Wednesday, December 03, 2008

Silver Certificates and failure to redeem.

One of our fellow Silver Bugs has come to me with a problem about the redemption of silver certificates in bullion (not money), and he and I would like your input.

I'll let him tell the story in his own words then we will look at the text of the certificates and discuss what is happening here.

Nov 29

Good day "lord of wealth"
I purchased a 100oz silver certificate from TD Canada Trust a couple of months ago. Ever since, I have been having a heck of a time getting it "redeemed" - not cashed. After a lot of BS, and finally making the trip to T.O. I was told that they do not have to provide me the silver because the circumstances preventing them from giving it to me, are "beyond their control" (As per term 1 on the certificate) This despite the fact that I pointed out a number of sources for 100oz of silver, albeit above spot price.
Who would you think would be a better contact for me, The RCMP fraud unit, or my lawyer? Is there any interest for a class-action suit in the silver certificate holding community?

Dec 2

I contacted TD, and they informed me that they are making the calls now.
Never the less - I have attached copies of my certificate. I am interested in what others have to say about the bank's obligation to procure the silver, based on the conditions listed

Dec 4
Well, LoW. I went back to TD Canada Trust to surrender my silver certificate, and they said didn't have any silver. I then explained to them that rumour had it that Scotia Bank received 30,000 ounces of silver that morning. The securities dept told them that ScotiaBank wouldn't sell them any silver.
Once again, I explained my position, and told them threat they were in "breach of contract" and that it was not acceptable. I was asked if I would like an explanation from TD's legal dept, to which I said yes.

Within the hour I received a call from the branch with a proposed compromise. I would purchase 100oz of silver from ScotiaBank, and TD would buy my certificate for the cost of the silver.
I agreed, and the next morning I purchased 100oz of silver, and brought the receipt to TD. Which they said that they would deal with during trading hours the next day. Everyone's happy right???
TD calls me this morning, and tells me that they won't refund me for the silver - They claim that they will not buy coins - only bars. (I wish they would have told me this earlier)

Long story short... I now have 100oz of physical silver being delivered by ScotiaBank next week, and a contract with TD that they refuse to honour....

(does) Anyone else hold worthless silver certificates from TD that they want redeemed for silver?

Any interest in a class action against TD?

I contacted the OSC today, and they don't know too much about these certificates, but they did give me some more leads. I contacted TD's ombudsman this afternoon.

click on certificates to enlarge

The clause used to justify non delivery from paragraph 1 under the conditions on the back of the certificate states

“The holder of this certificate accepts the risk of non-delivery for any reason beyond the control of the bank”

While not explicitly stated I believe they could be baulking on delivery for one or more of the reasons below.

1. They may not actually have any silver to back up these certificates, in any size, shape or brand let alone highly desirable 100 oz bars.

2. If they do have bars they can't find any to fulfill redemption in the size requested.

3. If they do have bars they do not have the means or want the added cost of reminting 1000 oz bars into the desired size

4. While they can find 100 oz bars on the market they don't want to pay the difference between the questionably low spot price they sold the certificate for and the real price reflected in the physical metals market.

5. The certificates are issued with enough conditions that the banks don't feel the need to honour redemption.

6. The banks know they can create enough road blocks and stall the process until "most" people settle in paper.

7. Add your own theory, because I may have missed something totally logical and innocuous

So does

"for any reason beyond the control of the bank"

under these circumstances justify a lack of redemption?

I would think not because there is silver on the market if you are willing to pay the price.

If the TD chose not to back their certificates with real silver, should investors be penalized for TDs poor business decision?

If they did back all of the certificates or at least backed some portion of them on a factional basis, should they not have made reasonable accommodations to maintain a supply of common sized bars to meet redemption requests?

If supply is so tight that TD knows it cannot redeem the certificates they previously sold should they be selling more of them?

This certificate was only sold a few months ago and considering the inability of getting bullion in many sizes this year should the bank not have know it was not redeemable then?

Was our friend told redemption was next to impossible when he bought it?

