| Investing in Rare
Coins
How To Protect
Yourself
If you intend to buy rare coins or bullion 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 rare coins, including how rare they are, 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 rare 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 not true.
- 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 rare 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 rare 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 rare 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 considering.
- 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 rare 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 rare 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 rare 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 Sellers
The fact is: It is very difficult to identify fraudulent
sellers of coins and bullion 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 to have 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
investing through 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
pyramid schemes to sell coins. Listed below are some sales
techniques commonly used by dishonest dealers.
False Grading
Claims
Usually, the value of a coin is determined by its grade
and rarity, so it is very important that the coins you
buy are graded correctly. The grade of a 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 independent
certification services, false grading was the most common
form of 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 coins, 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 Value
Some dishonest sellers of 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 coin'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 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 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 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 Coins
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.
Coin Organizations
The
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 80903.
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 21146.
The
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
Other Agencies
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 is located.
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 rare coins through the mail. Postal Inspectors
are listed under "Postal Service" in the U. S. Government
section of your local phone book.
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