Investing
in Rare Coins
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 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 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 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 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 Sellers
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 Value
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 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
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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