Types of Legal Claims For Coin Fraud or Precious Metals Fraud

man stressed at laptop

Dishonest coin and precious metals dealers and telemarketers are creative and aggressive.  There is no shortage of tricks they will use to sell coins or bullion to unwary investors at grossly inflated prices.  Based on your unique experience dealing with a dishonest coin and bullion dealer, you may have one or more of the following legal claims:

False Claims about Current Value

Some dealers engaging in coin fraud or precious metals fraud grade their coins accurately, but overprice the coins and/or mislead consumers about the value of the coins.  For example, a dealer may charge $2000 for an accurately graded $20 Double Eagle gold coin even though the actual retail value of the coin may only be $750.  In other words, an unscrupulous coin and precious metals dealer may charge significantly more than a coin’s actual value even though the coin is accurately graded.  False claims about current value are becoming increasingly popular in the world of coin fraud and precious metals fraud.  Grading cost dealers very little but provides them a sales pitch to inflate coin prices substantially.

False Appreciation Claims

Dishonest coin and bullion dealers often mislead buyers by quoting appreciation rates for collectible coins from an annual index formerly compiled by Salomon Brothers, a defunct Wall Street investment bank. These quotes typically show appreciation of 12 percent to 25 percent a year.  The Salomon Brothers index, however, was based on a list of twenty very rare coins while coins sold by dishonest dealers typically are more common and not likely to appreciate at the same rate, if at all.  There is no guarantee that any coin will appreciate in value.  Falsely guaranteeing coin appreciation rates is known as “pitching heat” in the industry.

False Grading

Usually, the value of a collectible coin is determined by its grade and rarity, so it is very important that rare coins are graded correctly.  The grade of a rare coin is shorthand for describing its condition.  The grading process, however, is subjective, which can cause the grade assigned to a particular coin to vary among dealers.  Fine distinctions between grades can mean big differences in the value or price of a coin.  A reputable grading company, such as PCGS or NGC, will use consensus grading techniques by highly trained, disinterested graders.  Additional grading certification, by such companies as CAC, give collectors additional confidence that they own properly graded coins.

Dealers engaging in coin fraud or precious metals fraud often inflate the grade of their collectible coins, charging prices substantially higher than a coin’s actual value.  Some dealers grade their coins in-house or through less-than-reputable grading services.  Others create counterfeit grading documents or place lower grade coins in cases labeled with a higher grade.

False Claims about Bullion Coins

Bullion coins are not rare coins.  Their values are determined by their precious metal content, rather than by rarity or condition. Bullion coin scam artists mislead consumers into buying “coins” that are not really coins at all—such as imitation medals created by private coin mints.  Unscrupulous bullion coin sellers often overprice their coins, misrepresent the population or availability of bullion coins in an attempt to pass off ordinary bullion coins as rare collectible coins.  Others may sell bullion pieces with the same design as coins from the U.S. Mint, but in different sizes.  Since bullion is based upon the precious metal content, the dealers  sell the smaller coins, at similar prices as larger coins, to customers at grossly inflated prices.

Graded Coin Fraud

Dealers engaging in coin fraud and precious metals fraud use grading services to improperly increase the value of bullion coins.  Rare coin dealers also may engage in graded coin fraud.  For example, since the bulk of Gold Eagle and Silver Eagle bullion coins have never been touched by human hands, most newly minted Gold Eagle and Silver Eagle bullion coins should grade very high, and many are graded MS-70, the highest grade awarded.  Gold fraud scam artists will have a reputable coin grading service grade a coin, but sell it to an unsuspecting customer for several times its true value.  Truthfully, any person can purchase random Eagles and submit them for grading for a small fee.  When telemarketers try to use grades to sell you bullion, this is nothing more than telemarketer mumbo jumbo.

Coin grading services generally fall into one of three tiers recognized by the industry based on the grading service provided.  The top tier consists of Professional Coin Grading Service (PCGS) and Numismatic Guaranty Corporation (NGC).  There are other grading services that do not employ high quality techniques to insure consistent dependable grades.   A dishonest rare coin dealer may quote a “first tier” value for a rare coin as if it had been graded and encapsulated (“slabbed”) by a “first-tier” grading service when, in fact, the coin was over-graded and slabbed by a “lesser” grading service.  Always check who graded the coins you are buying and research their reputation.

