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?

and

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.

The Great Silver Safari, leads to a trophy.

A rumour came across my desk this morning that there was wild silver roaming the streets near my place of employment. Always ready for a challenge I donned my fiat currency patterned cammo, grabbed the Save the Orphan charity box from the local Tim Horton’s and proceeded into the wilds of downtown Toronto in search of elusive silver.

The light dusting of snow aided little as the small foot prints of silver rounds were soon stomped out by the great cloven feet of bay street executives. Being unarmed and without the protective powers of a six digit lawyer (or is that 666 digit lawyer) I skirted around these bestial creatures with their pointed horns, acidic drool and fetid breath.

3 times I walked up and down Bay Street until I heard the pure ring that only a silver coin can produce right in front of Scotia Plaza. Keeping near the walls and shadows I worked my way towards the currency desk, crawled past the security guys who always give me that “you’re not dressed well enough to be in our bank look” and finally standing and sprinting to the head of the forming line of other wild eyed metal buyers.

Things were looking good until I realized I had just picked the smuggest little shit of a teller I’ve ever encountered in 4 years of dealing with metals. He did not want to chat about the metals market, he told me that there is no shortage just no small bars(duh, the market wants something and it does not exist, to me that is a shortage), he would not tell me how much the received in the recent shipment, I did not even bother asking about what was selling and what was not because he was just too snotty.

I told the teller I write on Silver and I wanted to know how much they had before I informed my readers to drop by and he responded, “Don’t write about it we don’t want a panic in here” Well mister snotty, I hope I do have enough local readers to cause a panic and I hope they all lecture you about the realities of the silver market.

What really mattered however is I bagged the silver, the hunt was successful and I can tell you Scotia Bank received a load yesterday of brand new , 2009 Silver Maples and if the past is any guide it was probably in the range of 30,000 ounces, which lasted 2 weeks last time they got them in.

They also have Scotia brand 1 oz silver bars which should sell a little cheaper and be PST free compared to the Maples. MR smug also claimed big bars were not in shortage so 1000s should be available.

I can also tell you with some certainly that Scotia has gold bars and rounds in 1oz and fractional sizes because I saw them being sold, this a.m.

I hope this little find will be of use to my local readers and please DO cause a panic at the desk.

I also wanted to thank all those who voted for me last week and let you all to know I made the final round of the Canadian Blog Awards coming in the top 5 of 22 nominees.
For those interested please drop by and support the only real money blog in the running this year,

Good hunting

Real money at the Free Lakota Bank

Another interesting silver story to look at this week is the Free Lakota Bank. While the U.S. has thousands of banks, the Free Lakota Banks uses a business model based on Real Money (gold and silver) making it unique from all the other banks I've ever heard of.

Highlights of the bank

1. Savings are in silver and gold offering protection from inflation and devaluation of fiat currency

2. No fractional banking so the bank is liquid at all times and you may withdraw your savings in real minted rounds on demand

3. You pay to store and protect your savings wealth, rather than loaning your capital to a normal bank so they risk as they see fit

4. You may assign any portion of your savings you want to a GIF (general investment fund), from which standard and micro loans are made, current rate of return on the GIF is 7.24%

5. Good loan criteria

6. They have damn pretty rounds



One of the best things I like about this bank is their take on loans applications. This is from their site.

Do you have the moral integrity and character of a person that deserves a loan from the Free Lakota Bank? If so, we may have a loan for you. Our first priority with the Free Lakota Bank General Investment Fund is to enhance the profitable development of exports from within the Nation of Lakota. We will consider any and all proposals to establish free enterprise within our territory above all other requests for loans. Please read the list of benefits of conducting business from within our Nation.

The Free Lakota Bank issues loans based not on need, but instead on merit. During application, explain the value we will receive by lending money to you. Inform us as to why investing in you is in our best interest. What have you done in the past to create value for yourself and shareholders? What commitment will you make to ensure the success of our investment?

Apparently I want a big screen or I want to go to on vacation will not be a valid loan rational (about bloody time) It looks like they are limiting loans to things with will generate real wealth and opportunity for the community rather than fanning consumption like normal banks. I like it!

I’m a huge fan of the good work done by Micro credit organizations like the Grameen bank that seek to empower third world women by letting them escape loan sharks and other exploitive financing arrangements. Micro loans also allow them to gain a greater level of Independence.

