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 # 322 |
Case Study |
| Secure
Monetary Systems Situation In
1966, the
US Treasury stopped minting dimes, quarters, half dollars, and silver
dollars
of .900 fine silver, which resulted in those coins minted in 1965 and
before
to become worth more than their face value. Coin dealers began selling
the older coins in bulk based on their intrinsic spot market value in
silver.
Five years later, the US began floating its currency against other
world
currencies and went off the gold standard. The statutes that prevented
US citizens from owning gold bullion were lifted, and the market was
right
for a new investment vehicle that would allow smaller investors to
participate
in precious metals. Problem How do you launch a new company in a new investment vehicle that doesn't exist? How do you ensure the same relationship to external spot market prices that existed when a contract is opened will exist at the time the contract is liquidated? And, most of all, how do you protect investors from arbitrary pricing – from manipulation -- by their brokers? Solution The We’re Proud of The Way We Broker Campaign was designed to effectively reinvent the policies in the Precious Metals Industry.SMS felt it was vitally important to transform the prevailing practices in the industry and, therefore, establish regulations which would keep people from getting burnt; not so much by the volatile precious metals markets, but by their brokers. Winget knew that, if SMS could establish a pro forma for |
new best
practices
within the industry, the company could also preempt the competition and
dominate the industry. With this in mind, the Agency and SMS lawyers collaborated to write a prospectus that would be sent to investors responding to its advertising campaign. Lawyers frequently speak a language of their own, but SMS’ lawyers had the near impossible task of helping to create best practices – consistent with Federal and State laws -- that hadn't been established. In essence, they were creating a new language for the brokering of silver coin, gold coin, and bullion. No one could have anticipated that the fulfillment package would take over seven months to write and produce. When the prospectus was finished, the advertising campaign to announce its availability in financial newspapers and direct mail was launched. The prospectus was also sent to key analysts, government officials, and the press as the key component in a press kit. Results SMS booked over $300 million in silver and gold coin contracts in less than three months after its launch.But then a series of circumstances in world economies caused President Nixon to freeze prices in the US. This caused SMS to stop selling in the US even when metals prices continued to climb on world markets. When other brokers continued to sell what they could not buy -- except at the higher prices in world markets -- it was a clear indication they were selling "naked." SMS had introduced this issue into its highly visible advertising campaign. It also was interviewed by the Wall St. Journal. To complicate things more, some California legislators and a few politically appointed bureaucrats began writing regulations statutes which, if carried out, would have violated Federal Law as a precondition of doing business in California. SMS took itself out of the fray early. It notified its California clients of the dilemma with an open ad in Wall St. Journal, it liquidated all its California contracts, and it moved its California, Utah, and New York offices into its offices in Dallas, Texas. As the largest precious metals dealer in Texas, SMS became the focus for more investigations and intrigue in Texas. (But that's another story.) Months later, with SMS' full support, the Wall St Journal ran a lead story that unveiled the hazards of arbitrary pricing in the Precious Metals Industry. The article pointed out alleged malpractice in the industry and, in four instances, singled out SMS as the one US company that did things differently to protect investors. SMS was the only US broker that based its pricing -- at the time of purchase as well as at the time of liquidation -- consistent with spot market pricing set beyond its control on internationally recognized world markets. The article shook up the industry, woke up the Security Exchange Commission and the Commodity Exchange Authority, and moved local governments to action. SMS’ prospectus became the road map that drove much of this discussion, which is credited with having served the creation of the Commodity Futures Trading Commission. Tragically, Ron Winget, who did so much to create and improve the precious metals industry, was murdered in 1982. This case remains unsolved. |