark.
Audio of Creditors' MeetingSeptember 23, 2015 6:45AM EST
Well, it took a month, but I finally got a hold of a copy of the audio to the creditors' meeting yesterday. Thank you to those who helped me get a copy.
You can get a copy of it here (you may have to right-click and choose "Save Link As" to save it). I am working on gathering as much information as I can from the audio, and expect to provide text (like a transcript, but less formal) to go with it, to make it faster and easier to find what you are looking for in there.
$93,456.27 Accrued in Professional FeesSeptember 21, 2015 4:30PM EST
Bullion Direct just filed the first monthly Operating Report.
In it, it shows that they plan to file a Plan of Reorganization on November 30, 2015.
Also, $93,456.27 in professional fees were accrued from July 20, 2015 through the last day of August. That works out to an average of $66K/month. As a comparison, the Tulving bankruptcy averaged $49K/mo in professional fees for the first 11 months (using top-of-the-line attorneys and a top-of-the-line accounting firm).
Breakdown of ClaimsSeptember 21, 2015 9:05AM EST
The amended list of creditors is not listed as disputed, so presumably Bullion Direct feels confident with the list. It isn't perfect -- I have caught some mistakes, and at least one person is not listed properly -- but it looks reasonable.
Here are some breakdowns of what is owed:
Searchable ListSeptember 20, 2015 5:40PM EST
I now have a searchable list of the amended list of creditors.
I strongly urge you to verify that your listing is correct in the official amended list of creditors, but this searchable page will help you quickly and easily see if you are in the list. It will also add up the total obligation for you automatically. The only errors I know of on this list are ones that also appear on the official list, but there could easily be errors I overlooked.
Remember, the "Total Obligation" is calculated by multiplying the number by a spot price that Bullion Direct determined for the data of the bankruptcy filing (July 20, 2015). They used $1,103.60 for gold, $14.76 for silver (by error $14.74 for draws), $974 for platinum (abbreviated by Bullion Direct as "Pl"), and $603 for palladium (abbreviated by Bullion Direct as "Pa").
Amended List of Creditors ReleasedSeptember 18, 2015 4:50PM EST
The amended list of creditors has been released.
I will be updating this as I absorb the new information. At first glance, it fixes the error I reported of duplicate listings (the top 20 creditors were listed twice originally), appears to add those who took a cash or product draw that were not originally listed (which I reported before the original list was released), and removes the $9.8M in bogus claims I reported.
The good news is that it appears nobody is listed as disputed. And the total liabilities are now listed as $24,247,546.06 (including metal owed, based on the July 20, 2015 spot price, as I had previously reported).
Again, I will update this as I have a chance to see what is there.
Proof of Claim Deadline ExtendedSeptember 15, 2015 10:25AM EST
The judge has just extended the deadline for the Proof of Claim forms until January 25, 2016.
This is to allow Bullion Direct time to work on an amended list of creditors, to reduce the number listed as "disputed." An amended list of creditors would mean that few (if any) creditors would be required to file a Proof of Claim form. Docket 55 goes into the details, if you are curious.
I expect to let people know as soon as an amended list of creditors is filed, or provide a reminder as the deadline approaches if the amended list of creditors is not filed. Creditors who are listed properly if/when the amended list of creditors is filed will not be required to file a Proof of Claim form (giving you more privacy, reducing errors, and saving costs).
Bullion Direct SubsidiariesSeptember 10, 2015 10:05AM EST
Docket 93 lists the Bullion Direct subsidiaries: BDI Trust, NBD Holdings, Nucleo Development, and NumisDirect. All are 100% owned by Bullion Direct (except NumisDirect, which is owned by Nucleo Development). All together, they appear to have a value of about $100,000 (after accounting for inter-company loans, worthless investments, and such).
No mention is made of Nucleo Staffing LLC or Nucleocore LLC, which look like they would be 100% owned by Bullion Direct (although certainly defunct). Bullion Direct likely has no interest in Royal Precious Metals Company (a company formerly run by Charles and Vivek Katyal, after Arbitrage Inc; RPMC owns about 2% of Bullion Direct).
BDI Trust was primarily used for market hedging for 2011 through part of 2013. It has $20,158.45 in assets (all cash). From July 2013 to June 2015 it had no net income. That appears pretty straightforward.
NumisDirect, LLC, used for the Nucleo-like trading of collectible coins, has cash of $22,773.37. It also owes Nucleo Development Company, LLC $80,600. For the 2014 tax year (July, 2014 to June, 2015) it had expenses of $1,500.78, and $0 of income.
Nucleo Development Company, LLC is the company that Bullion Direct put about $6M-$7M into, to develop the software, make it marketable to other industries and so forth. It shows assets of $203,720.07, but $180,600 of that appears to be owed by NumisDirect and Bullion Direct, really leaving $23,120.07 of estimated value (mostly furnishings and computers). It owes NBD Holdings $1.45M. It had a loss of $16,950.14 in the 2014 tax year (July, 2014 to June, 2015), with $0 of income.
NBD Holdings is the trickiest one. It has $762.83 of cash. It is owed $10,000.00 (interest-only loan) by Charles McAllister for a vehicle. It is owed $41,002.00 apparently by a Mr. or Mrs. Maycock for an airplane hangar. It is also owed $98,000.00 by Forth Worth Coin Company (which also owes Bullion Direct $98,886.41 -- coincidence or mistake?). It has a $375,000 investment in 12% of NBFog, Inc. which I had on the list of questions for the Creditors' Meeting (the company was co-founded by someone who worked at Bullion Direct, and had an investment officer who also worked at Bullion Direct; my source said that NBFog is having problems with investors inquiring about the welfare of their money). NBD is owed $1.45M by Nucleo. It owes Bullion Direct $1.1M
I note that Nucleo shows zero income from July, 2014 through the present, yet Docket 16 said that "According to prior management, BDI ... continued funding Nucleo’s operations until shortly before the Chapter 11 filing." The word "shortly" is subjective, but this is one of those many little details that will need to be investigated (if Bullion Direct indeed was sending money to Nucleo, why was it not on the books?).
Undeposited Checks: Only Unobjected Will Be CashedSeptember 9, 2015 3:20PM EST
Bullion Direct has just filed a motion regarding the undeposited checks.
As you may remember, Bullion Direct earlier had requested to deposit the undeposited checks, but gave customers the opportunity to object.
Bullion Direct is asking the court for permission to destroy or return checks to everyone that made an objection, and deposit the rest. This seems overly fair; the original order required objections to contain a factual or legal basis, which few if any seemed to provide (including at least one lawyer, as best I can tell).
In total, about $344,845.60 worth of checks were objected to, and $218,372.58 worth of checks were not. Roughly 1/3rd of the creditors objected to having their checks cashed (quite a few were under $100, likely for shipping costs). It remains to be seen how many people put a stop payment order on the uncashed checks that were not objected to (which could potentially put them in hot water, if it is considered collection of a debt).
