Schaun Waste, who co-owns Guardian Gold & Silver Exchange and is a recovering alcoholic, has worked at other Twin Cities coin shops and is trying to run a clean shop. He and his partner believe in second chances but says drugs and alcohol are big problems in the industry.
David Joles, Star Tribune
Jamie Lee Smith is being sued by the Minnesota attorney general but denies wrongdoing and says it’s a misunderstanding.
Richard Sennott, Star Tribune
Robert Earl Gundy
May 9, 2011: Ex-cons make a killing in coins
- Article by: DAN BROWNING
- Star Tribune
- May 9, 2011 - 2:14 PM
Robert Earl Gundy already had a conviction for theft when International Rarities Group in Minneapolis trained him in 1998 to pitch gold and silver coins to its clients.
Over the years, the 52-year-old Bloomington man added convictions for attempts to pass bad checks and several more thefts. But this record didn't stop him from getting hired at one Twin Cities coin firm after another -- Midas Resources, PFG Coin and Bullion, American International Gold & Silver Exchange, S & F Commodities.
Criminal records aren't unusual among the silver-tongued "fronters" and "closers" who spend hours cold calling prospects to get them to buy, sell or trade precious metals.
It's impossible to say just how many ex-cons permeate the unregulated industry because there are no licensing requirements. But a Star Tribune investigation of about 125 individual coin salesmen found that Gundy is one of six dozen who have worked for area coin companies since the 1990s. They've been convicted of crimes including fraud, forgery, theft and even bank robbery.
No law bars a person from working in the coin industry because of prior convictions, because in most cases precious metals are viewed as collectibles rather than investments. The result is an industry in which salesmen with long rap sheets handle tens of thousands of dollars of customers' savings.
"It's treated the same way as selling groceries or laptops or selling anything else, in that there's no regulation on who can buy or sell," said U.S. Rep. Anthony Weiner, D-N.Y. He sponsored legislation last year in an unsuccessful attempt to require fuller disclosures to protect consumers from abusive sales practices.
Weiner said he'd heard reports of firms that hired salesmen with questionable backgrounds and said at a hearing last year that three top sellers at the California firm Goldline International had been banned from the securities industry for fraud.
"The level that you're finding, though, it's pretty shocking."
Ron Wolfbauer, who operated International Strategic Assets in Eagan, was sentenced to two years in federal prison in 2006 and ordered to pay $1.76 million in restitution to some of his coin customers. Yet Wolfbauer went back to selling coins for about six months in 2008 at the Bloomington firm where he got his start, Investment Rarities Inc.
Owner Jim Cook said he runs background checks on everyone he hires at Investment Rarities, which has about 50 salesmen, and people in the industry credit it with a generally solid reputation. Cook said he gave Wolfbauer a second chance because he had worked there previously for 10 years without a complaint.
"Obviously, we're not going to hire a bad guy," Cook said.
What happened next is in dispute. Cook said Wolfbauer started tapping coin customers to buy stock in his wife's food business, Nature's Prime Organics. So he fired him.
Wolfbauer, who paints himself as an honest player in a murky business, said he quit because he wanted out of the industry. "I think the gold industry needed to be regulated a decade ago," he said. "There's some bad people out there who can do bad things to people."
Wolfbauer also made a stop at Twin Cities Gold & Silver Exchange (TCGS), a St. Anthony coin dealer owned by his cousin Jeffrey Wolfbauer. Ron Wolfbauer denied selling coins through TCGS, saying he advised management on "how to run a clean operation."
More than a dozen individuals with criminal records have been associated with TCGS over the years. Its owner, Jeffrey Wolfbauer, was convicted of fourth-degree sexual assault in 1992. He also has several gross misdemeanor convictions since then for drunken driving, and one for interference with a 911 emergency call. He has moved to Arizona and could not be reached for comment.
His father, Ken Wolfbauer, runs the office now. When asked about its workers, he said the company has "an equal employment opportunity" policy that doesn't discriminate against anyone, including ex-cons.
After the newspaper's inquiry, though, company attorney William Skolnick said it has begun doing background checks. He said they are mostly concerned with any fraud or theft as opposed to substance abuse.
A number of Twin Cities coin dealers said that drinking, drug abuse and gambling are rife within the industry.
One salesman, who asked that he not be identified because he signed a nondisclosure agreement with a former employer, said everyone but him arrived by bus or taxi because they had lost their licenses in the wake of repeat drunken driving convictions. "Ever hear of that movie, 'Boiler Room'? I lived that," he said.
Schaun Waste is a former contractor who co-owns Guardian Gold & Silver Exchange in Plymouth. Waste, a recovering alcoholic, said his past convictions for assaults and drunken driving would make it tough to get a corporate job that pays anything close to the hundreds of thousands of dollars a year a good coin salesman can reap.