The certificate clearly states you can get physical redemption. The banks failure to adequately back up the certificates with deliverable silver does not seem to be "Beyond their Control", in fact it was entirely in their control. They chose not to buy the physical silver they offer to redeem, or they chose not to have the sizes and shapes that represent the average client purchases.

Another issue is the yearly fee stated on the front of the certificates. GICs, term deposits, bonds etc do not have such fees so the reasonable assumption to make is this fee must be represent a storage fee for keeping your silver safe and dusted. Since silver and gold bullion are known to have storage costs, is this not it?

If not, what is the fee for?

Either way it looks bad, silver and gold take up space and it's practically universal for banks charge a fee to store bullion. If there is no fee there is probably no metal. If there is a fee, there should be metal. So naturally when there is a fee and no metal at the same time something would seem to be wrong.

TD itself is rather confusing on the whole issue at one point they say
Free Safekeeping
TD Waterhouse provides free safekeeping on all securities, except gold and silver certificates. For your convenience, we recommend your securities remain in our TD Waterhouse account at all times. That way, you will not have to monitor delivery deadlines and make repeated trips to a safety deposit box.

Notice they say safe keeping of securities not assets, so is the fee for storing their copy of the certificate, or the metals?


TD Waterhouse offers several investment alternatives for clients who want to take a position in precious metals, but don't want to worry about the storage costs and insurance against theft that are usually required when purchasing gold or silver bullion:

So here they are saying you can buy certificates to avoid fees, yet the certificates have fees stamped on their front.

I'm getting confused.

If a bank is charging you a fee, which (we believe) is for storage, should they not be storing something? If they are storing something for you should they not be able to identify that item or even better deliver it to you?

Is this the same issue I related to you last fall when Ted Bulter wrote about Morgan Stanely settling a class action lawsuit for not buying metals to back certificates and charging a fee to store nothing?

One thing I did notice, While the certificate mentions redemption and conditions on redemption at no place does it ever specifically mention being backed by silver. By calling it a silver certificate it's implied they are backing it with silver but nothing on the certificate actually supports that belief. I'd like to ask a bank's investment advisor if they are represented by real metal or not. Do they even know what they are selling?

Now it's unclear at this time if this particular certificate will get redeemed. TD has moved somewhat to placate a pissed off client but there is still no satisfaction and there are some bigger issues that this single 100 oz certificate.

What about all the others who have these certificates?

What if they also demanded bullion?

We need to know if TD, Scotia or any other bank that sells silver certificates have 100% bullion backing for their obligation?

If not how much backing is there?

If not why are people asked to pay a yearly fee?

If not what are they doing with money that should have purchased silver? Investing it elsewhere and hedging against the silver position in the futures market perhaps? Are they betting against your investment by going short silver?

Is there even enough silver on the market to cover all the obligations created by all the banks selling certificates?

Is their ability to redeem gold also suspect?

If they do not have the metal, how much money have metal investors lost because their purchases never impacted the demand side of the price equation?

It's quite possible given the revelations in the Morgan Stanley case that 100s of millions of dollars, industry wide, that should have been soaking up silver and gold ounces never did so, robbing investors of the appreciation the added demand would have caused.

In Morgan Stanley's case 22,000 investors believed they had bought silver and gold (not a promise) and then adding insult to injury they were charged to store it. Even $1000 for each client would have added $22 million to metals demand. Now consider many of these people had much more than $1000 dollars in certificates and there are many more banks than just Morgan Stanley offering these products.

Metal investors need to go to their banks and demand redemption or proof of backing for their metal certificates. Ask for your serial numbers. I know Scotia is annal about recording those numbers when you buy physical silver so why don't banks give you the serial numbers associated to certificates, or at least a list of all the bars they hold backing the certificates

Canadian metal investors need to group together and go to the government, the OSC, the RCMP and the Press asking the above questions and demanding a full accounting of banks metals obligations(certificates) vs. their backing (bullion).

If we get deficient answers, this should move to court.

Your opinions on the issue are welcome, Am I missing something?

If anyone is in a similar situation and wishes to organize with others, email me and I'll arrange contact with other concerned investors.

For anyone trying to redeem a certificate ask the right questions and argue that failure to back their certificates with the metal they promised was most assuredly under their control and you require satisfaction.


