Dealer tricked into spending $100,000 on fake gold in NYC's Diamond District

[smurff]

The dealer had traded several small gold bars for the customer's four 10-ounce gold bars.  Apparently the four bars were filled with tungsten. 

The dealer and his neighboring dealer called NY1--a local cable news channel.  The cameras were rolling when they drilled the gold bars and they came apart. (You can't see it online unless you subscribe to Time Warner Cable, which I don't have as I'm on Verizon FIOS.)  The Secret Service is investigating:

http://www.ny1.com/content/top_stories/ ... -gold-bars

[dualstow]

That's awful. I wonder if there are quicker, less damaging tests than drilling.
Another point for coins.

[smurff]

Channel 5 (the NYC affiliate of the Fox broadcast TV network) interviewed the dealer for the 6 o'clock news tonight.  

The dealer showed one of the fakes, which looked like a very thick layer of "gold foil" that had been wrapped around a tungsten bar, the way some chocolate candies look when wrapped in thick gold-tone foil. He showed another fake where he had drilled a hole, so you could see a thick outer layer of gold and something silvery gray underneath.

Apparently what the crooks did was to take some real gold bars, slit them in half, and carefully scoop most of the gold out, leaving the outer layer intact.  The fake 10 ounce bars were complete with the original and legitimate serial number and refinery information, and had a little over $3000 of gold, around 2 ounces, left in the outer layer.  (So much for the idea that serial numbers offer protection.  It's like theft of the gold bar's ID.)  They reassembled by putting the made-to-fit tungsten bar inside the two scooped-out gold pieces, welded them closed, and probably ground down the edges of the welds.

Someone looking at or simply holding them would not know because they started out as legitimate gold bars and hence the info stamped on them was legit.  The outer layer was thick enough to pass bite tests, aqua regia tests, and the "hold it in my hand" test.  Additional electromagnetic spectrum testing would have needed to be done to determine that the weight of the bar was from tungsten and not gold, short of sawing the bar.  

The dealer said the man who sold it to him had been a customer of his on a number of occasions, but seems to have disappeared (can't reach him through the phone or any other means).  In other words, he knew his customer, something dealers are supposed to always do, and the dealer was an expert, the only people the investing public should buy from.  He said the one thing he was grateful for in the incident was that he had not sold the bars to anyone.

Coins are better for now.  I suspect the smaller the coin, the better.  No wonder 1/10 ounce coins sell for such a premium.  :-\

If the price of gold were to rise above $2000 per ounce, however, I suspect that someone would figure out a way to scoop them out, too.

Wait--here's the Fox 5 report, so you can see it yourself.  It turns out the fakes were made from Pamps:

http://www.myfoxny.com/story/19578206/f ... -manhattan

[dragoncar]

How is there not a cheap (compared to $100k) tester available already?  See http://robbservations.blogspot.com/2009 ... -gold.html

[smurff]

How is there not a cheap (compared to $100k) tester available already?  See http://robbservations.blogspot.com/2009 ... -gold.html

When you go to the supermarket and hand over a few $20 or $50 bills to the cashier, they use a pen to test the paper to see if the bill is legit.  IMO, the gold money industry seems to be using technology of far less sophistication, with worst shortcomings (not all frauds come to public knowledge), to test something far more valuable than $20.

[bronsuchecki]

I doubt it has been hollowed out, way too much work and impossible to get a clean fit of the tungsten bar back into the shell, looks like gold plate has been minted around a tungsten bar. The hollow out thing I think is just a stupid reporter's intepretation of what happened.

I reckon the dealer didn't take them out of the plastic and weigh each one individually because he trusted the guy. That was his downfall. It is a common scam to build up trust with someone with legitimate transactions and then pull the fraud.

[dualstow]

So you can always tell by weighing as long as you have a good enough scale?
Good to know, although I am still leery of bars.

Is it also suspect that the customer would not take cash, or is that normal?
Article says

Fadl bought four of the bars, exchanging them for smaller gold bars, because the customer would not take cash.

[dualstow]

This page purportedly shows gold that has been drilled and filled with tungsten rods.
http://ausbullion.blogspot.com.au/2012/ ... -bars.html

[AgAuMoney]

So you can always tell by weighing as long as you have a good enough scale?

I don't think so.

Tungsten is very nearly the same density as gold, which means in the same space it weighs nearly the same as gold.  You would have to very accurately weigh and very accurately measure the volume and compute the density.

gold:  19.30 grams per cc
tungsten:  19.25 grams per cc

Tungsten is very hard, so hard to form.  I cannot imagine trying to hollow out a gold bar to fit a tungsten slug inside.  Maybe drill it and stuff it with rods then cover the ends?  It would be much easier to form gold around tungsten and stamp it, much like the zinc-filled pennies are made, but it requires significant machinery, and you would want to forge a known-good name.