Lies and Inaccuracies, Summary
The $33M owed could be more like $25MSeptember 8, 2015 4:05PM EST
In Part 1, I showed that we really cannot believe anything we see simply because it appears in court documents. On July 28, 2015, in Docket 16 Mr. Bensimon made it sound like metal stored before late 2012 was in the vault. That now seems impossible, so it sounds like Charles McAllister completely misled Mr. Bensimon.
In Part 2, I showed that the 2010 tax return isn't accounted for in the schedules -- they suggest both that it was filed (by specifying that the 2011-2015 returns were not filed), and that it was not filed (by using the data from the 2009 return as an asset, whereas the number from the 2010 return, if filed, would be the correct number to use). This isn't an individual filing for bankruptcy due to unexpected large medical bills. This company lost $30M! You can't sweep a tax return under the rug. And the largest single number on the schedules -- a $17,044,673.00 tax loss carry-forward -- appears to not be from the latest tax return that was filed. Oops.
In Part 3, in a convoluted way I show how wildly inaccurate the numbers on the schedules are. I feel bad writing these negative articles -- but it looks like around $10M of the $33M owed customers is not actually owed anyone (and another couple million is owed, but not yet listed). Whether it is due to poor recordkeeping, sloppy work, massive pre-bankruptcy fraud I accidentally uncovered, or something else remains to be seen.
The scary part is that there is nothing in the court documents covering any of this. If someone from the media were to look at the court documents (without seeing my writing), they would have no clue any of this was going on.
Mailing ListI have set up a mailing list, which I expect to use only to send out important updates (on average perhaps one E-mail a week). I recommend that anyone who is owed metal or money by Bullion Direct sign up, to help ensure that you do not miss important news or deadlines.
Lies and Inaccuracies, Part 3 of 3
The $10M QuestionSeptember 8, 2015 1:25PM EST
This is the third and last post in a series of posts relating to problems that have occurred since Bullion Direct shut down.
This post is a bit convoluted (sorry!), but further shows how incredibly sloppy the numbers on the bankruptcy schedules are, that about $9.8M of cash is listed as being owed customers, but is not, and suggests that fraud may be involved (if so, however, the who is unclear).
The bankruptcy schedules show $17M of liabilities, which includes about $4M of known duplicate liabilities (the Top 20 creditors were listed twice), and intentionally leaves out about $20M of metal. That was known (to me, at least; certainly not to casual observers) very quickly after the schedules were filed. All told, Bullion Direct stated in the schedules that customers are owed $12,442,007.47 of cash (accounting for duplicate entries, but not including metal).
However, something has been bothering me about those schedules. Something just didn't seem right. Customers are owed cash, metal, or both. There was a lot of cash spread out among a handful of people, that were not listed in the Top 20 creditors. How could such a large amount have gone unnoticed when the list of Top 20 creditors was prepared?
For example, $500K is shown as owed to a company that borrowed $125K from Bullion Direct in mid-2013. Why in the world would an insolvent Bullion Direct loan $125K to a coin store that Bullion Direct already owes $500K to? Why in the world would a coin store borrow $125K from an insolvent company while keeping $500K cash on account there? It just doesn't make any sense.
The other day, however, I found out some startling news. Of the $12.4M cash owed customers, at least $3.6M -- and I suspect as much as $9.8M -- is not actually owed to those customers! That's at least 29% and more likely 79% of the cash owed that isn't. What in the world is and has been going on at Bullion Direct?
Further, I also discovered $100K of bullion that is supposedly owed a customer -- but the customer states that it is not owed. I doubt there is much bullion listed as owed to customers that is not owed, but there is at least some.
If that weren't enough yet to arouse suspicion, none of these customers that is not really owed money (or metal) was listed on list of 20 largest unsecured creditors. How does $9.8M get overlooked?
Let's look at the numbers. The Summary of Schedules shows $17M of liabilities. Subtract the $4.3M of duplicate entries, and that is $12.6M . Subtract the $9.8M I suspect is not really owed, and you have $2.8M of actual liabilities listed. But then you need to add in the metals that are listed as being owed customers without a value ($21.1M), as well as the metals that are owed customers but not yet listed (perhaps $2M-$5M?). And you'll see that the $16.9M number is one of the sloppiest numbers in history. 80% of it isn't real, and what is left only accounts for about 10%-15% of what is really owed. Again, What is and has been going on at Bullion Direct?
Then, there is the question I am afraid to ask: How could $9.8M be incorrectly listed on Bullion Direct's books -- most (but not all) listed as "Market Makers"? Is this just poor record keeping (using a really old database perhaps)? Or could it be fraud (hiding money in fake accounts that look legitimate)? I usually shy away from the word fraud as much as possible, but we're dealing with misuse of potentially $10 million dollars.
Lies and Inaccuracies, Part 2 of 3
The Missing 2010 Tax ReturnSeptember 7, 2015 3:45PM EST
This is the second in a series of posts relating to problems that have occurred since Bullion Direct shut down.
The other night, I woke up in the middle of the night. I had to get up and look at the information about the tax returns -- something just wasn't adding up. I shouldn't have been surprised, that's been happening a lot.
Schedule B Line 20 shows a $17M tax loss carry-forward. To quote it verbatim, "Loss Carry-Forward from 2009/2010 Tax Return ($17,044,673.00)." The General Notes Pertaining to Schedules and Statement of Financial Affairs states "Significant omissions, including unprepared and unfiled tax returns for 2011 through 2015, result in substantial gaps in records and data that will be necessary to reconstruct the Debtor's transactions and business history." It sounds normal for a bankruptcy: the company stopped filing tax returns at some point (not filing the 2011 or later returns). Right?
Wrong. The first issue is that "unfiled tax returns for 2011 through 2015" borders hyperbole -- because some (I believe 2 of the 5) of those unfiled returns are the responsibility of Mr. Bensimon! To avoid misleading people, it should really read "no tax returns filed since the 2010 tax year" or something along those lines. According to my information, tax returns have been delinquent for less than 3 years. Why exagerate to the point where you state that something you are responsible for doing is interfering with your job? That just seems strange to me. Sure, it's nit-picking -- it doesn't affect what creditors are owed or may get -- but the tone just seems inappropriate.
The bigger problem, however, has to do with "2009/2010". Given the mention of a "2009/2010" tax return, the reference to missing 2011-2015 tax returns suggests that tax returns were continuously filed until the 2011 tax return was due (as all years from 2009 through 2015 are mentioned), and that Mr. Bensimon has access to the 2009 and 2010 tax returns. However, the IRS does not have "2009/2010" tax returns -- the $17,044,673.00 carryforward was either from the 2009 tax return, or from the 2010 tax return. "2009/2010" is like slang, perhaps trying to make it easier for laypeople to understand -- but it is vague. I do not consider vague to be acceptable in the most crucial bankruptcy documents (reminder again: I am not a lawyer).
The "2009/2010" suggests a fiscal tax year (such as one ending June 30). That's why I had included a question about that in the list of questions for the creditors' meeting. However, "2009/2010" could just as easily have referred to the tax loss being entered on the 2009 return, to be used on the 2010 return (since the number would appear on both returns). However, referring to a "2009/2010" tax return as having been filed and a "2011" tax return not being filed is extremely misleading, as it does not account for the 2010 tax return. If there was no 2010 tax return filed, the "2011-2015" should have been "2010-2015." If there was a 2010 tax return, the carry-forward from the 2010 return should be used. It just doesn't make sense.
