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Tom Randall says he just wanted to buy some gold and silver coins when he visited International Rarities Corp. in downtown Minneapolis two years ago.
Instead, Randall says, a salesman talked him into buying a stake in the coin company. It planned to raise $10 million in preparation for going public and "open more precious metals brokerage firms nationally," according to the private-offering documents. Randall recalls David Marion, the owner, saying that it would go public within 90 days and that early investors could expect to reap as much as $15 for every $1 share.
So in May 2009 Randall tapped his retirement funds to invest $25,000 in International Rarities Holdings (IRH), a Nevada firm organized as the parent company of International Rarities Corp. (IRC).
The public offering never materialized, and Randall wants to know where his money went.
"If they've done this to other people, let's put them out of business," Randall said. "They've had every opportunity to be respectable businessmen and make a reasonable profit and pay their investors."
Randall, who complained to the U.S. Securities and Exchange Commission, is one of several investors who say they went to buy coins but were steered into a stock offering that apparently went awry. The Minnesota attorney general's office is investigating the coin company on suspicion of consumer fraud.
It's a new twist in an industry that has drawn complaints about unscrupulous sales practices and other abuses at certain firms. A recent Star Tribune investigation found that some firms hire salesmen without regard to criminal backgrounds, in some cases including coin fraud convictions.
Marion declined to respond to questions. But a spokesman issued a statement that said IRC partnered with certain people to expand the company, and that those partners "misrepresented various facts about [regulatory] compliance to Mr. Marion and IRC."
In March 2010, the coin company notified the original IRH investors of a new investment offering that was in the works that would enable the firm to repay them by July 2011, the statement says. The spokesman acknowledged, however, that the offering was never issued.
Coin customer Keith King, a 70-year-old retiree in Kailua-Kona, Hawaii, said he sank about $50,000 into IRH. Like Randall, he says his demands for repayment have gone nowhere.
"I'd like to see justice served, but I don't think that's going to happen," King said.
The state attorney general's office started investigating after 86-year-old LaReine Warner of Bloomington and other consumers complained about problems with coin purchases, according to agency correspondence obtained by the Star Tribune.
After Warner bought some coins, she said, salesman Michael Duff McNamara III pestered her until she agreed to buy IRH stock as well. She said he told her that he and his wife had invested $100,000 of their own money. "He followed me around like stink on manure for a while," Warner said.
She paid $45,040 for IRH stock in June 2009, tried to rescind the purchase after a couple of months, but couldn't get her money back until the Minnesota Department of Commerce investigated the stock purchase as a possible securities violation. It worked out a settlement and has closed its investigation, a spokeswoman said.
The attorney general's office said its investigation remains open but declined to comment further.
Marion co-founded IRC in 1992, according to IRH offering documents. He became the sole owner in 2000 after co-founder Harlan Rosenfeld died of a drug overdose at age 36.
Expansion goes awry
As part of the coin company's plan to expand, IRH's chief information officer, Michael Scott, set up shop in San Diego under the name IRC West, which incorporated in March 2009. A former business associate of Scott's said he and Marion were supposed to split the costs and profits. Scott's wife, Carolyn Olano-Scott, was IRH's chief financial officer. Marion's spokesman confirmed that Marion was a partner in IRC West.
IRC West marketing materials say it had a new way to trade collectible coins for "VIP customers" willing to put up at least $50,000 and let the firm's portfolio managers buy and sell their coins.
The materials say "our affiliate company, Rare Coin Wholesalers," would handle the coin deals. That firm's president, Steve Contursi, said there was no affiliation. "They tried to do that, and we had our attorneys send them a cease and desist letter."
He said he was willing to sell IRC West coins, but wanted nothing to do with its trading accounts.
In August 2009, Scott and his wife were vacationing in Hawaii when they got an e-mail from Marion terminating their business relationship, according to records kept by King, the Hawaii investor. In response, King said, they started their own coin company, Scott Asset Management.
Warner, the Bloomington investor, said the Scotts advised her to bail out of IRH. "They said you'd better get a letter off rescinding your agreement," she recalled, "because it's about to go to pot."
Scott, a one-time Navy SEAL candidate, drowned in July in his back-yard pool at age 30. He had a potentially toxic mixture of drugs and alcohol in his system, according to the San Diego County medical examiner, who ruled his death an accident.
Another person who several sources said was central in finding IRH investors died a few months earlier. Steve Johnston, 46, of Edina, died Feb. 27, 2010, in a Bloomington motel room. The cause of death was listed as a heart abnormality and acute alcohol poisoning, with a blood alcohol content of .39 percent. Police reports say Johnston was a broker at the coin company.
Olano-Scott's phones have been disconnected, and her e-mail accounts have been shut down.
Many deny involvement
McNamara now is managing director of International Gold & Silver Exchange in downtown Minneapolis. Though Randall identified him as the salesman who pitched the IRH investment to him, McNamara denied doing so. "I never sold one piece of that," he said.
His attorney, Bryan Battina, initially said McNamara didn't even recall meeting Randall. But after a reporter asked about Warner, McNamara acknowledged talking to clients about IRH. "He was required to pitch the deal and did in fact invest himself," Battina wrote in an e-mail. "After noticing that the owner was spending the investment monies that were being collected, he left International Rarities," he said, adding that McNamara lost a substantial amount of his own money.
Marion, through a spokesman, said no one at his company is forced to sell anything. He declined to comment on where investors' money went.
In support of the stock sale, IRH filed a "notice of exempt offering" with the Minnesota Department of Commerce in April 2009. Three people it lists as directors and promoters say they were never involved.
David Fritz, a New York lawyer and owner of recording company Triggerfish Entertainment, said he met Marion through a mutual friend and was asked to be on the board two years ago but never agreed to it.
Jon Jabenis, an Omaha lawyer whom offering documents list as the coin firm's corporate counsel, denied ever acting in that role and said he didn't know anything about IRH. "What's the holding company?" he asked.
Randall said the coin company referred him to Jabenis when he tried to rescind his stock purchase in IRH. Jabenis has not returned calls or e-mails asking to clarify his role, if any, in IRH.
Marc Crane, owner of Marc One Numismatics, a Newport Beach, Calif., coin broker, said he's done business with Marion for years but had never heard of IRH until a reporter asked him about it.
Crane said he demanded a letter from Marion saying that he had nothing to do with the stock offering. "This is like so alarming it's not even funny," Crane said.
Dan Browning • 612-673-4493