Buying rare coins can be a satisfying hobby and can also be a good
investment. However, it can also be very risky, especially for newcomers.
Investing in rare coins carries no guarantee of a profit. Buyers can lose
most of their initial investment if they become victims of fraudulent
sales practices.
Experienced coin collectors always say, “Read the book before you buy the
coin.” This statement refers to the important yet seldom-discussed wisdom
that, in the world of rare coin collecting and investing, it is incredibly
EASY to be conned, mislead, or simply misinformed. All of which will most
likely end up costing you hundreds, even thousands of dollars.
If you intend to buy rare or bullion coins for investment, your best
protection is to spend some time learning about the coins you are being
asked to buy or are considering buying. Traditionally, most investment
gains in rare coins have gone to coin collectors who have taken the time
to carefully study various aspects of coins such as their rarity, grading,
market availability, and price trends.
Rare coin investment success is the result of prudently acquiring coins of
selected quality, proven rarity, and established numismatic desirability.
Many careful coin buyers study coins for some time before they buy their
first rare coin. Success can also be enhanced by researching rare coin
dealers.
Rare coins have historically protected or preserved wealth as strong
inflation fighters, particularly in situations where paper currency has
been seriously weakened. Any time paper money is threatened; rare coins
can protect your wealth much like investments in gold bullion.
The beauty of rare coins can be enjoyed much as any other work of art.
They are also a very private form of investment not subject to as much
government scrutiny as other forms of investments are. Rare coins are easy
to store and are nearly indestructible if taken care of properly. Rare
coins are also insurable. Rare coins truly offer a form of portable wealth
which can be moved from place to place very quickly and easily.
But buying rare coins is not without its own perils. If you aren’t careful
about buying rare coins, you can easily be ripped off in the process. Your
best safeguard is knowledge.
How To Protect Yourself
If you seriously intend to buy rare coins or bullion coins for investment
purposes, your best protection is to spend the necessary time learning
about the coins you are being asked to buy or are considering buying.
Traditionally most rare coin investment gains have went to seasoned
collectors, who have taken the time to carefully study the various aspects
of rare coin such as rarity, grading, market availability, and price
trends. Over the years, rare coin investment success has been the result
of prudently acquiring coins of selected quality, proven rarity, and
established numismatic desirability. Careful coin buyers study coins for a
length period of time before they even consider buying a single coin.
Success will also be enhanced by researching rare coin dealers as well as
researching the coins.
If you receive any type of solicitation about investing in rare coins,
keep the following points in mind:
• Use common sense when evaluating any rare coin investment claims and do
not rush into buying. Always remember, if it sounds too good to be true it
usually isn’t true.
• Make sure you know the rare coin dealer’s reputation and reliability
before you send money or authorize a credit card transaction. If possible,
find out how the dealer has been in business. Don’t rely on the company’s
claims over the phone. Many fraudulent telemarketers claim to be a member
of a professional organization. Contact the organization to verify that
they are indeed a member. If you cannot verify their membership, don’t
deal with them.
• Do not be taken in by promises and claims that the dealer will buy back
your coins at or for more than the price you paid or that the coin’s grade
is guaranteed. No reputable coin dealer will make these kinds of claims.
The rare coin market is just too volatile to make these kinds of
guarantees.
• Once you receive your coins, it is wise to get a second opinion from a
trusted source about grade and value. Before you buy, find out what
remedies you will have if the second opinion differs significantly from
the original dealer’s claims. For example, some companies offer a 30-day
return period if you are not satisfied with your purchase. Always check
the information you are given by the company. Will they refund the full
purchase price or will you be given a credit to be used to purchase other
coins from them. Do they charge you a restocking fee?
• 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. Reputable third-party grading services
encapsulate or “slab” a coin in tamper-resistant holders with a grading
number and other pertinent information about the coin. The slab protects
the coin from further damage and reduces the chance of having a coin of a
lesser grade substituted for one of a higher grade.
• If you are using a grading certificate or a slab as a second opinion, be
sure you understand what they really represent. Coin grading is not an
exact science, and a certificate or slab only represents the professional
opinion of that particular coin grading service. Find out if the grading
service is indeed independent of the rare coin dealer. There have been
several instances of fraudulent coin dealers using their own in-house coin
grading service and passing it off as an independent coin grading service.
Find out what coin grading standard the company uses, and what is the
company’s reputation is in the industry. Not all coin grading services are
created equal.
• Comparison shop. You will need to be concerned not only with the coin’s
grade, but with the price as well. Consult several dealers before you buy.
Check coin prices in leading coin publications to make sure you are not
being over-charged. Several publications list the representative wholesale
values for fine coins of various grades and issues. These values are
generally higher than the prices a consumer can expect to receive if he or
she were to immediately sell their coins and generally lower than the
retail prices a consumer would normally be charged to buy the coins.