So you must be wondering what does this all mean? I see no other reading than the $17M tax loss carry-forward coming from the 2009 tax return. But if it comes from the 2009 tax return, and the 2011 and later tax returns were not filed, what happened to the 2010 tax return? If the 2010 tax return was filed -- as I have been told by a former Bullion Direct worker -- then a $17,044,673.00 tax loss carry-forward (the largest single number in the entire schedules) is almost certainly incorrect and misleading.
So where is the missing 2010 tax return? Has Mr. Bensimon seen it? Does he know that was filed? Did he think that a tax return covering July 1, 2009 to Jun 30, 2010 was actually the 2010 tax return? If he knew the 2010 return was filed, why didn't he use the NOL carry-forward from the 2010 return? Am I completely clueless about this (I'm not an accountant, either)?
To be fair, I do still have some unresolved conflicting information. For example, I have information that suggests Bullion Direct was using a fiscal year tax return, but also that more recently Bullion Direct was using calendar year tax returns. I have also heard both that a 2010 tax return was filed, and that one was not filed. This type of conflicting information is exasperating. I am hoping that the unsecured creditors' committee will soon get the audio they were promised, which may help clear some of this up.
Lies and Inaccuracies, Part 1 of 3
A Whopper in the CourtSeptember 5, 2015 1:35PM EST
This is the first in a series of posts relating to problems that have occurred since Bullion Direct shut down.
A whopper is a statement so unbelievable that most people do not even stop to think if it could be true.
On July 28, Dan Bensimon in Docket 16 declared "[Before the 2012 terms of service modification] the purchase order would have resulted in either delivery to the customer or storage of the product in a BullionDirect vault." Unless he intended to be deceptive (which I cannot imagine), that makes it sound like he felt confident that Bullion Direct had all the customers' metal until some point after late 2012.
Our first clue that something was amiss, however, was on August 12, in Docket 44 in Schedule B, where it showed a $17M tax loss carry-forward for 2009-2010. But it also stated that no tax returns were filed for 2011-2015, suggesting an issue starting in mid-to-late 2012 when the 2011 tax return was due. So the tax loss could have been attributable to startup losses in the early years.
Then on August 16, Mr. Martinec stated that Bullion Direct in 2012 (at the time of the change to the terms of service) "had suffered very large losses and many more creditors than it had assets." Another big clue. But that again is not cause for alarm as far as storage customers are concerned-- we had been told clearly that customers' metal was purchased until that point, so it should have all been in the vault. The large losses could still be explained by, for example, having $10M of outstanding customer orders (about one months' worth), like happened with Tulving.
But now it has become abundantly clear that the statement in Docket 16 was a whopper. Bullion Direct had their own inventory around 1999/2000, but none since then (presumably using a combination of customers' stored metal and drop-shipping). We know that there were cases in the 2000s where customers could not get the product they stored, and instead had to settle for a different product. And we know Bullion Direct was losing money since its inception. To say that all was well until late 2012 is a whopper, pure and simple.
So what does this mean? First, we have to move from "Trust, but verify" to "Distrust and verify." Presumably, Charles McAllister led Dan Bensimon to believe that all was well until late 2012 (and Mr. Martinec, who knew about the insolvency in late 2012, hadn't yet connected the dots), and Mr. Bensimon hadn't had enough of a chance (only about a week) to realize that nothing is as it seems. Statements under oath are very serious. If Mr. McAllister was leading people to lie under oath, nothing can be believed.
Waiting for Creditors' Meeting AudioSeptember 4, 2015 8:20AM EST
Things have been very quiet since the creditor's meeting.
At this point, I am waiting for the U.S. Trustee to get the audio of the meeting to a member of the unsecured creditors' committee, so that it can be posted online. Once that happens, I hope to be able to make an (unofficial) transcript of it. It is possible that there could be a lot of useful information in there.
At this point, the #1 question I get is whether or not to fill out a Proof of Claim form. The safest answer for me to give is to tell you to contact an attorney, but  chances are that will cost you a very significant portion of what you are owed, and  their advice will almost certainly be the safest (to just go ahead and file one, despite the drawbacks, which harm you and not them). That's not meant as a knock against attorneys, just the reality of the situation. That said, it is expected that Bullion Direct will file an amended list of creditors -- and if you are listed properly in the list of creditors (e.g. amount owed, and not listed as disputed, contingent, or unliquidated), a Proof of Claim form is not necessary in Chapter 11 (unless the court instructs you otherwise).
If you do wish to file a Proof of Claim form, please do so correctly. About 6 people already have said that their name is "Bullion Direct." One person owed about $300 filed a claim for $3M. One person put his social security number right in the middle of his address (apparently in violation of Fed. R. Bankr. P. 9037). If it looks like more than a few people will need to file a Proof of Claim form, I will provide helpful information about the form. And if you want me to look at the form before filing, I would be happy to do so.
Bullion Wholesaler Dillon Gage Owed $668KAugust 31, 2015 1:10PM EST
It appears that bullion wholesaler Dillon Gage, parent company of the IDS vault, is owed more money ($668K) than the remaining metal in the vault is worth (~$635K).
According to section 3b of the Statement of Financial Affairs, Dillon Gage, is owed $60,891.26 cash with $775,000.00 having been paid to Dillon Gage in the 90 days prior to the bankruptcy filing.
However, Bullion Direct appears to have a separate customer account for Dillon Gage, as one of several "Market Makers" (who each have much larger than average cash balances) listed in Schedule F. The account type would suggest that at some point in time, Dillon Gage acted as a market maker and would place bids/asks in Nucleo. Although Market Makers are not identified directly (the company name is missing), most of the individuals listed are high-level employees of companies in the bullion industry, and the company can be inferred from the employee name.
The "Market Maker" account associated with Dillon Gage shows them being owed $607,177.59 (almost all of that is cash, with just 10 ounces of silver owed, included in the value shown).
Adding the numbers shows a total $668,068.85 owed to Dillon Gage.
Preliminary InformationAugust 26, 2015 9:20AM EST
Here is a summary of what is known so far from the creditors' meeting:
Another List of QuestionsAugust 25, 2015 12:45PM EST
A creditor that had planned on attending, but was unable to, has put together a list of questions he is hoping his attorney will be able to ask. You can download the PDF file here.
Creditors' Meeting Questions - Revision 2August 25, 2015 8:15AM EST
I have the second revision of the list of questions. There may be more questions added before the meeting (but if so, the numbering will remain the same). I do not expect many additional questions at this point.
Questions added were: B9-B10, C3, F15-F20, and the "Lines of Questions" section.
Creditors' Meeting Questions - Revision 1August 24, 2015 12:55PM EST
I have the first revision of the list of questions. There may be more questions added before the meeting (but if so, the numbering will remain the same).
See the previous post (just below this) for more details.
