Fool's Gold

Maybe $100 million worth

"You wanta buy some gold, but don't have a safe place to keep it? No problem. Send me money and I'll buy the gold and store it for you. Whenever you want it, just ask."

The actual radio sales pitch, broadcast for two years in California and for a few weeks in New York, was a shade more sophisticated than that. But, in essence, that was the offer of Los Angeles Gold and Silver Dealer Alan David Saxon. Would anyone grab at such a flimsy deal? Some 35,000 investors, dazzled by the lure of precious metals as a hedge against renewed inflation, apparently did. Last week they were regretting it.

"What am I going to do?" asked a distraught Manhattan banker who, at 25, had invested $25,000 of his parents' savings with Saxon. He was seeking advice from the office of New York State Attorney General Robert Abrams. A New Jersey caller reported buying $250,000 worth of gold from Saxon. Declared one weary investigator: "Many of these people even sound well educated and experienced."

The calls were flooding Abrams' office because he had become suspicious after hearing the radio spots and asked some of his aides to snoop around. Oddly enough, they could find no complaints against Saxon and his firm, Bullion Reserve of North America. It had headquarters in Los Angeles and offices in Dallas and Hong Kong. No one in gold trading in New York seemed to know Saxon well, but his company was paying its bills. On instinct, Abrams' men asked Richard Arfa, a vice president of Bullion Reserve, to produce financial records. Arfa stalled and questioned Abrams'jurisdiction in the case.

The same day, Saxon, 39, ran a hose from the exhaust pipe of his motorcycle into the sauna of his $685,000 condo in Venice, Calif. He apparently started the engine, then sat in jeans and socks while the sauna filled with carbon monoxide. When his body was found, so was a tape recording of a message to his estranged wife Susan. It explained that he had killed himself because he could not overcome his mounting business losses.

When accountants examined the books of the company, which last week filed a bankruptcy petition, they could not determine what had happened to some $60 million in metal reserves the company had claimed to be holding. Only about $900,000 worth of metal owned by Saxon's company was found in 200-ft.-deep underground vaults managed by Perpetual Storage Inc. near Salt Lake City. A Brink's vault in Los Angeles contained an additional $150,000 in metal for Saxon's company. The Bullion Reserve records showed that the firm had loaned at least $13 million to Saxon and his wife and more to other companies they controlled. According to the California department of corporations, which began an inquiry, the losses could reach $100 million.

The California investigators believe that Saxon's company may never have purchased all the gold that investors paid for, and that Saxon diverted much of his clients' money to his personal use. He owned another home in Venice, a $59,000 Maserati, a Porsche and a Mercedes. He had made a $95,000 deposit on a Learjet. He apparently had lost $1 million in an attempt to buy the Commercial Bank of California in West Hollywood and save it from bankruptcy. The bank failed last May, and its demise has led to numerous disputes and even lawsuits among its directors.

How had Saxon's apparent swindle gone undetected for two years? Incredibly, no government agency at the state or federal level has clear-cut authority to regulate bullion dealers. The FBI and state or local police normally enter such cases only after complaints of fraud are brought by the victims. By that time, it is usually too late for help. Contends Abrams: "These are interstate frauds that cry out for federal regulation." This file is automatically generated by a robot program, so viewer discretion is required.