Anonymous said...

Listen, I happen to have a few thousand ounces in certificate at Scotia....I can have the bars delivered to me within 24 hrs (but they can only deliver in 1000 oz bars, nothing smaller). So don't assume that all Canadian banks are the same. I do have to pay the armored service though, which is about $1000 or so for each time they deliver. Not the end of the world.

Carter Apps, dabbler of stuff said...

Not having the correct sizes was one of my options for failure to redeem, the question is still valid however does Scotia, or TD or the industry in general have enough silver to back all the certificates that have been sold.

I know Scotia has 1000s but I have no faith that other banks have any silver at all, Hell I'm not even sure Scotia has enough to cover it's obligations, after all Scotia is one of the warehouse banks for the COMEX and we all know they trade many times more paper than they have bullion.

I would still like to see disclosure of the certificate obligations by Bank.

Don't be surprised if during a run on precious metals that Scotia will also reneg. By allowing them to hold your silver you lose control of it and a promise is only as good as the ability or intention to honour it.

Take posession while you can.

Anonymous said...

In these current times, with the massive shortage of silver - do not expect any of these banks to honor their redemptions of real silver.

The amazing thing about these silver certificate scams is that they'll make you pay a storage fee for holding the silver that they supposidly say they are holding for you. It's the old banker story - they lent out far more silver then they have - or they never had it in the first place - but they are charging you a storage fee as if they did.

If you notice on Scotia's literature that if a customer wants to redeem their silver certificate - they must give the bank a certain amount of notice. Why is that? Because they might not have the silver and they'll have to scarmble in the open market and get some. Also - they claim that the silver is backed by the full assets of the bank. All of this is implying that they might not have it - and that you might not be able to get it delivered.

Only trust the physical metel that you can hold in your hand in these troubled times

Anonymous said...

How does one buy physical silver from Scotia?

Anonymous said...

P.S. I don't live in Toronto where I could walk down to the bank. I live in southern alberta so i would need it shipped as well. And what "kind" of silver? Bars? Coins?

Anonymous said...

a message from First Majestic Mining, receiced Dec 9th:

We are pleased to announce that our long awaited 1 kilogram silver bars (32.15 troy ounces) will be arriving within a few days. Featuring the First Majestic logo on a sandblasted finish, these bars are 0.999 fine silver direct from our mines in Mexico.

These kilogram bars are now available for pre-order at $400.00 USD each – That works out to around $12.45 USD per ounce. We will be limiting sales to a maximum of 3 bars per customer.

To place an order, please reply to this email with your request. If you have not previously filled out our order form please also include your shipping address and preferred payment method (cheque, money order, wire transfer or PayPal) in your email reply. Orders will be treated on a first come, first serve basis and will be confirmed by email with a complete invoice including the additional shipping and insurance costs.

Reply quickly! Last week our 5 and 10oz ingot bars sold out in less than 24 hours. Due to the extraordinary demand for this product, we doubt whether we will be able to keep them in stock for very long.

As usual, funds will be required before shipping.


Karon Blandino

Administrative Assistant

On behalf of Keith Neumeyer, President and CEO

First Majestic Silver Corp.

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Anonymous said...

I can relate to this situation. In November 2007, I finally persuaded my wife to redeem a certificate that she had purchased in 1994 from Scotia Bank. After several trips to the local branch, a couple of calls to Toronto on my own behalf, and lots of discussion with the local manager, they finally did deliver the metal. The manager told us that the shipment came from New York, that there was no silver in the vault in Toronto. The situation has worsened considerably since then, not just at one, but ALL Canadian banks. In August, I managed to purchase 400 oz. of silver from CIBC and the bank rep told me that half of that had been sold to the bank at the same time I was buying - and that there was no more at all in their vault that day. Three weeks later, they delivered 100 oz. JM bars, heavily tarnished that had been poured at least 40 years ago.

Gail said...

