Types Of Scams
A Tale of Exploitation
Introduction:
Meet Susan, a retired widow in her late 70s, living on a fixed income. Having inherited a small coin collection from her late husband, she was unexpectedly entangled in a distressing situation. This cautionary tale sheds light on the deceptive practices of a coin dealer who took advantage of Susan’s vulnerability, leaving her without her beloved collection and facing an uphill battle for justice.
The Cold Call:
One day, Susan received an unsolicited phone call from a seemingly reputable coin dealer. Intrigued by the offer to purchase her coin collection for $15,000, Susan saw an opportunity to alleviate her financial burdens. Having already contemplated selling her collection, she cautiously agreed to the deal and sent the coins to the dealer.
Broken Promises:
Shortly after mailing the coins, Susan received a disappointing phone call from the dealer. Due to an unforeseen drop in the price of gold, the dealer reneged on the initial agreement and proposed a reduced payment of $7,500. Feeling deceived and undervalued, Susan decided against selling her coins and demanded their return.
A Frustrating Ordeal:
Susan’s attempts to retrieve her coins and secure fair compensation became frustrating. Despite her persistent calls, the dealer continually postponed the return of her collection and failed to process any payment. Susan’s pleas went unanswered, and her messages went ignored, leaving her distressed and confused.
False Hope:
After weeks of persistent inquiries, the dealer finally sent Susan a different collection of silver dollars, claiming they were valued at $15,000. Skeptical of this sudden turn of events, Susan sought an independent appraisal of the silver dollars and her original set. Shockingly, the appraisal revealed that the silver coins were worth only $1,500, while her original collection had a fair market value of $20,000.
Denial and Disregard:
With evidence of the dealer’s deceptive tactics, Susan promptly contacted the dealer to rectify the situation. However, her calls were met with evasion as she was shuffled around from one person to another. The dealer ignored her messages, displaying a complete lack of accountability. Moreover, he refused to return Susan’s coins or offer her the fair market value she rightfully deserved.
There is no shortage of tricks they will use…
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. Coin fraud scam artists are often difficult to identify. They hide behind their telephones or websites, so you never meet them face to face. They may use false names when talking to you. Their sales tactics are carefully scripted and rehearsed so that they are convincing but intentionally misleading—or downright lies. They may display professional-looking offices, employ “account executives” or “investment counselors,” distribute glossy brochures, boast of their investment expertise, and generally portray themselves as reputable businessmen. But they are not in business to make an honest dollar. Rather their “business” is to con you out of as much of your life savings as they can.
While there probably are as many types of precious metals scams are there are coin fraud scammers, we have identified a number of fraudulent practices which are commonly utilized by the bad actors in the precious metals industry.
Gold fraud scam artists prey on the elderly, courting prospective customers as if they are old friends by using scare tactic sales pitches. They also utilize misleading and sometimes illegal, high-pressure sales tactics to misrepresent coin values, sell counterfeit coins, or persuade consumers to finance purchases with home mortgages or retirement savings. They convince you to buy higher-priced items that they claim are a better deal.
Investing in gold and other precious metals may be accomplished in a number of ways, including buying mining company stocks, purchasing collectible coins, and investing in bullion or bullion coins.
Profile of A Gold Fraud Scam Artist
The coin and bullion industry is largely unregulated. Gold fraud scam artists are often difficult to identify. They frequently have professional-looking offices, employ “account executives” or “investment counselors,” distribute glossy brochures, boast of their expertise, and generally portray themselves as reputable businessmen.
Disreputable coin and bullion dealers often use marketing techniques employed by legitimate dealers to attract buyers—such as advertising in newspapers and magazines and meeting prospective clients through financial planners and insurance agents. Dishonest promoters often pay top dollar to celebrities and high-profile personalities to tout their coin and bullion inventories.
Many gold fraud scam artists play on history by warning customers that the government could seize their gold as it did in the 1930s when rare or collectible coins were exempt from seizure. No current federal law or Treasury Department regulation, however, supports any of these claims.
Once a prospective customer becomes an actual customer, gold fraud scam artists often engage in elder abuse by utilizing deceptive trade practices, such as “buying” coins from a captive “dummy wholesaler” and re-selling them to the customer, thereby resulting in a double profit to the dealer.
They also send coins to customers that were not ordered, charge customers’ credit cards for unauthorized coin or bullion purchases (a practice known as “banging” or “burning” a credit card), promise to send customers certain coins but send others (“bait and switch”), guarantee that coins will appreciate in value, and give customers the run-around when they call to complain about a purchase or seek a refund. Most require any refund to occur in a very short time to take advantage of your lack of knowledge; and, if they refund your money, they charge a “re-stocking” fee that is not based on actual business expense but just another method of taking your money or scaring you away.
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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 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 and 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.
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 costs dealers very little but provides them with a sales pitch to inflate coin prices substantially.
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.
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 costs 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 there has been no legitimate change in the value of the semi-numismatic or numismatic coins.
Most “buy-back” options require a very long holding period that seems to get longer over the years. Such holding periods are meant to stall and convince you to wait for investments to “appreciate” that never come. Other hurdles in buy-back options may include exorbitant consignment fees that rob you of any gains in the market that you might have used to offset the original price.
Scam Auction Sites
There is a number of auction sites that sell precious metal and numismatic coins claiming fantastic values for highly graded coins. Beware, many of these auction sites are knowingly selling coins that have been cleaned and graded by unknown grading companies. Some auction sites are known to re-package graded coins and have them graded by unknown graders that grade them higher to mislead you. Auction services may believe that they are protected because they are simply repeating the coin grade or value given by the seller. However, since the commission and fees earned by the auctioneer are based in part on the coin’s selling price, they need to be aware of any problems such descriptions and representations pose. If the auction house has knowledge that the coins are materially misrepresented in grade, then they can be liable for selling the coins.
We investigate to determine if:
- the auctioneer knows of the misrepresentation
- has the auctioneer taken any steps to ensure that the products it auctions are legitimate
- is there a history of questionable graded coins on the auctioneer’s site
- has the auctioneer ignored past grading problems by certain sellers on its site
- what steps has the auctioneer taken to ensure that any fraud that has occurred has been corrected