[Kel]

I am wondering if this might make it's way into the holdings that gold ETFs have on hand at various banks?

[AgAuMoney]

I am wondering if this might make it's way into the holdings that gold ETFs have on hand at various banks?

That's definitely a concern.  It has been rumored to happen, but the evidence behind the rumor doesn't seem to exist.

(A typical 'good delivery' bar must meet purity (I don't recall offhand, maybe 99.95%?) and size standards, approximately either 100oz or 400oz depending on the exchange.  Maybe the new asian exchange will do metric.)

The way the system is supposed to work, is that every bar in the system has a traceable chain of custody thru trusted parties, and if they ever leave the system, a bar must be thoroughly assayed before coming back in.  To allay fears like this, supposedly most bars are now being checked on ownership changes or when they need handled individually.

There are very expensive machines that can analyze the density quickly and non-destructively.  In the old days, and I'm sure it still happens today, bars were drilled and every grain of dust collected, assayed, and poured back into the hole, then the bar marked with a new stamp of weight and certification.

If there is a problem, it is detected before it enters the system, or can be traced back.  If enough time has passed since the original assay, it might be possible that a bank would just destroy the problem bar rather than face scrutiny that it may have been the one to have violated the chain of trust.  One of the rumors around the RBofCanada loss of gold is that they discovered fraudulent bars and had to write them off somehow.  Again, no evidence...

The BofEngland did a large audit and analysis recently, under the auspices of properly identifying all the old bars that did not meet current standards (e.g. 90% 'coin' bars) to properly appraise their holdings.  Rumor is that they might have been the source of a bar found to contain tungsten (part of the Brown sale) and they wanted to be sure that they did or did not have any more.  Again, no evidence...

[bronsuchecki]

http://www.perthmintbullion.com/Blog/Bl ... Facts.aspx

"In the experience of The Perth Mint, such fakes are a rare occurrence. In the 20 years our Refinery Manager has been working at the Mint, he has never seen a fake bar come through our operations.

Even in the professional market, which deals in 400oz bars, there is a fair bit of turnover. While central bank holdings are quite stable, large bars held by private investors are traded and ownership changes often. As a result, there is a good chance a bar will eventually be melted for use by a jeweller, mint or refiner and as such there is a high probability of any fakes being caught out.

In the case of The Perth Mint, we melt every non Perth Mint bar and coin we buy back. We also melt a fair number of our own coins and bars if they are too old or damaged to enable resale. The point is that with such turnover of physical, the lack of fakes appearing in our and Heraeus’ operations indicates to us that fakes are few and far between."

[MachineGhost]

In the case of The Perth Mint, we melt every non Perth Mint bar and coin we buy back. We also melt a fair number of our own coins and bars if they are too old or damaged to enable resale. The point is that with such turnover of physical, the lack of fakes appearing in our and Heraeus’ operations indicates to us that fakes are few and far between."

I doubt that will be the case when gold gets over $5,000 an ounce.  So Perth won't bothering assaying or melting down any fake gold that looks to be from Perth itself?

Lesson to be learned: do not buy anything but gold bullion coins or pre-graded, authenticated gold coins.  Ignore the other exotics and leave the bars to the Good Delivery system.  Why risk being made the fool?  As B.A. would say, "I pity the fool, fool!".

[vnatale]

http://www.perthmintbullion.com/Blog/Bl ... Facts.aspx

"In the experience of The Perth Mint, such fakes are a rare occurrence. In the 20 years our Refinery Manager has been working at the Mint, he has never seen a fake bar come through our operations.

Even in the professional market, which deals in 400oz bars, there is a fair bit of turnover. While central bank holdings are quite stable, large bars held by private investors are traded and ownership changes often. As a result, there is a good chance a bar will eventually be melted for use by a jeweller, mint or refiner and as such there is a high probability of any fakes being caught out.

In the case of The Perth Mint, we melt every non Perth Mint bar and coin we buy back. We also melt a fair number of our own coins and bars if they are too old or damaged to enable resale. The point is that with such turnover of physical, the lack of fakes appearing in our and Heraeus’ operations indicates to us that fakes are few and far between."

Who here was convinced and assured by the above?

Vinny

[dualstow]

I miss that guy. He's no longer at Perth Mint, but I always appreciated his posts and I take him at his word.