Creditors' Meeting Tuesday: QuestionsAugust 22, 2015 11:45AM EST
The Creditors' Meeting (341 Meeting) is on Tuesday, August 25, 2015 at 1:00PM at Austin Room 1500, Homer Thornberry Bldg., 903 San Jacinto, Austin, TX 78701. All creditors are welcome to attend if they wish, and may ask questions.
I am putting together a list of questions from people that may not be able to attend the meeting, and it is getting rather large. I hope to place it online soon. If you go to the meeting, you are welcome to ask any of these questions, or not, as you see fit; of course, any questions you may have should take priority.
Does Not Compute: $70M Lost, $33M Claims?August 20, 2015 2:10PM EST
2012-2015: $33.5M lost. Docket 44 has 90 pages of Website Claimants with cash claims of $12.4M and metal claims I calculate as $21.1M. That adds up to $33.5M. Bullion Direct's new management has made it sound like these losses occurred since the October 2012 Terms of Service change (mainly via Docket 16). There are a few other creditors listed, as well as some not listed, and perhaps some listed that are not owed money, but $33.5M is what Bullion Direct is currently stating.
1999-2010: $17M tax loss. By some point around the end of 2010, Bullion Direct reported a tax loss carryforward of $17M (see docket 44 p5).
2011-2012: $21.6M estimated loss. In October, 2012 Bullion Direct met with the bankruptcy attorney due to having "suffered very large losses." Therefore, is can safely be assumed that 2011-2012 must have also generated losses. Given the average annual loss in 2012-2015 was $12.3M, the 2011-2012 loss (through the October 2012 Terms of Service change) can be estimated as $21.6M.
Add that up, and you have $72.1M of losses.
So how can a company lose about $70M and only owe $33M?
The only logical explanation I can come up with is due to the lack of Bullion Direct admitting that the Terms of Service change was used to help cover up previous losses, rather than initiate the losses as implied. The data strongly suggests that the estimated $38.6M lost before the Terms of Service change was from cash and metal that customers had stored at Bullion Direct, so the reported losses from late 2012 through 2015 were really lost by late 2012.
In other words, it looks like most of the metal stored for customers was never actually there.
Unsecured Creditors Committee FormedAugust 18, 2015 7:15PM EST
The U.S. Trustee has selectedan unsecured creditors' committee.
In general, the unsecured creditors' committee is designed to help maximize the dollar amount paid to creditors, prevent unnecessary delays. It also has other duties, such as determining the desirability of the continuance of the business, and possibly hiring an attorney to represent creditors.
Is a Proof of Claim Form Necessary? You Need to Contact Bullion Direct...August 17, 2015 2:10PM EST
[As a reminder: I want to provide information that among other things may be able to help eliminate or reduce your costs obtaining legal information. However, your specific situation in unique; the information I provide may not apply to everyone, and is not intended to be legal advice. For advice unique to your situation, please consult an attorney.]
Last week, Bullion Direct released a lot of information in the Schedules and Statement of Financial Affairs (you can find them at http://about.ag/BDDocuments.htm ). Included was the list of unsecured creditors (Schedule F), which customers should be on if they are owed money or metal (although not all are).
I had planned to send an E-mail letting people know how to check to see if they were correctly listed. In a Chapter 11 bankruptcy, if you are correctly listed, you are not required to file a Proof of Claim form. Many customers would prefer not to file a Proof of Claim form, because doing so reduces their privacy, costs the bankruptcy estate more money, and is error-prone.
The problem is that *all* customers were listed as 'disputed', and most customers were listed without a dollar value assigned to their claim. That should mean that everyone should file a Proof of Claim form. However, for everyone to file would add a large cost to the estate (I figure tens of thousands of dollars). The good news -- sort-of -- is that the notes to the schedules hinted that an amended list might be forthcoming.
If there is an accurate amended list, you presumably would not need to file a Proof of Claim form, which would be nice. If Bullion Direct does not file an amended list of creditors, nearly everyone will be required to file a Proof of Claim form (not as nice).
The problem is that Dan Bensimon (who now runs Bullion Direct) seems to have broken off contact with me, and has not responded to a request I made 4 days ago to find out if there are plans to file an amended creditor list (or my reminder of 2 days ago, saying that if he did not respond, creditors would need to contact him directly). I find this greatly disturbing; this action (or lack thereof) seems to be a waste of resources.
If you wish to know if you will be required to file a Proof of Claim form, you will need to contact Dan Bensimon ( ) and Joe Martinec ( ) and ask them if they plan to file an amended list of creditors. Do not simply ask if you should file a Proof of Claim form (they will say yes; they will not take your privacy and costs into consideration).
Bullion Direct's $17M Liability Jiggery-Pokery
... or how they can tell the court $34M is $17MAugust 16, 2015 4:10PM EST
If someone with even the slightly knowledge of bankruptcies saw the 120 page bankruptcy schedules of Bullion Direct, they could look at the Summary of Schedules, and see that Bullion Direct has liabilities of $16,955,330.57.
How can that be, when in the very same document, they show liabilities to customers of $33,578,820.69?
How in the world did Bullion Direct get away showing $17M of liabilities When they were in fact over $33M? Apparently, they can do so with the simple statement "(Cash Amounts Only)" in fine print with the claim for "Website Claimants Listed on the Attachment to Schedule F" as $12,442,007.47. They didn't both including the value of the gold and silver they owe customers.
That $16M-or-so discrepancy wasn't necessary. This wasn't an issue of not having the data, or time to figure it all out. Once I had the numbers from Schedule F in a spreadsheet, it took all of 2 minutes to add a column showing the actual amount owed customers. For example, a customer with 20 ounces of gold in storage but not cash in their account would be tallied by Bullion Direct as if it were a $0 liability (when in fact they are really owed over $20,000).
The funny thing is that Bullion Direct calculated how much the "20 Largest Unsecured Creditors" were owed, including the value of their metal. So the calculation that Bullion Direct neglected to include was one they had already made elsewhere in that very same document.
So how in the world can they sign this form showing $17M in liabilities when it is actually over $33M?
Adding to the jiggery-pokery is that $4M of the $17M in liabilities is duplicated (the 20 largest unsecured creditors are listed twice). I'm not sure if they intentionally listed those creditors twice, or if that was an oversight.
Further adding to the jiggery-pokery is that the list shows that the 6 largest unsecured creditors were not listed as having the 20 largest unsecured claims. They are collectively owed over $10M. How can you miss $10M of liabilities when putting together your amended list of the 20 largest unsecured creditors?
Bullion Direct Out of Control Since 2009 or EarlierAugust 13, 2015 3:20PM EST
The bankruptcy filings help paint a picture of a company that was completely out of control since at least 2009, and possibly before.
Bullion Direct shows a (possibly cummulative) tax loss of $17M in the 2009-2010 tax year. That's $17 million dollars. How can a bullion dealer with a handful of employees spend $17M more than they bring in? Where did that money go? More importantly, where did it come from? Unless it was due to accounting oddities, the only realistic way Bullion Direct could have come up with $17M was to sell metal belonging to customers. Back around 2009 or so. Metal is called "allocated" and "not the property of Bullion Direct."
But the story doesn't end there. There could be a rational explanation. Possibly. But, 2010 was the last year a tax return was filed. That proves that the business was completely out of control.
