Heavy Metal — How to Avoid “Rare Coin” Scams

10 Tips to help you avoid “rare coin” scams: Internet ScamBusters #238

Today’s issue is on rare coin scams.

Collecting rare coins or those minted from precious metals can be a fascinating hobby and can be a good financial investment — but only if you’re knowledgeable about coins AND how fraudulent dealers operate.

Historically, rare coins and “bullion” coins (ones minted from gold, silver or platinum) have made good “hedges” against inflation and economic downturns, which is EXACTLY the pitch scammers use to entice unwary investors.

According to the Federal Trade Commission (FTC), dishonest coin dealers can be difficult to spot.

Some “rare coin” scammers prey on senior citizens’ fear of another “Great Depression.”

By following our 10 tips, however, you’ll discover how to spot dishonest coin dealers and their misleading claims.

Note: This issue focuses on the SCAM aspects of rare coin investing. We are definitely not experts about rare coins, and are not providing any financial, investing, accounting or legal advice. We are simply focused on helping you protect yourself from getting scammed in the event that you decide to invest in rare coins.

Before we get started, with the launch of the Apple iPhone on Friday, June 29, we’ve prepared a special page on iPhone scams.

Be sure to read our predictions for the top 7 iPhone scams, along with tips and advice to protect yourself from iPhone scams.

Time to get going…

Heavy Metal: How to Avoid “Rare Coin” Scams

Serious coin collectors (known as numismatists), sometimes see big returns on their investments — whether they’ve purchased rare coins or modern gold coins like the American Eagle, Canadian Maple Leaf or the South African Krugerrand.

Because of this — and because the value of these coins tends to rise during periods of high inflation and recession — some “amateurs” are tempted to risk their savings on promises made by dishonest coin dealers.

How much money have people lost? In one recent example, a handful of Texas companies bilked investors out of nearly $13 million by promising that the coins would double or triple in worth. They didn’t. And these customers later learned that they’d been charged three times the coins’ actual value! (Some have since sued the offenders.)

“Tough Nuts” to Spot

The case above highlights the widespread problem of coin scams in the U.S. Worse: “It is very difficult to identify fraudulent sellers of rare and bullion coins because they often look like legitimate dealers,” reports the FTC.

“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.

“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 telemarketing, email and “snail mail” campaigns.

Your best scam-prevention strategies are to (a) avoid investing in products you know little about; or (b) learn as much as you can about the coins you want to buy — from financial and numismatic journals, as well as trusted experts.

10 Tips to Avoid Rare Coin Scams

If you simply MUST buy 1882 Morgan Silver Dollars or $10 Indian gold pieces, read the following tips we’ve condensed from an FTC report.

  1. Use common sense when evaluating investment claims. Don’t rush to buy.
  2. Conduct research on a dealer’s reputation and reliability. If possible, discover how long the company has been in business. And if a dealer claims to be a member of a professional organization, call that organization to make sure their claim is true.
  3. Don’t be fooled by promises that a dealer will buy back your coins at (or for more) than what you paid, or that “grading” (evaluation of a coin’s condition) is guaranteed.
  4. Get a second opinion about grade and value as soon as you receive your coins. And before you buy, determine which remedies you have if the second opinion differs. Check information you’re given. For example: will the full purchase price be refunded or will you be given credit against the purchase of other coins?
  5. Check the grades of coins with an independent source. Be cautious about grading certificates and “slabs.” Many people use third-party grading or certification services before they buy. These companies “certify” the grade of coins and often place them in plastic holders with some form of grading certificate or “slab.”But you can lose money even when you use a certification or grading service. Certification services provided by dishonest coin dealers are often part of the fraudulent sales scheme. In some cases, 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. Because of this, coins they certify may be worth less than other coins of the same grade.
  6. Comparison shop. Consult several dealers before buying. Check prices in leading coin publications or sight-unseen trading network lists to ensure you’re not being overcharged. If a dealer’s advertised price is much lower than the prices listed in these publications, he may be misrepresenting the quality or grade of the coin.
  7. Take possession of the coins you purchase to ensure they actually EXIST and to be sure they’re properly stored.
  8. Be wary about giving your credit card number to strangers, especially over the telephone.
  9. High-pressure sales tactics should raise “red flags.” If the investment is so wonderful, why must YOU invest? There should be plenty of other “fish in the sea” for this salesperson.
  10. Beware of the Salomon Brothers Index. Dishonest dealers often mislead buyers by quoting appreciation rates for rare coins from an annual index formerly compiled by the New York investment bank Salomon Brothers. These quotes can show appreciation of 12 percent to 25 percent a year.

The Salomon index, however, was based on a list of 20 very rare coins, while the coins sold by dishonest dealers are more common — and less likely to appreciate at the same rate, if at all.

Keep in mind, though, that almost all dealers, legitimate and otherwise, have used the Salomon quotes. Therefore, it’s important to choose your dealer carefully.

To report problems with a coin dealer, contact the following organizations:

  • The American Numismatic Association (ANA). If the dealer is a member, write to the Association at 818 North Cascade Avenue, Colorado Springs, CO 80903.
  • The Industry Council for Tangible Assets (ICTA), a national trade association of coin and precious metals dealers. Regardless of whether the dealer is a member, write to ICTA at P.O. Box 1365, Severna Park, MD 21146.
  • The Professional Numismatists Guild (PNG), an organization of coin dealers and numismatists. If you have a complaint against a PNG member, write to PNG at 3950 Concordia Lane, Fallbrook, CA 92028.

Finally, you can always contact the FTC online or by calling toll-free, 1-877-FTC-HELP.

Remember: all that glitters is not gold, but by following the tips above, you’ll ensure that (at least) you’re buying genuine rare or bullion coins at a fair price, not wooden nickels.

That’s a wrap for this issue. Wishing you a great week!