You do have a remedy, contact and make an official complaint in writing to the Financial Insitutions Commission. There is a provincial body in each province and a federal equivalent that they coordinate through. They are required to investigate a complaint. Use words like "cunducting business prejudicial to the public interest" and point out the "decepitve nature" and that they "must" be required to ammend claims made when selling. And request a follow-up and reolution, then go to the media with a release "Banks forced to amend deceptive bullion sales practice"... I would also load up on shares of Metanor Resources (TSX-V: MTO) as they are making cash hand over fist (spending it too on growth) as an unhedged gold producer story my top holding.

Anonymous said...

Just an FYI semi-related..

I went to Scotia Bank Main Branch Toronto, the very same day LOW made his last post, 'The Great Silver Safari, leads to a trophy.'

I work in the core as well, and have made at least over half a dozen purchases over the last 2 years in the past at this branch. I know by face (not by name), every teller that works in the FX/Precious Metals, and the managers that confirm the orders, that's how often I go. Plus, the orders take so long at those desks, that you can't help but just look around and oversee the transaction of the tellers beside you.

Anyhow, Every time I previously went, I would always ask if they have silver bars 10 oz or smaller. They always said they didn't.

Armed with LOW's knowledge I went in confidently asking for 20 1 oz silver bars. Immediate response? No, we don't have any.

I was taken a back. I said to him, wait, I just heard this morning you just got a large delivery. I made a pretty strong point about it, and he could tell I was quite upset.

So he said, okay, wait a minute, let me 'check the vault'.

He goes back to that side counter area, chats with the person behind that plexiglass counter for a few minutes, then he said, yeah okay, we have it.

He then did disclose that they took a large delivery, I tried to up my order to 10 more 1 oz bars but said no. I don't really understand why if they took a large delivery, why there aren't selling.

Anyhow, my point is, as most who buy at main branch scotia on a semi regular basis may atest to, even buying physical always feels very sketchy with them.

On a positive note, I did get the 20 1 oz Scotia Silver bars, and are quite happy with them.


Carter Apps, dabbler of stuff said...

While I know they had lots of maples,
I don't know they had lots of scotia bars.

It's too bad, I wanted both the bars and the maples but could not manage both that week.

Anonymous said...

Can you get Maples from them and have them shipped or do you have to do it in person? And how/who to call to order if possible?

Carter Apps, dabbler of stuff said...

side show

I've always bought in person.

Scotia will order and bring them to your branch but do charge shipping fees for bank courier. They might ship directly to you or order on the phone if they have a personal business relationship with you but cold calling a bank and asking for bullion to be ordered will probably be ignored.

I don't know if have stock but J&M coins and Border gold both out of BC are good companies. I don't know alberta vendors but try to find one. buying from BC or Alberta = no provincial sales tax on Maple leafs.

Anonymous said...

Both of those companies either have no stock or have EXTREMELY high premiums...i.e. over $21 for silver Maples. A little harsh.

Anonymous said...

I know Scotia was just under $20cnd. These guys are doing what anyone would do, price to what the market will bare. 3-4 dollar premium for 1 oz any Currency round, Maples, Eagles, Libertads is normal.
20% or more on the exchange rate and it adds up quickly.

My reluctance to buy at such premiums is why I'm weighted towards large bars een when I know I should have more small stuff incase barter brakes out after a currecny collapse.

I really need more rounds and junk much more than I need pieces I can use to crack walnuts.

Unknown said...

This problem is not confined just to silver gentlemen. It is also a problem underlying the entire banking system and is also evident in gold:

this double counting has never been addressed by the IMF or anyone else BECAUSE THERE IS NOT ENOUGH TO GO AROUND - PERIOD!

So it seems like silver and gold in physical form is the only way to own any precious metals because it would seem to me that half of the gold that should be available on certificate redemption is really not even there at all! Only a few people even know this.

Anonymous said...

Yes...we do know this. That is why I am trying to get my hands on some...not in certificate form...and wondering if there is a method to do so without such high premiums and wait time. Thought Scotia was maybe one...maybe not.;

Anonymous said...

Well sideshow, the best i can figure is that you have to buy 1000 oz.
I have been trying to find someone who would melt a 5000 oz bar into 100 oz bars.
I can't find anyone yet.

Anonymous said...

oh ok...i'll just get that 11 grand I have out back and do that...Oh wait, I'm 29 and would like to accumulate over time like prudent investing advocates. What if the price drops? Just go out back and get another wad of cash?

