Three Minnesota coin dealers are headed for the clink

With the Great Recession and the gold craze it spawned receding into history, federal judges are finally getting ready to mete out prison time to three former coin dealers in the Twin Cities who stole the savings of mostly elderly investors around the country.

Whatever the courts do, said Ken Dado of Balsam Lake, Minn., it won't restore people like him.

Dado is a retired teacher struggling to make ends meet on a fixed income as he cares for his wife, Carol, who has brain cancer. He said they could use the $9,000 that was stolen from them by Tory Hughes, the former owner of Reputable Rare Coins in Roseville.

Ken Dado said Hughes knew he and his wife didn't have much money and treated them like his parents when soliciting them to buy coins. He took them to dinner and offered to help protect their meager savings. Learning that they'd been swindled took a toll financially and emotionally, Dado said Friday.

"To trust anybody now is something we don't do," he said.

The nationwide telemarketing of precious metals and coins began in the Twin Cities in the mid-1970s and grew to about three dozen firms. The industry rapidly filled with smooth-talking drug users and drunks who would say and do nearly anything to make a sale. After the Star Tribune published a series about abuses in the industry in 2011, the Legislature instituted reforms and the U.S. attorney in Minnesota prosecuted the owner of one of the state's largest coin telemarketing firms for investment fraud.

On Thursday, a federal judge in St. Paul is scheduled to order prison time for Hughes, a felon who personally took more than $750,000 of his clients' money to run his business, buy drugs and gamble.

A presentencing investigation concluded that Hughes should spend 100 to 125 months in prison, but federal prosecutors are sticking by a plea bargain capped at 71 months. It's up to U.S. District Judge Richard H. Kyle in St. Paul to determine the appropriate penalty.

Although Hughes owned and operated the coin business, prosecutors say the restitution in his case should be limited to $753,000 that he personally stole from 13 clients.

That apparently would leave out the estate of Jacob Kern of Lockport, N.Y., who died in 2010 a month before his 80th birthday. His daughter, Lydia Kaczmarczyk, said her father was cheated out of $20,000 by one of the salesmen at Hughes' firm, but added that her parents had spoken with Hughes repeatedly in a failed effort to get reimbursed.

Next up for sentencing is Dennis Helmer, a convicted bunco artist who sold client lists that he pilfered from some coin companies where he had worked, giving unscrupulous dealers a phone book filled with potential prey.

Helmer, 54, of Farmington, told a reporter in 2012 that he was out of the business. But in fact he used his fiancee's name to launch a telemarketing firm called Wholesale Assets Worldwide in 2009. When that came under investigation he formed another firm in Florida to keep the money flowing.

In a letter filed Wednesday, Helmer says he used his database of 155,400 "previous clients and known owners of precious metals" to run up $10 million in sales in 2010, then faced a calamity when the silver market plunged in 2011. The stress and the prospect of a $250,000 loss, he said, drove him back to his cocaine habit and led him to use his clients' funds as his own.

Prosecutors say in court filings that Helmer stole more than $1.3 million from his clients, most of whom were in their 80s and 90s. Many lost tens of thousands of dollars each, and five each lost between $174,000 and $250,000.

"Some of the victims were in very poor health, including a victim (age 86) who fell asleep during an in-person meeting with Helmer, a victim (age 99) who has dementia and does not remember giving her coins to Helmer, a victim who is currently in hospice care, and a victim who is now deceased," wrote Assistant U.S. Attorney Kimberly Svendsen.

"Helmer noted that one victim was 'legally blind' — a distinct advantage to an unscrupulous coin dealer inclined to send the victim coins of a lesser quality than those for which the victim paid," she wrote.

Helmer seeks leniency, arguing that the recession and volatile silver market contributed to his crimes. Svendsen counters that the appropriate sentence is 150 months — the top of the range recommended in federal guidelines.

Although Svendsen seeks restitution, she says there's little chance his victims will see any of it. Helmer owes $1.1 million in restitution to victims of his earlier fraud schemes, nearly $500,000 in civil judgments, and more than $18,000 in child support.

Jay Flynn, 51, of Minneapolis, who prosecutors note has a history of fraud, violent crimes and drug offenses, is scheduled for sentencing July 23 in Minneapolis for defrauding mostly elderly investors out of nearly $345,000, partly while working with Hughes.

Another of Flynn's former associates — Robert Earl Gundy, 56, formerly of Fridley — pleaded guilty in August to a single mail fraud charge. He admitted to stealing $421,000 from several clients and is cooperating with the government. His sentencing hearing has not been set.