How To Protect Yourself
If you intend to buy rare or bullion coins for investment, your best
protection is to spend time learning about the coins you are being asked to
buy. In the past, most investment gains have gone to collectors, often known
as numismatists, who have taken the time to carefully study various aspects
of coins, including rarity, grading, market availability, and price trends.
Investment success over the years is the result of prudently acquiring coins
of selected quality, proven rarity, and established numismatic desirability.
Many careful buyers study coins for some time before buying even a single
coin. Success also can be enhanced by researching dealers, as well as coins.
If you receive any solicitation about investing in
coins, keep these points in mind.
- Use common sense when evaluating any investment claims and do not rush
into buying. Remember, anything that sounds too good to be true usually is
- Make sure you know your dealer's reputation and reliability before you
send money or authorize a credit card transaction. If you can, find out
how long the company has been in business. Don't rely just on what a
dealer's representative tells you on the phone. For example, if a dealer
claims to be a member of a professional organization, call the
organization and make sure that the claim is true. If you cannot confirm
the reliability of the dealer, consider investing with another firm.
- Do not be taken in by promises that the dealer will buy back your
coins at or for more than the price you paid or that grading is guaranteed
unless you are confident that the dealer has the financial resources to
stand behind these promises. Many of the coin sellers prosecuted by the
Federal Trade Commission in the last several years have not been able to
meet guarantees and other obligations to their customers.
- It is wise to get a second opinion from another source about grade and
value as soon as you receive your coins. So, before you buy, find out what
remedies you will have if the second opinion differs. For example, some
companies offer a 30-day return period if you are not satisfied with your
purchase. Check the information that you are given. Will the full purchase
price be refunded or will you be given a credit to be used for the
purchase of other coins? If a dealer promises to buy back the coins at the
same grade at which they were sold, does that mean at the price you paid
or at some discounted amount?
- Check the grades of any coins you buy with an independent source. Be
cautious about grading certificates and "slabs," especially those
furnished by coin dealers. Many of the third-party grading services
encapsulate or "slab" a coin in an acrylic holder with a grading number.
This can protect the coin from further damage and reduce the chances of
having a coin of a lesser grade substituted for one of a higher grade. If
you use a grading certificate or slab as a second opinion, be sure you
understand what they represent. Grading is not an exact science, and a
certificate or slab represents no more than the opinion of the
certification or grading service. Find out if the grading service is
indeed independent of the dealer, what grading standards the service used,
and what is the service's reputation in the industry. Also because grading
standards vary, coins certified by different services will be worth more
or less than other coins of the same grade. Weekly periodicals or
sight-unseen trading networks list prices for coins that have been
certified by various services. Check the prices for those coins you are
- Comparison shop. You need to be concerned not only with grades, but
with prices as well. Consult several dealers before buying. Check prices
in leading coin publications or sight-unseen trading network lists to make
sure you are not being overcharged. Sight-unseen coin trading networks
offer only the lowest-priced bids being offered for coins. Several
publications list representative wholesale values for fine coins of
various issues and grades. These values generally are higher than the
prices consumers can expect to receive if they were to immediately sell
their coins, and lower than the retail prices consumers may be charged to
buy the coins. Consult such publications prior to trusting dealers'
representations about the current value of coins. If a dealer's advertised
price is much lower than the price listed in these publications, then the
dealer may be misrepresenting the quality or grade of the coin.
- Take possession of any coins you purchase to ensure they exist and to
be sure that they are properly stored.
- As with any consumer purchase, be wary about giving your credit card
number to strangers, especially over the telephone.
How To Identify Fraudulent
The fact is: It is very difficult to identify fraudulent sellers of rare and
bullion coins because they often look like legitimate dealers. For example,
fraudulent sellers frequently have elegant offices in the financial
districts of major cities, employ "account executives" or "investment
counselors," and produce glossy, attractive brochures on investment
strategy. They may claim tohave leading coin experts on their staffs, or
claim to be the largest or finest dealers in the business. Because
fraudulent sellers often appear to be reputable, it is particularly
important to check the information you are given.
Also, fraudulent sellers of rare and bullion coins often
use many of the same techniques as legitimate dealers to attract buyers.
Some advertise in newspapers and magazines and sometimes meet prospective
clients through financial planners and insurance agents. Others use a
popular sales method known as telemarketing. For example, you may be
approached about coin investingthrough an unsolicited telephone call, or you
may be called after you have responded by mail to an advertisement. Because
telemarketing fraud has grown rapidly over the last several years, you
should be particularly careful about committing yourself to any purchase
from an unsolicited caller.
Recently, some fraudulent sellers have been using
multi-level marketing systems, also known as pryramid schemes to sell coins.
Listed below are some sales techniques commonly used by dishonest dealers.
False Grading Claims
Usually, the value of a rare coin is determined by its grade and rarity, so
it is very important that the rare coins you buy are graded correctly. The
grade of a rare coin is a shorthand method of describing its condition.
Because grading includes such factors as "overall appearance" and "eye
appeal," it necessarily involves some degree of subjectivity. As a result,
the grade assigned to a particular coin may vary even among legitimate
dealers, especially in the higher, investment- quality grades where
distinctions in condition are more subtle. Because the fine distinctions
between grades often mean large differences in the value or price of a coin,
the subjectivity in grading means that there is some inherent risk in coin
investing. Fraudulent sellers, however, often intentionally inflate the
grades of the coins they sell, charging prices many times the coins' actual
value. For example, you might pay $450 for an 1882-S Morgan dollar, that was
described to you as having a high grade because of its excellent condition.