He and his partner, Ray Hanisco, say they try to run a clean and sober shop because they have seen the damage that drugs and alcohol have done to salesmen and clients alike when they worked for other coin dealers.
One of their salesmen had been committed in the past for drug addiction and mental illness, and has convictions for theft and passing thousands of dollars in worthless checks. Waste said the salesman was let go after five months for refusing a drug test.
Hanisco, who has no criminal record, echoed others in the industry when he said certain firms hire highly motivated ex-cons and drunks who have nowhere else to go, then try to keep them in line with drugs, alcohol and -- if necessary -- threats. "They're high-paid slaves," he said.
A rogue's gallery
Gundy's trajectory through the industry exemplifies many of its problems. His story is a swirl of shady players who often move from shop to shop with little difficulty.
International Rarities Group, where he signed on in 1998, was founded by a cocaine addict and has a legacy of hiring ex-cons. Court records and sources in the industry show that over the years, its workers have included at least two dozen people with criminal records that ranged from serial drunken driving to drug crimes, fraud, forgery, bank robbery, burglary, theft, sex crimes, assaults and more.
The founder, Harlan Rosenfeld of Plymouth, died of a drug overdose at age 36 a couple of years after Gundy went to work there.
Gundy's supervisor was Michael Cavanaugh, whom Malcolm X's daughter allegedly hired in the mid-1990s to kill Nation of Islam leader Louis Farrakhan. The daughter, Qubilah Shabazz, was indicted in Minneapolis in 1995, but the charges were later dismissed in a settlement.
Cavanaugh also had been charged with possession of cocaine in 1993 in Hennepin County while part of the federal witness protection program. Gundy alleged in an employment lawsuit against International Rarities in 2000 that Cavanaugh and others at the firm bought, used and distributed illegal drugs during work hours and regularly cheated customers. The firm denied the allegations and settled the suit in 2001 for undisclosed terms.
David Marion, who bought the firm in 2000 from Rosenfeld's survivors and changed the name to International Rarities Corp., did not respond to requests for comment in recent weeks. Cavanaugh has reportedly moved to Arizona and could not be reached.
Gundy next fell in with Trevor Cook, a former coin dealer who would become one of Minnesota's most notorious con men by running a $190 million Ponzi scheme involving foreign currencies. Cook was sentenced in August to 25 years in federal prison.
More than a dozen of Cook's associates worked in the coin industry before they signed up to help pitch his currency scheme. Gundy said in court filings that he introduced some of his coin clients to Cook and suggested they invest with him. Cook, in turn, formed a company called PFG Coin and Bullion, which Gundy used to solicit clients he had picked up earlier at another firm, Midas Resources of Eagan.
Gundy formed a coin company called Crescent Equities. But it closed after the Minnesota attorney general's office served it last year with a demand for information after some elderly coin buyers complained they had been cheated.
Gundy, in a brief telephone interview, blamed the problems at Crescent Equities on his former sales manager, Jay Flynn, who could not be reached for comment.
But Gundy said that as the firm's owner, he knows the responsibility is his. "I'm willing to get with the attorney general and explain how these companies are ripping people off," Gundy said. "It's a terrible thing that's really going on."
A new start
After Crescent Equities folded, Gundy and Flynn went to work at newly formed American Independent Gold & Silver Exchange in Robbinsdale, according to a recent lawsuit from the attorney general's office.
The owner is Flynn's cousin Jamie Smith, who also sold coins at International Rarities and then briefly for Crescent Equities. He has convictions for assault, disorderly conduct, drunken driving, driving after his license was canceled and drug possession.
"Not fraud, no stealing," he said. "Fighting! And I got caught with drugs once. But is that something that's pertinent to somebody having something stolen?"
Smith said he's never cheated anyone and is cooperating with the attorney general's office. A former cement finisher, he said he works hard and runs an honest shop. He recently posted an employment ad seeking sales staff who want to make $100,000 to $200,000 in their first year.
The ad says, "Serious people only, will screen! Our top Gold Closer made $450,000 last year."
Dana Mourning, who has worked at other local coin shops, went to work there recently. He's been convicted of theft, theft by swindle, harassing communications, passing bad checks, assault, violating a protection order and lying to police.
Smith said he believes people can change. He volunteered that Mourning already agreed to repay a woman on a deal that went awry at another firm. Mourning hung up when a reporter called.
Smith said he hired Gundy because he felt sorry for him and because Gundy had signed a letter taking full responsibility for all trade and banking decisions at Crescent Equities. But he says he fired Gundy and another employee, alleging they stole proprietary data to do business on the side through another firm.
"He showed me his pants, his prison pants. He said, 'I've got nothing,'" Smith recalled. "Well, he came to work, sat at my back desk, worked for a week and a half and screwed me over."
Dan Browning • 612-673-4493
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