Facts for Consumers from the Federal Trade Commission

Dirt-Pile Scams: Mining for Gold -- December 1993

Among the endless number of telephone investment frauds going on 
around the country, one variety is called the "dirt-pile scam." 
With this, a caller offers you the opportunity to invest in a 
gold mining operation. What you would buy is a quantity of 
unprocessed dirt from the mine, "guaranteed" to contain enough 
gold to more than cover your investment. In reality, the mine 
contains little if any gold, and your investment is nearly 
worthless.

Unfortunately, consumers from all walks of life have invested in 
these dirt-pile scams and were cheated out of millions of 
dollars. This fact sheet tells you how to recognize the scam, how 
to protect yourself, and what to do if you become a victim.

How Dirt-Pile Scams Work

Although there are many versions of this scheme, most dirt-pile 
scams have similar features. Typically, a promoter will either 
lease or buy a mining claim (a tract of land that legally can be 
mined) in one state and then set up "boiler room" sales 
operations in several other states. 

The mining claim, company headquarters, and boiler rooms are 
purposely located in different states to make it more difficult 
for law-enforcement officials to locate and investigate the 
company's activities. 

Usually, a boiler room is a rented space filled with desks and 
telephones, where experienced salespeople call hundreds of 
potential investors like you. These callers use high pressure 
tactics to sell you unprocessed dirt, also called "ore." Preying 
on most people's limited knowledge of "ore," they make false and 
exaggerated claims about the precious-metal content.

A central feature of the dirt-pile scam is that you will be asked 
to invest several thousand dollars upfront, but will not be 
entitled to a return on your investment for at least one to three 
years. This gives the promoters time to get money from many 
investors, before anyone suspects foul play. 

There are a number of twists to this scam. In one variation, you 
buy the ore from the mining claim for one fee, then, for a second 
fee, you buy the services of an "independent" mining contractor 
who will process the ore and extract the precious metal. You will 
not be told, of course, that the contractor is also part of the 
scam. 

In another variation, you pay one fee for both mining and 
refining the ore. Some investment schemes allow you to make 
monthly installment payments to the mining company. The sales 
pitch may change slightly, but the basic message is the same_pay 
now and receive a substantial return later.

If you express interest in investing, the salesperson will follow 
up the phone call with a prospectus or a company publication. It 
often is a slick-looking brochure, which promoters hope will 
increase the credibility of their offering. The brochure may 
contain photographs of the mining site with mining equipment on 
it, a map of the area, pictures and resumes of company officials, 
and references for you to call. 

The brochure also may include a report from an assayist, one who 
analyzes a sample of dirt from the mining claim to determine the 
precious-metal content. Often the report will be from either a 
fraudulent assayist who inflates the amount of precious metal 
found in the ore, or from a legitimate assayist who is given a 
"salted" sample, one that contains added amounts of the precious 
metal. The packet may include a contract for you to sign and 
return, locking you into the investment.

If the caller senses any reluctance, you may be offered a 
"risk-free" investment to clinch the deal. Your investment will 
be "guaranteed" to contain a minimum quantity of precious metal 
per ton of ore, and, if your claim does not produce the specified 
amount of precious metal, the company will refine additional ore 
to satisfy the terms of the guarantee. Some companies or 
salespersons even will promise to make up the difference out of 
their own pocket.

Once you have invested money in a dirt-pile scam, you may receive 
periodic progress reports or "lull letters." Their purpose is to 
keep you up-to-date on the fictitious progress of the mining 
operation and to keep you content with your investment. 

Because the mines often are not located in the state where you 
live, it is unlikely that you will visit the mine. If you do 
visit, you may recognize the worthless value of your investment 
and demand a refund. Promoters may willingly refund your money, 
possibly with newly invested money, in order to avoid complaints 
to law-enforcement officials. In some cases, promoters actually 
haul equipment out to the mining site and hire temporary 
employees to make it look as if work is in progress.