Then, in 2012, things appear to have gotten worse. Around October 3, 2012, Bullion Direct made a slight change to their Terms of Service. Although the new management stated (to the best of his knowledge, information and belief) under penalty of perjury that "Previously, the purchase order would have resulted in either delivery to the customer or storage of the product in a BullionDirect vault." In other words, customers who placed orders through late 2012 had metal purcahsed and placed in storage. But, the latest filing seems to contradict that.
If that wasn't bad enough, it gets worse. Two weeks after changing the terms, Bullion Direct paid a $100,000 retainer to Bullion Direct's proposed bankruptcy attorneys. Given a $17M loss, 2 years of unfiled tax returns and a retainer to a bankruptcy attorney (not just a payment for a consultation), it is pretty safe to say that Bullion Direct knew it was insolvent at that time.
Bullion Direct continued to operate for 3 more years after that, sending millions of dollars to startup Nucleo to develop the software Bullion Direct uses (at one point, there were reportedly over 30 employees at Nucleo).
And the CEO had a salary of $275K in the last year, and even took out $35,874.99 after the business shut down for severance wages. Oh, and there was also a reimbursement for the CEO's trips to Dubai and Italy (I'm not sure what kind of business dealings he needed to do there a few months before filing for bankruptcy).
Bullion Direct Believes Metal Belongs to CustomersAugust 13, 2015 1:50PM EST
Previously, Bullion Direct's position on the ownership of what metal does exist (which appears to be around $650K) was unclear. They said they felt they did not have to "actually purchase" metal when customers placed orders. But there was no clear statement on the metal that was in the vault.
In the Statement of Financial Affairs, however, Bullion Direct states "On information and belief, Debtor holds precious metals belonging to customers in a vault located in Delaware and in the Debtor's offices at 700 Lavaca, Austin, Texas." This is a statement that Bullion Direct declared under penalty of perjury.
To me, it sounds like this metal therefore is "off limits", and not part of the bankruptcy estate. Since only about 2.5% of the metal is there, it is unclear who figures out what to do with that metal.
Schedules Released - ~$38M In ClaimsAugust 12, 2015 8:40PM EST
Bullion Direct has released the schedules, Statement of Financial Affairs, and List of Equity Security Holders.
They contain some shocking information:
Proof Of Claim Forms Appear to be RequiredAugust 12, 2015 8:20PM EST
The highly anticipated list of creditors was released today.
It lists all claims as "disputed" (in part because "Many more claims regarding precious metal storage have been asserted than appear from the inventory of precious metals held in the IDS vault or at the Debtor's office in Austin, Texas").
Because they are listed as "disputed", it appears that everyone will have to file a Proof of Claim form. The notes makes it sound like they might amend the list of creditors (with actual amounts), but that is definitely not certain.
So one option would be to wait to see if they file an amended list of creditors, the other is to go ahead and file a Proof of Claim form. The main issue with filing the Proof of Claim is that it is a public document, with your address, phone number, and E-mail address, as well as more details than are seen in the list of creditors.
I expect to provide more information within a few days regarding how to properly fill out a Proof of Claim form.
109 Claims Filed So FarAugust 11, 2015 7:20AM EST
[As a reminder, there is no need to file a Proof of Claim form unless either your claim is not listed properly when the list of creditors is released, or the court instructs you otherwise. The Proof of Claim form is a public document, and many people have filled them out incorrectly.]
So far, 109 claims have been filed.
The smallest claim so far is for $155.73, the largest customer claim is for $165,000 (the next highest is $105,000).
The average customer claim (by my calculations, which fix some obvious errors) is $14,789.11. That should really be a bit higher, as about 10% of the claims are listed as $0. The median claim (half higher, half lower) is $5,604. The average claim times the number of claims is the amount owed customers who have filed claims; the median helps show that higher dollar values skew the average claim.
Something that concerns me is the average claim: $14,789.11. If there are 5,000 customers (although 8,000 seems more accurate, there are likely a lot of duplicates), that would result in $74M in claims. That is much higher than the "As great as $25M" put out by Bullion Direct.
Hopefully, this discrepancy is just due to the small sample size (roughly 2% of claims). With the Tulving case, when 2% of the claims were in, the average customer claim was about 38% higher than the eventual average claim once all Proof of Claim forms were filed. So a skewing of the numbers is certainly possible (e.g. those with larger claims more susceptible to the Texas "impulse claims" as they let you file online).
Depositing Checks OKAugust 7, 2015 4:50PM EST
The judge today ordered that the checks may be deposited.
It requires that Bullion Direct to serve a copy of the order on all customers whose checks are to be deposited, and gives them 21 days to serve a written objection. It gives the addresses to send the objection to, and that the objects must set forth the factual or legal basis for the objection. Any such objections will be ruled upon.
Any checks received after July 20, 2015 will be returned.
Stored Metal Was AllocatedAugust 7, 2015 4:50PM EST
In this post I explain how storage accounts at Bullion Direct were clearly allocated accounts. Allocated accounts is a "term of the art" in the bullion industry that means (among other things) that the "the client has full title to the metal in the account" (LBMA) and "The owner of allocated gold keeps legal ownership over the allocated gold even if it is deposited with a custodial facility provider." (International Monetary Fund (IMF)).
The IMF also says "In the economic system, [allocated metal] remains an asset without a counterpart liability."
1999-2005: From what I can tell, like many businesses, Bullion Direct started business overlooking something -- in this case, storage, which they had not anticipated being a serious part of their business. At first, they said "With the exception of a catalog order all product is automatically stored for free at our cost/liability." In other words, there was no option to store catalog orders. And no allocated/unallocated distinction was made. Storage was on wishy-washy terms, based on vague statements ("Enjoy complete peace of mind with our free insured storage program") and their terms (again, fairly vague -- titled to customer, but with "fungible" and "may use").
2005: As they grew, customers started demanding more information. In 2005, a thread was started on their forums about this, asking for details about stored accounts. After 4 months, there was no answer, and the thread was placed on hold. Clearly, Bullion Direct had not thought much about this, and needed to come up with a concise answer.
2006: Then, sometime between Feb. 4 2005 and March 1, 2006, Bullion Direct decided to take their storage business seriously, put their 'big boy pants' on, and came up with a clear answer. They stated on their "About Us: Storage & Insurance" page "product is exclusively allocated to your account portfolio: you are purchasing individual products and not "pool" metal. For your protection, stored products are not the assets of Bullion Direct."
This clearly applied to all previous customers. Nowhere was it stated that this was a change in policy, or that it did not apply to previous customers. Customers who ordered before those claims were made could go to the website, see that page, and voila! they were promised that the metal was in their name.
2012: In 2012, Bullion Direct changed the Terms of Service. In what appears to be a retroactive interpretation made in 2015, Bullion Direct interprets the terms as meaning they did not have to buy metal for storage customers. However, they make no changes that I can see to any of the claims on their site that storage is allocated, not pool, and not assets of Bullion Direct. It is unclear how they can believe that they do not have to purchase items, if their customer is to get title to those very items (a requirement for an allocated account).