False Certification

There are highly reputable grading certification services, like Certified Acceptance Corporation, commonly referred to as CAC.   Many consumers use these certification services to verify the grade of a coin before they buy. These services certify coins as to grade and usually provide specialized labels to signify this certification.

Certification services provided by dishonest coin and bullion dealers, on the other hand, are often part of fraudulent sales schemes designed to mislead consumers.  Some certification services use looser standards than those generally accepted by legitimate dealers in the rare coin market.

Clad Coins

Clad coins are over-hyped as “must-own” coins that usually sell for less than $20 each.    For example, the $50 Buffalo Gold Coin is a replica coin clad in 14 milligrams of pure gold that is typically marketed and sold for $9.95 each.  It is not a true gold coin, nor is it legal tender, redeemable at a bank or even rare.  Thus, for example, if gold is selling for $50 per gram (or $0.05 per milligram), a $50 Buffalo Gold Coin with 14 milligrams of gold cladding selling for $9.95 is actually worth $0.70.

False Re-Stocking / Buy Back Options

Many coin and precious metals dealers offer “buy back” options to give their customers a sense of security about their investments.  Customers must be aware of these provisions.  On bullion, where the price of precious metals is constantly changing, buy-back options may come with a loss of market value, which is a legitimate charge.  However, on semi-numismatics and numismatics, disreputable sellers may refuse to honor the option, provide short periods to qualify, or fail to disclose fees and commissions relating to the options.  They will claim the time has expired or assert the right to a “re-stocking” fee or charge.  Historically, re-stocking charges were legitimate charges used by retailers to capture operations cost and handling charges for returned items.  However, coin dealers will set these fees at a percentage that bears no relation to actual costs or expenses related to the return of the coins.  They use these fees to intimidate or stall customers until the customer abandons their efforts out of frustration.  Reputable dealers will waive this fee or charge if their has been no legitimate change in value of the semi-numismatic or numismatic coins.

Leveraged Investment Scams

Leveraged investments are high-risk investments that can result in an investor losing more money than he or she intended to invest.  In a leveraged investment scam, a dealer engaging in coin fraud or precious metals fraud typically represents that the price of a precious metal is about to skyrocket and an investor can generate a significant profit by making a small down payment for the metal—often as low as 20 percent.  By paying only a portion of the purchase price down, an investor can control more of the precious metal than if 100 percent of the purchase price was paid.

In a leveraged investment scam, an investor actually borrows money from a lender that promises to hold the precious metal for the investor in exchange for payment of storage fees.  Rather than sending an investor a monthly bill for the fees, the lender will reduce the investor’s equity in the investment.  Once the equity falls below a certain level (for example, 10 percent of the purchase price plus the accrued monthly fees), the lender will issue an “equity call,” requiring the investor to pay additional money to bring the equity above the equity call level.

If an investor does not pay the additional funds, the lender will sell the precious metal investment to pay off the loan.  If the sale does not cover the amount owed on the loan plus the interest and the fees, the lender will send the investor a bill for the difference.

Other Legal Claims

Other legal claims exist against dealers engaging in coin fraud or precious metals fraud for:

  1. Buying back coins at a fraction of the original sales price after putting consumers in strained financial situations.
  2. Misleading consumers about the mark-up on coins, failing to disclose the real mark-up and failing to disclose that a “middle-man” company was unnecessarily established to add an additional mark-up on the coins.
  3. Advising consumers to take money out of safe investments, such as stocks, certificates of deposit and bonds, to purchase coins or bullion at grossly inflated prices.
  4. Stealing a customer’s coin, selling it and pocketing the sales proceeds.

If you have been victimized by a dealer engaging in gold fraud, coin fraud or precious metals fraud, you may have one or more of the above legal claims.  Please email us or call us toll-free at 800-896-3452. You will talk to a lawyer, there is no obligation and the confidential consultation i

Posted in