When tens of millions of dollars’ worth of gold and silver bullion were discovered to be missing from a downtown Austin vault last summer, suspicion quickly fell on the owner of Bullion Direct, the company investors thought was keeping their precious metals safe. It appeared that Charles McAllister had either absconded with or misused their treasure for his own financial gain.
Now, as his company seeks to emerge from bankruptcy court a year later, an unusual last-ditch plan to repay the creditors is underway. McAllister’s mother has offered to purchase her son’s old company and turn over most of any future profits to creditors.
Attorneys involved in the case acknowledge the arrangement is peculiar. After all, McAllister apparently remains under federal investigation in connection with the missing metal and cash, now estimated at $25 million, at least.
But, the lawyers say, the deal is the best — and perhaps only — hope for creditors to recover any of their lost money. And the parents “are trying to do something right,” said Duane Brescia, the Austin attorney representing Cheryl Huseman and her husband, Jack Murph.
Still, the close family connection has raised suspicions. Many of those whose glittering savings vanished continue to believe McAllister has their metal stashed somewhere.
“I think a lot of people walked off with a lot of bullion,” said Ron Barbala, a Phoenix investor whose 437 ounces of gold, silver, palladium and platinum seem to have evaporated from Bullion Direct’s safe.
If McAllister’s mother “succeeds and does as well as she hopes, creditors will get millions of dollars,” said Joshua Gibbons, whose website, about.ag, has closely tracked the case. (Ag is the chemical designation for silver.) “But,” he noted, “so will she.”
Joe Martinec, hired to shepherd Bullion Direct through the bankruptcy, said some of the 550 creditors have questioned whether it might even be possible that McAllister’s parents were buying the company with the money he is alleged to have taken.
Both he and Brescia dispute that, however, saying the parents mortgaged their house to raise $200,000. Half of that is to go into a trust account for creditors. The other half will be used to purchase software McAllister developed to use on his website as a trading platform for precious metals. It allows buyers and sellers to connect online to trade their gold and silver.
According to the terms of the arrangement, the new company, Platform Universe LLC, will earn money from transaction fees, similar to eBay. At first, 80 percent of the proceeds would go to repaying the creditors. Later, that percentage would drop to 50 percent.
Over the years, Bullion Direct boasted an estimated 60,000 customers, and the company’s trustee, Dan Bensimon, has described the trading platform as a viable business. Brescia and Martinec both say McAllister’s parents won’t manage the new company at all. Charles McAllister’s lawyer, Randy Leavitt, said his client will have no involvement in the new business, either. Creditors are scheduled to vote on the plan next month.
News of Bullion Direct’s missing metal arrived suddenly last July. Investors from across the country who’d purchased precious metal, primarily gold and silver, and thought it was being stored in a safe on the 14th floor of an Austin office tower logged onto Bullion Direct’s website only to see an announcement that the company had declared bankruptcy.
When they scrambled to recover their treasure, it was gone. By the time auditors and lawyers got access to the company’s offices, there were only a handful of gold and silver coins in an office safe.
In court filings, McAllister has claimed he told investors that their precious metals might not actually exist in his safe, although their value was kept on his books. He said he had permission to use money from the metal sales to invest in his company and to pay for business expenses.
(One expense rankling those who lost money with Bullion Direct: McAllister’s salary. Court documents show he paid himself more than $300,000 a year — not including a $36,000 severance package he awarded himself only weeks before filing for bankruptcy protection.)
Martinec said permission to use investors’ money might have appeared in the small print of a disclaimer posted somewhere. Yet it also seems unlikely that those keeping their wealth in metals would have willingly agreed to such an arrangement. That clashes with the philosophy of many gold and silver bugs, who depend on the precious metals’ physicality to protect them against an economy they believe stands on an unsteady scaffolding of paper and hope.
“I certainly understand how defrauded they feel,” he said. “If you went to your account, you would have reasonably believed the gold listed there was in a vault some place.”