2013: At some point on or after May 9, 2013 Bullion Direct removes the link to their "About Us: Storage & Insurance" page, redirecting it to their "About Us" page. They do not make any claims contradicting that these accounts are allocated, not pool, and not the assets of Bullion Direct.
So, anyone who stored metal with Bullion Direct between the day they opened and mid-2013 either believed their metal was "allocated", "not pool" and "not the assets of Bullion Direct," or would have if they looked at the website.
2013-2015: What about after mid-2013? From what I can tell, Bullion Direct never used the words "unallocated", "pool" or "assets of Bullion Direct" (or anything remotely similar) on their website referring to stored metal. The page that stated accounts were allocated was not replaced with something contradicting it. I cannot conceive how the simple act of removing a piece of advertising that had been in place for over 6 years can mean that the company can switch from allocated to unallocated accounts. In fact, anyone with metal stored at Bullion Direct up through mid-2013 that knew that they had an allocated account would have no way to know that anything changed in mid-2013.
So, it has to be assumed that anyone who stored metal from the day Bullion Direct opened until 2006 when Bullion Direct announced that these were allocated, not pool, not-the-assets-of-Bullion-Direct accounts believed these to be such. Anyone seeing the claim had reason to believe it applied to them. They, therefore, have to be allocated, not pool, not-the-assets-of-Bullion-Direct account holders.
It also has to be assumed that anyone storing metal from that time in 2006 until mid-2013 saw the claims of Bullion Direct on their website. They, therefore, have to be allocated, not pool, not-the-assets-of-Bullion-Direct account holders.
That just leaves people who stored metal from mid-2013 until the bankruptcy. With nothing contrary on the website, and simply removing advertising doesn't make the prior advertising untrue, it has to be assumed that they previously saw the claims of Bullion Direct, and saw nothing contradictory, and therefore they too have to be allocated, not pool, not-the-assets-of-Bullion-Direct account holders.
In yet other words, anyone who ever stored metal at Bullion Direct had reason to believe that their account was allocated, not pool, and not the assets of Bullion Direct.
'Allocated' for DummiesAugust 6, 2015 2:55PM EST
[This is not meant so much for Bullion Direct customers, as it is for professionals and others who are coming into this without knowledge of the bullion industry. It seems that nearly all Bullion Direct customers inherently understand what 'allocated' means. This is not my interpretation of the Bullion Direct situation, just allocated accounts in general -- this all does apply to Bullion Direct if it sold allocated accounts.]
Let's say you are brand-new to the bullion industry. You've never bought any metal, but are a shrewd business person. You've just been hired to take over a bullion dealer, and their primary business is the storage of precious metals.
You contact some people in the industry -- anywhere from the previous owner to CEOs of bullion dealers, to vault managers, to educated customers. You ask them to explain how the business of storing metals works. "Start from the beginning, assume I know nothing" you say.
The first thing they will say is that there are two very different types of precious metal storage accounts: allocated and unallocated. With allocated accounts, the buyer owns the metal and the business is the custodian and responsible for returning the same metal on demand. With unallocated accounts, the business owes the buyer money based on how many ounces of metal they bought. With allocated accounts, you own a specific product (such as a "1 ounce Pamp Suisse gold bar"). With unallocated accounts, you are owed a certain number of ounces of generic metal ("1 ounce of gold"), which the dealer may or may not have (you trust that they either have the metal, or are properly hedged).
They would then tell you that allocated accounts are much safer, because you own the metal. In the event of a bankruptcy, allocated metal is your metal, and it gets back to you. Allocated metal is not part of the bankruptcy estate. With unallocated metal, you are a general unsecured creditor of the company, and your account is backed by the "general stock" of the company (e.g. their inventory or whatever other metal they happen to have).
This is not rocket science; if you purchase metal in an allocated account, you own the metal. If someone else claims to own it, it is hard to imagine a situation that would not be fraud. Someone purchasing metal in an unallocated account accepts the risk of being an unsecured creditor in bankruptcy. By purchasing allocated metal, however, they are purchasing actual, physical metal, and not stating that they are willing to take the risk of being an unsecured creditor.
Please note that I am not trying to state that Bullion Direct committed fraud; that is not for me to determine. However, they did advertise these accounts for many years as allocated, and never advertised them (to my knowledge) as anything else.
Management's Explanation DisprovenAugust 5, 2015 7:25AM EST
Some people enjoy collecting things. Some people enjoy sports. I enjoy finding out the truth.
The new CEO stated in a declaration that:
"In 2012 BullionDirect.com modified the terms of service under which its customers purchased and stored precious metals. BDI’s management interpreted the provisions of the Terms of Service agreement such that when a customer placed an order, the precious metal was not actually purchased unless the customer agreed to take actual delivery of the product. Previously, the purchase order would have resulted in either delivery to the customer or storage of the product in a BullionDirect vault."
Reading between the lines, the explanation is simple: In late 2012, Bullion Direct made a change to their Terms of Service so they could stop buying product for storage customers, and thought it was OK to do so. Indeed, the terms did change, from v2.0.1b to v3.0, sometime between August 30 and November 1 .
It sounds like a reasonable explanation without admitting any wrongdoing. After investigating, however, I respond thusly: "That, sir, is a whole bunch of hogwash."
The problem is that Bullion Direct advertised these as allocated products, not pool metal, and "stored products are not the assets of Bullion Direct." Those words come from their "About Us: Storage and Insurance" page (not some obscure blog post), placed online no later than November 2006. The same text existed as recently as May 8, 2013. That's over 6 straight years, unchanged, and for at least 6 months after the Terms of Service change. Although the page no longer exists, I see no evidence that Bullion Direct ever took a position that storage accounts were anything but allocated, not pool, and not the assets of Bullion Direct (the terms "allocated", "unallocated" and "pool" do not appear on their website, according to Google).
So Bullion Direct is claiming that it thought that it had no obligation to purchase metal for storage customers, due to Terms of Service that was effective late 2012 through the present. But anyone in the bullion industry -- wholesale or retail, from employees to analysts to educated customers -- knows that allocated metal cannot be allocated without being purchased.
Further, there is strong evidence suggesting that the practice of "not actually purchasing" metal went back many years. If true, this would make the last statement of management an outright lie.
In simple terms, the explanation from Bullion Direct that it thought the Terms of Service allowed them to not purchase metal for storage customers is complete and utter nonsense.
Reminder To Wait on Proof of Claim FormsAugust 4, 2015 2:20PM EST
I have said before how if it were me, I would hold off on filing a Proof of Claim form.
There are many reasons: for example, it is not known yet if you need to file one (if you don't know *why* that is, you really should not be filing), you are likely to make mistakes (that could potentially cost you all you are owed), and much more of your information can become public.
In general, a Proof of Claim for is not required in a Chapter 11 bankruptcy, unless you are not listed properly in the list of creditors, or you are informed otherwise by the court. That part is pretty simple (but also vital that you do not make a mistake).
It was noted at the hearing yesterday that there were "many" creditors who made mistakes in the forms (which does not surprise me in the least; the "impulse claims" that Texas encourages via electronic filing are rushed and typically without any research).
