Precious-Metals Firm Operated ‘Ponzi’ Scheme, State Alleges

A Newport Beach precious metals firm that has been the target of investor complaints for the past two years was sued Thursday by the state attorney general’s office for allegedly failing to deliver products to paid customers.

According to the complaint, William D. King, owner of Precious Metals Accumulation Corp., or Premaco, operated an unsuccessful “Ponzi” scheme in which old investors were paid with money raised from new investors.

The suit claims that the company failed to deliver metals that had been purchased by investors and that it converted the money to its own personal use. It also alleges that Premaco failed to credit customers for funds paid on margin calls, failed to purchase or sell metals when instructed to do so by clients and issued bad checks to settle customer accounts.

King, who founded the telemarketing company in 1983, also faces felony charges for allegedly operating the business without proper registration. Premaco was shut down in May after law enforcement officials raided the firm’s two ground-floor suites in Newport Center.

King could not be reached for comment Thursday.

The company, which sells contracts for gold, platinum and silver, came under investigation in 1986 when police received the first of two dozen complaints from investors.

Investors claimed that they have not been able to liquidate their precious-metals futures contracts with Premaco. When they attempted to cash out their contracts, they either got no response from the company or received bad checks.

The suit does not state how many investors were involved or how much money was lost. One investor, however, reported losing more than $200,000 in a number of “mismanaged” transactions, court documents say.

According to court documents, King admitted to a U.S. postal inspector in June that he had been “borrowing from Peter to pay Paul,” that he owed an investor $150,000 and that he had a bank debt of $50,000. According to the document, King said he needed $300,000 to put to company in the black.