By About.Ag – exclusively for CoinWeek….



Author’s Note: If you have done business with Tulving and are owed metal or money, or if you received metal or money from Tulving after December 9, 2013, please go to my site for assistance. Otherwise, please enjoy the article.

The Tulving Company, one of the first names many people think of when recommending bullion dealers, shut down on March 3, 2014, and declared bankruptcy a week later. By itself, that would be big news. But by my calculations, when they shut down, they owed upwards of 1,000 customers about $40M.

In August, 2011 they claimed an inventory of silver worth $25,000,000. Today, their inventory is worth less than $50,000, and they may owe as much as $40,000,000. How in the world could that have happened?

I have been following the Tulving saga closely since last October, and kept notes and observations on my blog About.Ag. I’ve been asked by CoinWeek to write this piece to discuss what I’ve observed and what’s happening now.

The Early Signs of Problems

Through forensic research, August, 2011 seems to be where the story really starts. But my involvement in this saga started back in December, 2012, when I bought some silver bars from them. I didn’t even think about doing any research online, as I had ordered from them in the past, and had full trust in the company. In the past, I would order, and get my metal no more than a couple days after they got my money. I’m not special; The Tulving Company has done business with some 28,000 other customers, and most had the same experiences I did. But this time, something wasn’t quite right.

This time, I waited nearly 3 weeks to get my metal. The order taker told me it would take a few weeks, so it didn’t come as a huge surprise. I figured they were probably doing booming business. Little did I know that they likely had already lost $25M of inventory by that time, and had start dipping into customer funds. In other words, although I got my silver, it was by pure luck.

Fortunately, I was suspicious. I don’t consider myself paranoid, but I do believe in Ronald Reagan’s “Trust, but verify.” I looked at the Better Business Bureau (BBB) reports, and saw a big uptick in complaints, from 1 every 6 months to 8 within 6 months. In a private forum, I wrote “So the first sign of trouble with a business like this, in my opinion, would be a noticeable change in delivery times and “juggling” orders.” At that point, I did not think they had a problem. But even if I had, I would have had no clue how monstrous a problem it would become.

The general consensus on the forum that I wrote on was that all was well. One person got their order in 2 days. And someone said that Tulving was claiming that their insurance limited how much they could send per day. And some pointed out that everyone who has ordered from Tulving has eventually received their metal.

Tulving was on my radar, but not something I paid much attention to. In July, 2013 I checked the BBB website again, and there were just 2 complaints since March. It did not seem like anything worth being concerned about. Boy, was I wrong. Hannes Tulving, Jr., sole owner of The Tulving Company, certainly knew at this point that the situation was beyond hope.

September, 2013 – Stories Start to Surface

Finally in September, 2013, stories started getting out about delays at The Tulving Company. Someone claimed they had sent $200,000 to Tulving five months prior, and had not received any metal yet. The problem with Internet forums, however, is that while they are great at getting information out, they are nearly anonymous. Some of the early complainers were accused of being shills from competitors. Those that had done business with Tulving before would back up the company, recalling times they had gotten their orders very quickly. Nobody really knew who or what to believe.

I decided to spend a few minutes back at the BBB website to see where things stood. There was a noticeable change this time, with 18 complaints in 2 months. Not to the point of screaming “scam!”, but enough that I really started to take notice. In the private forum I mentioned, I explained that I was confused because “it doesn’t fit what I would expect the 2 most plausible fraud scenarios to be: [1] funding his retirement, or [2] ponzi scheme funding a flashy lifestyle (ala Bernie Madoff).”

At that point, I knew there was a problem. From the many reports that Hannes was picking and choosing which orders to ship each day, I thought maybe he was simply unable to properly manage the business anymore. Perhaps he needed some extra people to help ship orders, perhaps his health had deteriorated. After 20 years of impeccable service, it was hard to imagine the worst.

What I should have focused on at the time was the length of the delays: even in June, 2013 and July, 2013, the average delays reported were 7-8 weeks. The FTC does not allow companies to take orders if they know they cannot ship it within the timeframe they specify (or 30 days, if no time is specified). And Hannes himself stated in his FAQ that he believes taking over 30 days to deliver is a futures contract, which he is not allowed to sell.

My “Aha!” moment was in October, 2013, when someone reported that she sent Tulving 220 ounces of gold to Tulving, and couldn’t get them to pay her. It’s one thing to delay bullion (there could be delays due to drop-shippers, metal shortages, insurance limits, heavy volume, etc.). But I realized that the inability to pay cash was the smoking gun, since he should have had a huge amount of money sitting in the bank from all the delayed orders.

It slowly dawned on me that The Tulving Company had a massive backlog of orders worth many millions of dollars that they would not be able to fulfill. I knew this was not going to have a pretty ending, I knew that something was terribly wrong. In a number of cases, people had trusted The Tulving Company with their life savings. Worse, I had recommended Tulving to many people over the years. I had to do something, I had to let people know.

Getting The Word Out

I run a website primarily for silver investors. This is how I started to get the word out. I quickly put together a page explaining what I thought was going on at The Tulving Company. With enough detail to hopefully convince people that if they placed an order with Tulving, they might not get it. I hoped they would read about 4 contradictory statements Tulving made on their website, and realize something was wrong.