Anonymous said...

I'm watching this closely, as it appears our bogus fiat currency is inching ever closer to death. I'm sitting on my stack o' silver, hoping that the government doesn't launch a metals confiscation program like they did in the 30s. Best of luck to you and keep us updated.

CHR said...

Hmmm ... a metals confiscation program; that would be interesting given that a lot of silver hoarders in the US are likely adding to their gun collections at the same time as they have added a safe to hold their increasing booty.

In the 30's, the public was meek and powerless; today, neither is true.

In Canada, we register our guns, not our silver. We means that the government would have to find the silver, first!

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MelinksThinks said...

Does anyone know how I would go about tracking down sliver futures I bought at "Guardian Trust" 618 St James St. Montreal Que. ( I find now that it no longer exists) around 1976?
Is it a lost cause? I have lost all the paperwork from the bank .

Anonymous said...


Anonymous said...

I realize that this discussion has not been active for a while, but in case anyone is still reading - I've been buying gold, silver and platinum coins and bars from Scotia-Mocatta online. It's shipped to you in a timely fashion and it's my understanding that in order to cash out, you simply take it to a branch of Scotiabank. It would be advantagous to have an account with them for ease of identification. I feel comfortable with it in my home, and feel that it's no more a risk than having my jewelry here.

Anonymous said...

Well here it is another year later and not much has changed. We visited our TD brancm to redeem a gold certificate last week. While they did not hesitate to redeem the certificate, they insisted that there be a "Purchase order and a "Sell" order. I told them that Canada Revenue Agency had advised us that there could not be a purchase or sale without it becoming a taxable event (which is what we were trying to avoid). CRA said that we could avoid tax liability would be if it were "redeemed" as the bank promised to do as a term of the certificate (in print on the back of the certificate) TD refused to do the transaction any other way than a purchase and sale, and also refused to provide a letter describing the transaction as a redemption - although they admitted verbally that it was a redemption. This left us very confused - as we have been good customers of TD. The only conclusion we can reach is that TD must have a policy of not recognizing losses on their certificate redemptions - which is obviously dishonest and deceives shareholders. Banks should never have been allowed into the brokerage business.

Unknown said...

As for me, you have a point and your analysis may be close. However, we really cannot tell, they are also reinvesting of course and that's a given fact. They are probably looking into long term investors as well who will hold the paper for quite a while. I just happen to come across your post while filling-out for my IRS form
I just hope that your issue gets resolved asap. Maybe try to seek advice from a professional.

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Anonymous said...

I am interested in what others have to say about the bank's obligation to procure the silver, based on the conditions listed.Gold & Silver Education

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Anonymous said...

What the hell?

Anonymous said...

This thread may be long dead... I had a similar experience 10 yrs ago. When I tried to cash out 700oz worth of silver certs at CIBC, they said they'd have to apply a whopping 25% fee for "holding" the vaulted silver for 10 years. When I suggested that no sane person would agree to lose a quarter of face value, they insisted that it was expensive to hold MY silver. So, I said that I'd pay the 25% if they'd give me MY silver. Of course they couldn't. Flat out couldn't. Couldn't ever, they said. So, yes, they wanted 25% for babysitting non-existent metal. I made a fuss and the fee was forgiven. Later I called someone at, I think, the Bank of Canada precious metal something something something… and he laughed and laughed and laughed. Then he said, "you know, of course, that there is no silver or gold and no central vault". Essentially, the amounts actually held are negligible. Circumstances beyond the control of the bank, indeed.

June said...

Not good news. I purchased 100 oz silver certificate from RBC today.
The difference was almost $1000 less than a solid. I had reservations. Sounds like a big hassle coming maybe.
In the years most of you were speaking about silver rose 350% I read. 2008-2011. Lots of action I bet. I don t like feeling insecure so now I m thinking stopping it in favour of a solid. Is anybody honest anymore?

carolus martellus said...

Time to revive this light of Scotiabank exiting the bullion business altogether.
I called them repeatedly to take delivery of 22 troy ounces of Gold. Getting the runaround.

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