As a reminder, at some point after the list of creditors is released, I will be providing information on how to make sure you are listed properly, and if Proof of Claim forms are necessary, some information on how not to make mistakes (the law prevents me from advising you on how to fill out the form, but can provide very helpful information).
August 3 Hearing NotesAugust 4, 2015 8:20AM EST
Yesterday, a hearing was held regarding the 3 emergency motions that Bullion Direct made.
It was said that there may be as many as 5,000 to 8,000 customers, about the range I had predicted. It was again said that the way that management and customers read the terms were different. They mentioned that there might be some metal at a safe at 700 Lavaca that was used for shipping orders (that later could be important), but it is not expected to be much.
It was said that Charles McAllister was 'literally' the sole manager, sole operator, and sole employee, and that he is now dealing with entirely different issues.
It was said that claimants believe they have metal in the vault, but they do not, 'at least not all of them'.
Regarding uncashed checks, it was stated that it is not clear yet whether those checks are part of the estate (if not, stopping payment is OK; otherwise, not). The procedure for objecting to the check being deposited is to send a written objection to Bullion Direct's bankruptcy attorney and the U.S. Trustee, no lawyer needs to be involved.
It was said that Bullion Direct needs to sort out ownership of the precious metals.
A website will be set up where users can access their internal accounting records (e.g. the entire database, not just what is normally displayed to customers).
Although Bullion Direct is not in a position to say whether IRAs were affected, the conclusion at this point is that they were.
Bullion Direct has at least one meeting this month with a potential buyer of the assets.
It was ended with Bullion Direct's attorney telling the judge that no matter how long he has practiced, this case will have stuff in it that he has never seen before.
Extension Request for Schedules to August 12July 31, 2015 2:10PM EST
Bullion Direct has just filed a motion requesting an extension to file the schedules until August 12, 2015 (they would otherwise have been due August 3). This is only a delay of a bit more than a week, and would help Bullion Direct get an accurate list of creditors. From the first two mailings Bullion Direct sent to customers regarding the bankruptcy, it is clear they have not yet accurately identified all customers. As such, the extension request seems like a reasonable request to me.
20 Largest Creditors Owed $4.3MJuly 31, 2015 1:25PM EST
Bullion Direct has just filed an Amended List of Creditors Holding 20 Largest Unsecured Claims. The copy I have posted is redacted, as it looks like all 20 are Bullion Direct customers.
The amount of the claims, in descending order, are: $512,147.02, $363,535.81, $344,414.00, $330,029.28, $269,002.40, $226,509.80, $205,213.09, $203,246.40, $195,470.05, $192,237.26, $174,343.57, $163,581.60, $161,946.95, $154,487.40, $148,400.00, $142,563.47, $141,538.65, $133,136.87, $129,691.93, and $125,608.74.
Note that this is not the list of creditors you need to verify that you are on (that will be filed at some later point). However, it gives an idea of the scale of what is owed. That list accounts for somewhere around 1 in 250 to 1 in 400 customers. They have total claims of about $4.3M.
These are likely the creditors that will be invited to join the unsecured creditors' committee, which normally is normally made up of the 7 largest unsecured creditors willing to serve.
UPDATE: All 20 of the creditors in this list also appear in the 'Possible Website Claimant' list. That list is incomplete; there may be as many as 60% more creditors. This suggests that this list includes somewhere around 20 of the 30 largest creditors, with the actual Top 20 being owed more like $5.3M. These are just rough estimates, however.
Employment ApplicationJuly 30, 2015 3:25PM EST
Bullion Direct has filed an Application for Employment, requesting permission from the court to hire Unique Strategies Group, Inc. (new CRO Dan Bensimon's company).
Hourly rates would range from $150/hr to $300/hr (for Bullion Direct), and a flat $6,000/mo for 2 people for Nucleo (plus $150/hr for Staff Analysts). USG would also get $150,000 if a liquidation plan or reorganization is approved within 7 months, or $100,000 if approved within 12 months. USG would also get 5% of gross sales from Nucleo for the first year, and 4% for years 2-5 (worth about $400K to $2.4M, based on the IP being worth the valuation of assets in the bankruptcy petition minus known assets).
The document also shows that there is an employee that may be a very minor shareholder of BullionDirect, Inc. I believe this is the first we have heard about ownership of BullionDirect, Inc. The employee mentioned is known to have been involved with Bullion Direct going back at least as far as 2008.
Bad News: Stored Metal NonexistentJuly 28, 2015 6:55PM EST
Two documents were filed today (Declaration of Dan Bensimon and Joint Stipulation Regarding Contents of Vault). There is a lot of information in these documents.
Most importantly, they show an inventory of the IDS vault that I calculate as having a value of roughly $633,000, compared to the estimated $20M+ of metal that Bullion Direct stored for customers. The declaration states:
"[Bullion Direct] interpreted the provisions of the Terms of Service agreement such that when a customer placed an order, the precious metal was not actually purchased unless the customer agreed to take actual delivery of the product."
In other words, when someone bought $10,000 of metal and sent a check for $10,000, Bullion Direct would show the product in your portfolio. But they would not actually buy the metal. There is no sign that any hedging was done, either.
The documents show that Bullion Direct transferred funds to Nucleo (the company owned by Bullion Direct, which handles the software and patent) for startup costs, and "continued funding Nucleo’s operations until shortly before the Chapter 11 filing." At times, Nucleo reportedly had 30+ employees, and it sounds like Bullion Direct funded that start-up with money sent from customers for metal.
So unfortunately, it looks like Bullion Direct ended with about $.04 of metal for every $1.00 of metal people had "stored" there. The one piece of good news is that it appears that the intellectual property has some value; whether it comes anywhere near what is owed is unknown. The bankruptcy petition claimed $10M-$50M of assets, so unless there are major assets aside from the money, metal, and intellectual property, Bullion Direct believes the intellectual property has a value of at least $9M.
Analyzing Claims: $20M or $100M of stored metal?July 28, 2015 12:55PM EST
I have done an analysis of the first 40 claims. There are some interesting facts here. First, though, it is important to remember that these claims are likely highly skewed (e.g. based on whether they were urged to file or urged to wait, whether they got an E-mail from Bullion Direct about the bankruptcy, whether they knew about about.ag, size of claim, etc.).
37% of the valid (to me) customer Proof of Claim forms are for customers not listed in the list of about 5,241 Website Claimants. That suggests the real number is more like 8,300 possible claimants (again, with the caveat that the numbers may be skewed).
The average valid customer claim (again, per my calculations) is $11,847.68 ($9,508.88 for those in the Website Claimant list, $15,857.03 for those not in the list). The median (half of claims are higher, half are lower) is $2,302.81 ($1,679.95 for those in the Website Claimant list, $9,604.31 for those not in the list).
Taking the expected number of creditors that Bullion Direct will be listing in their schedules (8,300), and multiplying by the average valid customer claim ($11,847.68) comes out to $98,335,744 owed customers (presumably mostly stored metal). Going by with the median number (usually a less reliable number for calculations) would get that number down to a much more respectable $19,113,364.50. The $19M number is much more in line with the "perhaps as great as $25 million" estimate Bullion Direct supplied the courts with.