Over the coming months, I painstakingly gathered information on every complaint I could find, and created a chart showing month by month how many complaints there were, and the average delay each month. I would update the statistics every few days. My main sources of information were the BBB and the Business Consumer Alliance (BCA) websites. It seemed like every time I checked those sites, there were more complaints.

Not a lot of people visited the page at the beginning. Many people just didn’t bother following links to the page, many never encountered links to it. No websites that follow gold and silver news wanted to write anything negative about Tulving, so there were no articles to link to my site. Word spread mostly through forums (but even the forums were sometimes censored, as was the case at Kitco). My guess is that the websites that cover gold and silver news were afraid of getting sued for libel. I may have flirted close to the boundary of libel, but the potential benefits to those risking their money with Tulving far outweighed the risks to me.

By the end of November, The Tulving Company had racked up over 150 complaints, and by the end of 2013 they had nearly 250 complaints.

Despite all the complaints, on some Internet forums people would still defend Tulving, saying that Tulving was probably very busy with a heavy volume of orders, or that there really were insurance limits preventing them from sending the metal. Even for about a week after I reported that Tulving had shut down, many people refused to believe it (“Their website is still there!” and “Their voicemail still picks up!”).

The problem before they shut down, however, was that it was impossible to know if Tulving could recover. They implied that all was well on their end (for example, that their insurance limited how much they could send per day), which meant that (in theory at least) they could have had the cash in the bank to fulfill all the orders. The delays were proven well enough to give me reason to get the word out potential customers to stop doing business with Tulving. But there wasn’t quite enough evidence to lean on the authorities to get this to stop (beyond just having people file complaints).

Word of my coverage of Tulving increased on January 27, 2014. Somehow, word just got out, and started spreading quickly, with my web page on Tulving getting 20 times as many hits as the day before.

A Crack In the Wall

Tulving’s new business model (waiting for cash from new orders to pay for old orders) was of course doomed to fail. Similar to a Ponzi scheme, he could only keep it going as long as new orders exceeded the what he needed to ship.

From around October, 2013 to January, 2014, Hannes had been following a very predictable pattern. Each week, he would get money from new orders, and each week he would respond to complaints with a date that the order would ship by (“Customer’s order will ship by Friday, Dec 13th, 2013. Thanks, The Tulving Company, Inc.”). Presumably, any extra money would be used to ship other backlogged orders, in an order only known to Hannes.

On January 31, 2014, I discovered that there were 2 BBB complaints where Tulving had promised to ship the metal by a certain date, but did not. It’s one thing to miss a shipping date you promise to a customer, it’s a very different thing to miss a shipping date you promise to the BBB. Barring exceptional circumstances, it proves your company has serious problems.

The Tipping Point

On February 19, 2014, I posted on my website that The Tulving Company had reached ‘The Tipping Point.’

As I described above, he could only keep this game alive as long as new order volume exceeded what he needed to ship.

I started collecting invoice numbers from many Tulving customers. Every time Tulving would take an order, they would increase the invoice number by 1. From the invoice numbers, I could therefore deduce how many orders they were getting each day. And what I saw was disturbing: the number of new orders per day had decreased to about the number of complaints per day. Unless Tulving had a magic way of reducing complaints or increasing his business, it could not continue much longer.

While I could sense the end was near, I didn’t quite realize how near.

The End

On February 28, 2014, I reported that The Tulving Company was effectively out of business.

This was pretty easy for me to figure out; I noticed that Hannes had stopped responding to BBB complaints. The only way he was able to keep his business alive was by responding to complaints with a promised shipping date, and shipping out those orders on time.

By now, I was getting very frustrated that The Tulving Company was continuing to take orders. I even put out a public plea to Hannes on March 2, 2014 – “could you please do the right thing, and either file bankruptcy or if you are not insolvent come clean and explain the situation?”

Apparently, Hannes was listening. The next morning, March 3, 2014, The Tulving Company ceased operations. The website was left up, and the answering machine would play their off-hours message – just enough to convince the skeptics that Tulving had not shut down.

After closing, a class action lawsuit was filed on March 6, and a judge approved the freezing of The Tulving Company’s bank account on March 10.

On March 10, The Tulving Company filed a Chapter 11 bankruptcy petition. Around this same time, Hannes Tulving, Jr. moved packed up and reportedly went into hiding.

We soon find out that the Secret Service seized Tulving’s records, on behalf of the U.S. Attorney.

Gold? Silver? Cash?

If you’ve read this far, you must be wondering how much money or metal is involved, and where it all is. If you do not price your products properly, you can lose money. But how in the world can you lose $40M of your customer’s money?

Well, that’s exactly what I and all of Tulving’s customers want to know. Only Hannes knows for certain, but there surely are some clues.

From its beginnings in 1990 through 2011, The Tulving Company certainly appeared to be a viable business. A company cannot last that long if they cannot make a profit. But in 2011, things changed.