Finally, when it is time for a return on your investment, if the 
promoters are still around, they will conveniently blame faulty 
equipment, bad weather, a labor shortage, or even the Government 
for any delay. They will assure you that they will resolve all 
problems quickly. Since you have already put considerable time 
and money into this investment, you may be satisfied to wait for 
a while. In the meantime, the promoters try to get more money 
from new customers or to get safely out of town.

No matter how these scams unfold, they always end the same way: 
You are left with nothing_no capital and no profit.

How To Protect Yourself

The typical dirt-pile scam involves a highly sophisticated 
interstate network of swindlers. By the time you suspect the 
investment may be phony, it could be difficult to locate the 
promoter, the project manager, the salespeople, or anyone else 
connected with the company. Because the crux of the scam requires 
you to wait at least a year to realize a return on your 
investment, promoters are often long gone by the time 
law-enforcement officials are alerted to the scheme and can begin 
an investigation. 

The best protection you have is not to invest in a dirt-pile scam 
in the first place. The following suggestions may help you avoid 
losing money in a dirt-pile scam:

Be wary of unsolicited investment opportunities. 

If this is such a great investment, why isn't the company getting 
traditional financing from a bank instead of from you, a total 
stranger?

Be suspicious of guaranteed, high-return, risk-free investments 
in precious metals. 

The market for gold and other precious metals is unstable; be 
wary of any exaggerated claims. Few legitimate companies can 
afford to substantially undercut the market price for precious 
metals. 

Be skeptical of extraordinary claims, such as "secret formulas" 
for extracting otherwise unrecoverable precious metals from dirt.

Ask yourself, why am I hearing about this for the first time over 
the telephone?

Don't let telephone salespeople convince you to invest on the 
spot.

A person selling a legitimate investment opportunity will allow 
you to take some time to look over the company literature and to 
check out the credibility of the claims with someone whose 
financial advice you respect.

Don't be taken in by slick brochures and reports by so-called 
experts. 

The claims made in the brochure are only as good as the company 
that makes them.

Don't be impressed by statements that the mining claim is on land 
managed by the Bureau of Land Management or the Forest Service.

It is relatively simple to file a claim on federally managed 
land, but that does not mean the land is worth mining.

Check out all the claims made in the sales call and in the 
written materials.

Call the state Bureau of Mines in the state where the mine is 
located to get general information about the mineral content in 
the area to be mined. Get an independent, credentialed geologist 
to inspect the written materials. Call the state securities 
office in your state or in the state where the mine is located. 
They can tell you if the promoter has violated state securities 
laws in the past. 

When in doubt, say no. 

If you are not completely confident that you are investing in a 
legitimate offer, do not take a chance. Once a swindler has your 
money, it is very hard to recover it.

What To Do If You Are A Victim Of A Dirt-Pile Scam

If you thought you were investing in a legitimate mining 
operation and it turned out to be a dirt-pile scam, speak up. 
First, try to contact the mining company and attempt to get your 
money back. If you are not successful, report your problem to the 
state securities agency, state mining agency, Better Business 
Bureau, and Attorney General's office in your state and in the 
state where the mine is located. If law enforcement agencies are 
already looking into the company, your information will help in 
an investigation. If they do not know about the problem, your 
information may alert them to the need for one.

You also may contact the Federal Trade Commission. Write: 
Correspondence Branch, Federal Trade Commission, Washington, D.C. 
20580. Although the FTC generally does not intervene in 
individual disputes, the information you provide may indicate a 
pattern of possible law violations requiring action by the 
Commission.

For More Information

Additional information about telephone investment scams and how 
to protect yourself is found in the FTC fact sheet Telephone 
Investment Fraud. For a free copy, contact: Public Reference, 
Federal Trade Commission, Washington, DC 20580; 202-326-2222. You 
also may request Best Sellers, which lists all of the FTC's 
consumer and business publications. 

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