The $3,002,016 Claim for 20oz of SilverJuly 27, 2015 9:10PM EST
I went out on a limb, urging people not to file Proof of Claim forms yet, for a number of reasons (they shouldn't be necessary, they are a public document, it's very early, costs all creditors money, etc.).
At least one bozo on an anonymous (but moderated) forum urged people to file them, warning them that if they were not received by a certain date (not the bar date), Bad Things Would Happen.
Bad things have happened. Someone filed a $3M claim (I assume accidentally) for 20oz of silver, and another filed a claim in the name of "Bullion Direct, Inc." (and another claim in his own name).
Part of the problem here is that the Texas bankruptcy courts allow (encourage, even) online filing. While a convenient feature, it also encourages impulse claims (it's a lot easier to hit SUBMIT than bring an envelope to the post office).
Metal Sent after about June 17, 2015July 27, 2015 8:55PM EST
In the third emergency motion, it was stated that Bullion Direct instructed IDS to return any product received "on or about June 17, 2015."
Hopefully, that is just a poor translation of the actual instructions. However, it suggests that all metal received by IDS on or after June 17, 2015 be sent back to the sender. I think it would be a good idea for anyone who sent metal that was received by IDS on or after June 17, 2015 to contact IDS to see if their metal is being returned.
~300 Checks to be CashedJuly 27, 2015 8:40PM EST
In a third emergency motion (redacted here) Bullion Direct has made an emergency motion to cash approximately 310 checks, totaling $563,218.18. Some checks are as small as $10.00. The names and addresses of the senders of the checks are included in an exhibit to the motion.
They intend to cash the checks after giving senders 14 day's notice (if the court does not allow, they would send them back to the senders). If approved as Bullion Direct wishes, customers who did not want their check cashed would need to file an objection with the court.
UPDATE: This only applies to check that Bullion Direct did not already deposit. It looks like they stopped depositing checks at about the same time they stopped shipping metal, around June 15, 2015.
~5,241 Claimant Names ReleasedJuly 27, 2015 7:40PM EST
In an an emergency motion (redacted here) Bullion Direct has released a list of approximately 5,241 possible claimants.
This emergency motion is intended to allow Bullion Direct (and others) to file court documents without having to mail them to thousands of possible claimants. This makes sense, if approved, and will save a lot of money.
UPDATE: This is not the creditor list that is expected to be filed within about a week. This is a list put together to show the court that there are indeed a lot of potential creditors.
Request to Authorize PaymentsJuly 27, 2015 7:10PM EST
Bullion Direct has filed an emergency motion to pay some bills to keep the business running for the next few months.
It shows that Bullion Direct has $563,218.18 of undeposited checks. It shows that they have cash on hand of $162,009.87. The budget ranges from $55,500/mo to $68,000/mo. The majority comes from legal fees ($23K-$27K/mo) and payment to the CRO ($23K-$27K).
$2M IRS ClaimJuly 24, 2015 5:05PM EST
The IRS has just filed a Proof of Claim form, in the amount of $2,000,000.00.
They show "NOT FILED" for the tax years ending 06/30/2012, 06/30/2013, 06/30/2014, and 06/30/2015 for Taxpayer ID #XX-XXX2534. The bankruptcy petition shows Bullion Director's Taxpayer ID as 76-0622534.
I do not know how the IRS came up with the $500,000.00 figures for each of the 4 years; this appears to be some sort of default amount based on the numbers provided in the bankruptcy petition.
Is a Proof of Claim Form Required?July 24, 2015 3:00PM EST
Everyone wants to know: Is a Proof of Claim form required?
In at least one forum (gold-silver.us), misinformation is rampant. Some are considering paying an attorney hundreds of dollars (or more) to help them file a Proof of Claim.
Here is what one law firm says:
Chapter 11 creditors do not have to file claims so long as they are listed on the schedules and don’t object to the way they are being treated. Without filing any claim, the creditor are still eligible to receive a distribution if they are listed on the debtor’s schedules. If a creditor is omitted from the schedules or if they disagree with how they are being classified and treated on the schedules, a creditor must file a claim.
I believe the Schedules are due on about a week, and as soon as I get a copy, I will post them here.
Bankruptcy DocumentsJuly 23, 2015 5:15PM EST
I now have a page with the bankruptcy documents that I plan to keep updated.
These are the same documents that you can purchase through PACER, but there is no cost to get them here.
Beware Internet ForumsJuly 23, 2015 9:05AM EST
Please be aware that there is dangerous misinformation being spread in some forums (e.g. gold-silver.us).
For example, some people are urging customers to file a Proof of Claim immediately, claiming dire consequences otherwise. However, the Proof of Claim form (a public document) is usually not necessary in Chapter 11 cases (and in fact, it is impossible to tell yet if you must file, as the schedules have not yet been filed). When it is necessary, it is required by the Bar Date (November 23, 2015 in this case), *not* the date of the Creditors' Meeting. And there is no voting at a Creditors' Meeting; it is a chance to asked the debtor (Bullion Direct) questions under oath.
If in doubt (remember, what I write could be wrong as well!), do your own research, or hire an attorney. Or at the very least, ask for a reference source (such as a link to a webpage at the bankruptcy court or attorney's office). The last thing customers need is more headaches.
Application for Employment of AttorneysJuly 23, 2015 9:05AM EST
The bankruptcy attorney for Bullion Direct has filed an application for employment. It shows his rate as $450/hr, with 2 other attorneys listed at $350/hr, paralegals at $100/hr, law clerks at $35/hr, and administration at $20/hr. It also shows that $17,800 in fees and $1,739.90 in expenses have already been incurred.
No RushJuly 22, 2015 8:05PM EST
I posted yesterday a link to the notice the court filed. It mentions the Proof of Claim form and a whole bunch of other stuff, in words intended for laypeople, but still difficult to understand.
I want to emphasize that while the Proof of Claim bar date (deadline) has been set, it is about 4 months away (as I write this), and the Proof of Claim form is likely not necessary (but please assume that it is required unless you find out otherwise).
I have heard from several people who have already filed a claim, or are working on it, or are looking for help from an attorney. With the Tulving case, the vast majority of creditors filled out the Proof of Claim form themselves.
If Proof of Claim forms are necessary, I will help to the extent that I can. I cannot, for example, answer "Should I check Box X on the form?" (even if the answer is crystal clear to me), as I believe that might be considered legal advice. However, while I cannot provide legal advice, I can can provide information, and expect to if the form is needed.
Further DetailsJuly 21, 2015 4:50PM EST
The proposed attorneys for Bullion Direct filed a Notice of Designation as Complex Chapter 11 Bankruptcy Case.
In it, it shows that the debt is more than $10M (perhaps as great as $25M). It shows that there are about 50 known creditors, and as many as 6,000 claimants (suggesting about 6,000 customers with metal stored at Bullion Direct).
It also shows that they believe that the ceasing of operations at Bullion Direct is the subject of inquiry by the FBI, Travis County DA, and the Texas Attorney General.
Proof of Claim Deadline:
July 21, 2015 12:50PM EST