$25M of Silver Disappears in 7 Months

On August 23, 2011, The Tulving Company claimed they had 600,000 ounces of silver in stock, with a value of $25M. By December 29, 2011, they only claimed 300,000 ounces of silver in stock. By March 14, 2012, their inventory showed about 12,000 ounces of silver in stock. On June 6, 2012, someone claims that The Tulving Company stated that they “they don’t have the merchandise in their actual possession for insurance reasons.”

In 7 months, it seems that The Tulving Company went through 600,000oz of silver. From $25M worth to nearly none. That was before the complaints started coming in.

That raises the question: what caused the $25M of silver to disappear, and where did that money go? Was it just Hannes selling off the inventory and keeping the profits to retire off of? Did The Tulving Company owe money? Was there a giant heist? A silver shortage? Or was it as boring as Hannes pricing his products too low?

Where Did the Silver Go?

The Tulving Company did claim $675M of sales in 2011, which makes a $25M loss seem reasonable at first glance. But bullion businesses work on spreads: you buy 500 silver coins for $11,000 and sell them for $11,400. After accounting for the cost of the bullion, in 2011 The Tulving Company likely had about $10M-$14M to work with (“gross profit” for the accounting crowd), most of which goes to expenses. Shipping silver is very expensive, and would eat up much of the spread. So after expenses, The Tulving Company might be lucky to have a net profit of $1M-$3M or so. The $25M of silver that disappeared is massive compared to the possible profit.

We know that the $25M of silver that disappeared was not due to a sudden large purchase, such as paying cash for a mansion or yacht, as the silver supply dwindled over the course of many months. A shortage of silver in the market could account for the loss – but then there would have been $25M sitting in the bank, which would have eased any problems before the bankruptcy. Nor could it have been a massive heist one day, as the silver disappeared over time (and moving 600,000oz of silver – weighing as much as about 15 cars – would not be a simple task).

What we also know is that from early 2009 through the bankruptcy, the sharpest drops in the price of gold were in September 2011, December 2011, May 2012 and April 2013. The first two drops were in the 7-month period where $25M of silver disappeared. Online complaints of delays started around June, 2012 – after Tulving’s inventory seems to be gone, and right after the May 2012 drop. And Tulving’s ability to fulfill orders went haywire in April, 2013.

So we are seeing a pattern where big drops in the price of gold correspond with Tulving’s inventory decreasing or delays in customer orders. To me, this suggests that Tulving owed a lot of money over the course of several years, and that what the amount he owed may well have followed the price of gold.

Further, it is reported that many bullion dealers (especially larger ones) hedge in the futures market. Hedging is good, as it insures that dealers will not lose money on large orders if the spot price changes. Speculation, however, is bad – the dealer profits or loses money based on how the price of gold moves, akin to gambling. We also know that The Tulving Company had an account with at least one futures broker (Peregrine Financial, which went bankrupt in 2012).

From the information we have, it looks like the most likely possibility is that The Tulving Company was speculating on the futures market. This certainly is not definite, just a plausible explanation given the facts.

This theory hinges on the correlation between the drops in the price of gold and the loss of inventory and delays in customer orders. It also does not take into account the possibility that with large price drops, Tulving may have received more customer orders, that somehow exacerbated problems.

There is one last theory that many people come up with: that Hannes did this to fund his retirement. I find this one of the least likely scenarios (and hope Hannes is not chuckling as he reads it!). He seems to honestly care about his customers (despite his grumpy persona), and seems to have been genuinely concerned about the problems. This would also be a rather poor way of taking the money and running, there are ways that he could have done so much more effectively.

What Happens Now?

At this point, The Tulving Company has ceased operations and filed for Chapter 11 bankruptcy (which would allow it to resume operations). A class action lawsuit has been filed on behalf of those who ordered from The Tulving Company without receiving their metal. The Secret Service seized Tulving’s records after the U.S. Attorney launched a criminal investigation.

Although Tulving claims less than $50,000 of assets, I imagine the bankruptcy court will not allow them to discharge their debt without an explanation of where somewhere in the order of $40M+ went, along with proof. The Chapter 11 trustee has a background in forensic accounting, so I doubt Hannes could pull one over on him.

In any case, there is a good chance that over the next few months, we will find out exactly what happened.

With any luck, the metal or money went somewhere where it can be recovered, and customers can be paid what they are owed.

How Do I Avoid This Happening To Me?

If you order bullion online (or anything of high value), you should be wondering how you can avoid the same fate.

There were a lot of warning signs, but most weren’t readily noticed until after it was too late.

Any time ordering something of high value online, you should check reviews of the company, even if you trust the company. Check with the BBB and other sites that track issues with bullion dealers. Most companies get at least occasional complaints, but a pattern of lots of recent complaints (versus fewer in the past) is worth investigating. And a pattern of complaints regarding delays more than 30 days (or the time the company promises to ship in) should make you think twice.

Remember that complaints to the BBB are usually verified, whereas complaints in forums and such may not be. But that does not mean that you should ignore complaints in forums, as they may be the first signs of trouble.

One of my next projects is putting together details on warning signs to look for, and a system that could help discover increasing delays at bullion dealers. If such as system became widely used, it could significantly limit the damage a bullion dealer could cause in a case like this.