The Lakota coins will also be real currency redeemable at various AOCS tribes or merchants. AOCS stands for American Open Currency Standard a loose grouping of alternative currencies including the Liberty dollar the Government raided and closed this year in what was probably an illegal action.

I hope the Free Lakota Bank can have similar success in stoking job creation and local economic autonomy in the Lakota lands and I also hope that once they get this up and going they will mentor other native groups in “real money” finances.

Now I don’t know these people and I’ve not seen their books so I cannot endorse the Free Lakota Bank but I certainly approve of this kind of business model and hope it flourishes. I do recommend you check them out but do your own due diligence.

Damn pretty rounds!


Ps.

Only a couple days left to vote for the Canadian silver bug as the best Canadian blog in its category

One miner gets it right by selling their own silver bars

I think I mentioned in a earlier post that First Majestic Silver was going to allocate some of its silver production to a mint in order to bring their own branded rounds and bars to the market and capitalize on the discrepancy between paper and physical prices. Now I admit I was not paying very good attention and apparently the product and site was launched some time ago without me noticing, ooops;)

As you can see from the pictures above they are offering a selection of quite attractive proof rounds in 1, 2, 5, and 10 ounce sizes as well as a lower quality "business strike" rounds all made by Northwest Territorial Mint.

At this time the prices are based on $14 dollar silver with $1-3/oz premium on the proof pieces but at least they do have the 1, 2 and 5 ounce sizes in stock Unfortunately I missed out when they hit the market because I probably would have bought the minimum 20 round tube of the business rounds, which are currently sold out. I also think the display set of the 4 sizes of proof rounds would have been worth buying just cause it's pretty.

For the average investor the important products are those marked coming soon, a 5oz, 10oz and 1kilo ingot bar which are popular sizes that are nearly impossible to find. The other plus is they appear to be selling only product they actually have in hand and are not taking orders they will not be able to fill for months, hence the sold out status of several products. This is the kind of honest business practice and I expect from all dealers.

I applaud First Majestic for doing something that everyone else should be jumping on and I hope this prompts others to do the same. Of course current mint capacity may not be up to it but maybe the increased demand will drive some expansion. Even better why not get a bunch of mid tier companies together and creating a minting cooperative. Or why doesn't Silver Wheaton do something value added to the discount silver they buy?

I should note that Pan American has sold rounds and bars at Northwest Territorial Mint for a long time slightly closer to spot prices that these products, however due to market conditions you must wait months for delivery. So it's up to you, how much will you pay to get what you want now, vs. paying for it now and waiting months for delivery. With the instability in the markets I don't like leaving my money with anyone for months at a time with promise of delivery later. The current premium asked on these products is quite fair considering some of the prices I've seen on eBay I would definately buy these.

I hope this is useful to anyone eager enough to pay the premium. If any of my friends or family are reading this, anything offered by Majestic will do just fine for Christmas. One once of silver is worth infinitely more than more sweat shop clothing or a gift card from a company verging on bankruptcy. Of course a grain mill, column still or hobby farm will be accepted willingly as well.

Now that the business rounds are back in stock I've just made a modest purchase, I hope to report a trouble free transaction and delivery. You might also note the 5,10, kilo bars are also available

Shameless Canadian Silver Bug plug

As you can see from the sidebar I was the second place winner in the 2007 Canadian Blog awards in the now defunct Best Business/Finance Blog category. Unfortunately they did away with this category and I apparently have to run in the best Professional/Career Blog this year against teachers, lawyers and a theoretical plethora of plumbers and used car salesmen.

Despite this category not being a good fit for a non professional, non career centered silver, gold, finance, economics, world collapse blog I have been nominated and if you read, learn from and enjoy the Canadian Silver Bug's banal gibberings I would appreciate the vote.


I know my hits, revenue and comments are up this year so I hope you actually like what you see and will vote. Each person is allowed one vote in both the first round of voting up to the 29th and again in the second round after the field has been narrowed.

I will repost the link next and plea next week should I move on to the second round. Stayed tuned I do have a real post coming later today that might find you some silver to purchase. If you don't vote for me I won't tell you who has silver, bwahahahahahaha! ;)