Irvine police and investigators from the Orange County district attorney's fraud section raided an Irvine precious metals dealer early Thursday as part of a series of regional actions taken by the U.S. attorney's Los Angeles-based Fraud Task Force.
Acting on county search warrants, district attorney's investigators seized the books and records of Paragon Investments, which sells contracts for precious metals nationwide.
A complaint filed this week by the district attorney alleges that the company violated provisions of California's boiler room registration law. The seven-month-old law requires companies involved in telephone sales to register with the state and accurately disclose all investor risks involved in their operations.
Meanwhile, the federal Commodity Futures Trading Commission late Wednesday obtained a temporary restraining order from a federal judge prohibiting Paragon from disposing of any assets. The commission, which regulates precious metals trading, is also asking the court to appoint a receiver to take over Paragon's operations.
In a separate federal complaint that was unsealed Thursday, commission investigators alleged that Paragon's delayed delivery contracts for gold, silver and other metals were illegal. Customers, according to the company's procedures, were required to place a cash deposit on each contract and then pay the balance upon delivery of the metals, the complaint said.
However, few customers ever paid off their contracts and physically took possession of the precious metals, since they were more interested in the fluctuating, speculative value of the commodities, according to the complaint.
Paragon allegedly defrauded customers by advertising that most investors earned a profit on their investments when, in fact, most customers lost money, the complaint said. The company allegedly used customer funds to pay its own expenses, according to the complaint.
Paragon, which is headquartered on MacArthur Boulevard, appeared to have collected about $5 million from 500 customers across the country, according to federal investigators familiar with the case.
"Boiler room fraud continues to be a serious problem in Southern California," said Arthur Salzberg, the commission's regional counsel. "The American public seems to have an insatiable appetite for precious metals."
Marvin B. Brandon, Paragon's owner, and Jack Christian, the company's manager, were also named in the complaints. Company officials did not return several telephone calls from The Times.
However, a company salesman said in a later telephone interview that he was unaware of any complaints from their customers.
"We have a feeling that this particular company is a legitimate interest that has not broken any laws," said Jeff Horton, who added that he has worked for Paragon for the last six months.
"We don't lie to the clients," he added.
Horton said Brandon runs the business properly, paid all his taxes and is a "legitimate entrepreneur."
Meanwhile, fraud task force members moved against two other companies Thursday.
The Orange County district attorney's fraud section--which is a member of the regional federal task force--filed complaints against three men operating Executive Fidelity, a telephone sales firm. Neighbors complained to Orange County Sheriff's Department deputies that the three men were making telephone calls day and night from a Laguna Niguel apartment.
The men allegedly told callers that they represented a company in Beverly Hills and told customers they had won a trip to a resort in Hawaii or Mexico. However, when customers sent $450 to the men, they received a certificate to attend a promotional sales pitch for time-share condominiums, according to Pat Geary, a supervisor of the Orange County district attorney's fraud division.
Robert E. Cressy, Robert D. Hayes and David M. Matsumoto were charged with failing to register their telephone sales firm with the state attorney general's office and failing to disclose the odds of winning various prizes that they were offering as promotional items to encourage people to buy pen and pencil sets.