Later, however, you may find that the accurate grade for the coin is two or
more grades lower, and that the coin is actually worth only $50. Prior to
the advent of independant certification services, false grading was the most
common form of rare coin fraud.
False Slab Certification Claims
Many consumers and financial planners use third-party grading or
certification services to verify grade before they buy. These services
"certify" coins as to grade and usually encapsulate them in a "plastic"
holder with some form of grading certificate or "slab." However, consumers
can lose money even when a certification or grading service is used.
Certification services provided by dishonest coin dealers too often are part
of fraudulent sales schemes and are intended to mislead consumers. In some
instances, even certificates or slabs from legitimate services can be
misleading. For example, some certification services use looser standards
than those generally accepted by dealers in the rare coin market. As a
result, the coins they certify may be worth less than other coins of the
same grade. There are special pricing publications and sight-unseen trading
networks for coins certified by major services. Before you buy any certified
coin, make sure that you check its current value in one of these sources.
Some fraudulent sellers may use an old certificate to mislead you into
believing that a coin's grade is accurate by today's standards. Check the
date of any certificate or slab you are offered and investigate the
certification service before you commit to a purchase.
False Claims About Current
Some dishonest sellers of rare coins grade their coins accurately, but
mislead consumers about the value of their coins. In other words, they
overprice their coins, charging significantly more than a coins's actual
value even though the coin is accurately graded. For example, they may
charge $5,000 for an accurately graded $10 Indian gold piece, which has a
current retail value of only $1,750. False claims about value are becoming
increasingly common in rare coin fraud. Despite statements to the contrary,
there is a great deal of risk in coin investments. If you are not
knowledgeable about coins, you may lose all or most of your investment.
False Appreciation Claims
Dishonest dealers often mislead buyers by quoting appreciation rates for
rare coins from an index formerly compiled each year by Salomon Brothers, a
New York investment bank. These quotes show appreciation of 12 percent to 25
percent a year. However, the Salomon index was based on a list of twenty
very rare coins, while the coins sold by dishonest dealers are more common
coins that are not likely to appreciate at the same rate, if at all.
However, almost all dealers, legitimate and dishonest alike, have used the
Salomon quotes. Therefore, it is particularly important that you choose your
dealer carefully. Remember, there is no guarantee that any coin will
appreciate in value. In fact, coins as an investment have been stagnant for
the last several years.
False Claims About Bullion
Technically, bullion coins are not "rare" coins because their values are
determined principally by their gold or silver bullion content, rather than
by rarity or condition. The best known bullion coins are the U.S. American
Eagle, the Canadian Maple Leaf, and the South African Krugerrand. These
coins are bought and sold worldwide through banks, brokerage firms, coin
dealers, and precious metal dealers, who offer competing prices for the
coins. Bullion coin prices change daily depending on the varying prices for
gold and silver in the world markets. Fraudulent sellers of bullion coins
often overprice their coins, or mislead consumers about the coins' bullion
content. When purchasing bullion coins, call several reputable dealers or
brokerage firms to compare prices and be sure to ask about any additional
transaction or delivery costs. Fraudulent sellers also mislead consumers
into buying "coins" that are not really coins at all. Make sure the bullion
coins you purchase are not imitation medals created by fraudulent "mints."
Some private mints issue bullion pieces with the same design as coins from
the U. S. Mint, but in different sizes. To make sure you know what you are
buying, your best protection is to study the bullion market before you buy,
and to choose your dealer carefully.
Where To Go For Help
If you have a problem with a coin dealer, and the dealer has not resolved
the problem to your satisfaction, there are a number of places you can go
from help. Some dealers will resolve disputes through binding arbitration by
an independent third party, usually through one of their professional
organizations. Consumer protection agencies, including the Federal Trade
Commission, are interested in getting your complaint information to build
cases against fraudulent dealers. Although most government offices are not
able to resolve individual disputes, they can usually give you sound advice
about how to proceed. Most coin organizations can help you if the dealer is
a member of their organization. The following list of organizations and
government agencies is provided for your information.
American Numismatic Association ("ANA")
is a non-profit organization of collectors, but many dealers are also
members. The ANA provides many educational programs for both novice and
experienced collectors. If you have a complaint about an ANA member, you can
write to the Association at 818 North Cascade Avenue, Colorado Springs, CO
Industry Council for Tangible Assets ("ICTA")
is a national trade association of coin and precious metals dealers. ICTA
urges its members to subscribe to a program of binding arbitration
administered by the American Arbitration Association (AAA). It also keeps
records of other programs of arbitration or mediation its members adhere to.
If you have a question whether or not an ICTA member subscribes to the AAA
program or another, you may write to ICTA at P.O. Box 1365, Severna Park, MD
Professional Numismatists Guild ("PNG")
is an organization of coin dealers and numismatists. Membership in PNG is
selective; to qualify, a dealer must have a minimum number of years
experience and meet a minimum net worth requirement. The PNG also requires
its members to submit to binding arbitration in order to resolve complaints
filed by consumers or other dealers. If you have a complaint against a PNG
member, you can write to PNG at 3950 Concordia Lane, Fallbrook, CA 92028
The Better Business Bureau ("BBB") is interested in the business practices
of companies in its area. Contact the BBB in the city where the coin dealer
Your state consumer protection agency or Attorney
General's Office may be interested in your complaint information. Contact
the state consumer protection agency or the Attorney General's Office in the
state where the coin dealer is located.
The U.S. Postal Inspector should be contacted if you
have a complaint and you ordered, received or paid for your coins through
the mail. Postal Inspectors are listed under "Postal Service" in the U. S.
Government section of your local phone book.