Owner of Austin’s vanished cache of gold and silver charged with fraud

Friday, Feb 09 2018 10:21 AM

The mystery of what happened to millions of dollars’ worth of gold and silver bullion that vanished from a downtown Austin vault 2½ years ago just got a little less puzzling.

On Tuesday, federal prosecutors arrested Charles McAllister, the founder and former majority owner of Bullion Direct, charging him with three felony counts of fraud and misusing money customers gave him to buy gold, silver and platinum on their behalf.

The indictment also said the government would seek more than $16 million from McAllister under U.S. criminal forfeiture statutes. In civil court filings, Bullion Direct’s customers have placed the value of their disappeared money and metal at $25 million.

The American-Statesman detailed the case of the missing bullion in 2015. In late July of that year, hundreds of investors in Texas and across the country learned that the bullion they thought they’d purchased as a tangible hedge against an untrustworthy U.S. economy had disappeared from a pair of safes on the 14th floor of an Austin office building.

Some customers lost hundreds of thousands of dollars. The cumulative weight of the missing treasure represented dozens of standard-sized gold bullion bars and hundreds of silver ones, according to civil court filings. An estimated 1,400 ounces of platinum and palladium its owners thought was safely locked up was also unaccounted for.

In documents filed in U.S. District Court that were unsealed late Tuesday, federal prosecutors alleged that instead of buying the precious metals ordered by Bullion Direct’s customers, McAllister used their money to keep the business afloat, and for himself.

“Customers were lulled into the false belief that precious metals had been purchased and were stored in (Bullion Direct’s) vault, when, in truth and fact, customer funds were used to pay for corporate expenses, investments in other entities, or applied by McAllister for his own and his family’s personal use and benefit,” it said. The indictment said McAllister had been illegally misdirecting the money since 2009.

“I’m not surprised,” said James Hoeffner, an Austin attorney representing a now-deceased Florida physician missing an estimated $250,000 in cash and metal from the company’s vault. “The whole theory was that (McAllister) was going to hold the gold in trust, and he obviously did not do that. And that sounds like a crime to me.”

Attorneys said the criminal case was unlikely to influence creditors’ efforts to recover their money through federal civil court.

McAllister’s Houston attorney, James Ardoin III, did not respond to phone and email messages.

Some of Bullion Direct’s customers were collectors. But, as a mostly unregulated business, precious metal markets also appeal to those who distrust currency systems and the governments that back them. So for many of Bullion Direct’s investors who believed that wealth they could touch and see would protect them from an economy, they viewed as increasingly unpredictable and unfair, the loss of their gold and silver was world-shattering.

McAllister and a partner incorporated Bullion Direct in August 1999. That same year, they also patented software allowing metals customers to buy and sell to one another in a virtual marketplace. The company earned money by taking a 1 percent cut of each sale from buyer and seller.

Dealers said Bullion Direct started off as a reputable company, paying on time and in full. For 15 years, Bullion Direct’s public face was one of success. Buyers and sellers said their orders were processed without a hitch. Those who requested delivery of gold and silver received it on time.

Over the years, Bullion Direct served an estimated 60,000 customers and handled transactions worth hundreds of millions of dollars, court filings said.

Behind the scenes, however, the company was foundering. One attorney later described it as “a slow-motion Ponzi-like scheme.”

Auditors later discovered Bullion Direct had filed only a single tax return. In 2009, it was carrying $17 million in losses. Yet McAllister paid himself hundreds of thousands of dollars in salary.

Bullion Direct declared bankruptcy on July 20, 2015. While some customers received email notification of the filing, others said they learned about it only after logging onto Bullion Direct’s website and finding a message that said the company was insolvent.

Bankruptcy trustee Gregory Milligan did not return phone and email messages.

A year later, in what officials acknowledged was an unusual arrangement, what remained of the company — primarily proprietary software — was purchased by McAllister’s mother. She agreed to turn over most future profits from the new venture, Platform Universe, which does business under the name Bullion Universe, to her son’s more than 500 creditors.

Although Bullion Direct’s restructuring attorney at the time said the trading platform forming the basis for Platform Universe would be a viable business, creditors said the company has yet to generate any profits for them.