Consult these publications prior to trusting any dealer’s representations
about the current value of the coins. If the dealer’s advertised price is
much lower than the prices listed in the coin periodicals, then the dealer
is probably misrepresenting the quality or grade of the coins. Always take
physical possession of the coins you buy. Never trust the dealer’s
promises to store them for you.
How To Identify Fraudulent Coin Sellers
The fact is, it is almost impossible to identify fraudulent sellers of
rare and bullion coins because they often go to great lengths to look like
legitimate coin dealers. Fraudulent sellers frequently have elegant
offices in the financial districts of major cities. The often employ
“account executives” or “investment counselors” which are nearly always
just glorified salespersons. They will produce slick looking brochures on
investment strategies. They will often boast of having coin experts on
their staffs, or claim to be the largest or finest dealers of rare coins
and bullion. Because these fraudulent dealers mimic reputable sellers, it
is extremely important to check the information you are given by these
types of rare coin dealers.
Fraudulent sellers of rare coins and bullion use many of the same
techniques and methods that legitimate rare coin dealers use to attract
buyers. They advertise in newspapers and magazines and sometimes meet
prospective investors through financial planners and insurance agents.
Others use boiler room telemarketing solicitations to reach prospective
customers. For example, you may receive a call after having responded to
an advertisement. Telemarketing fraud has grown significantly over the
last few years. As such you should be especially suspicious about any
unsolicited telephone offers to buy rare coins or bullion.
Recently, some fraudulent sellers have started to use multi-level
marketing systems, which are often thinly disguised pyramid schemes to
sell rare coins and bullion. Below are some of the sales tactics used by
dishonest and fraudulent sellers and dealers.
False Grading Claims
Normally, the value of a rare coin is determined by its rarity and grade.
It is very important that you make sure that the rare coins you buy are
graded properly. The grade of a coin is an expert opinion that is used to
describe the quality and condition of a given coin. Since coin grading is
not an exact science, the grading process involves a certain degree of
subjectivity. Factors such as “eye appeal” and “overall appearance” are a
part of this subjective process of grading coins.
As a result, the grade assigned to a given coin will likely vary even
between legitimate dealers, especially in Mint State grades where
distinctions in condition are much more subtle. These fine distinctions
translate into large differences in the final value or price of a rare
coin. This subjectivity of coin grading means that there is some inherent
risk in rare coin investing. Fraudulent sellers take advantage of this
subjectivity by intentionally inflating the grades of the coins they sell.
They will charge prices many times over what the coin is really worth.
For example, you might pay $500 for an 1882-S Morgan dollar, that was
described as having a high grade because of its excellent condition.
Later, you might find that the accurate grade for this coin is two or more
grades lower. This means the coin may only be worth $50. Even with
independent coin certification services, false grading is still a problem.
False Slab Certification Problems
Many coin collectors and financial planners rely on third-party grading or
certification services to verify a coin’s grade before they buy it. These
services “certify” coins as to grade and normally encapsulate the coins in
a plastic holder aka a “slab” with some form of grading certificate. Coin
collectors can still lose money even when a certification or grading
service is used. Certification services provided by fraudulent or
dishonest coin dealers are too often a part of their fraudulent sales
schemes and are intended to mislead buyers. In some cases, even
certificates from legitimate services can be misleading. Some
certification services use looser grading standards than those generally
accepted by the more respected grading services.
As a result the coins these companies certify may actually be worth less
than other coins of the same grade. Before you buy any certified coin,
check its current value in one of the special pricing publications. Some
fraudulent dealers will use an old certificate to mislead a buyer into
believing that a coin’s grade is accurate by today’s current standards.
Always check the date of any certificate or slab you are offered and
investigate the certification service before you make the purchase.
False Claims About A Coin’s Current Value
Some dishonest or fraudulent dealers actually grade their coins
accurately, but mislead buyers about the actual value of their coins. They
intentionally overprice their coins, charging significantly more than a
coins actual value even though the coin has been accurately graded. For
example, They might charge $5,000 for an accurately graded $10 Indian gold
coin, which has a current retail value of only $1,850. False claims about
value are becoming increasingly common in rare coin fraud. Despite popular
claims from the rare coin industry, there is still a great deal of risk
involved in investing in rare coins. If you are not knowledgeable about
rare coins, you could easily lose all or part of your investment.
False Appreciation Claims
Dishonest dealers often mislead buyers by quoting appreciation rates for
their rare coins from an index formerly complied 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 upon a
list of twenty very rare coins, while the coins sold by the fraudulent
dealers are more common coins that are not likely to appreciate at the
same rate. At one time or another almost all dealers, legitimate and
dishonest alike, have used the Salomon quotes. As such, you must be
particular about the coin dealer you choose to do business with. There is
no guarantee that any rare coin will appreciate in value.
The Truth About Bullion coins
Technically, bullion coins are not “rare” coins because their values are
determined principally by their precious metals content, rather than by
rarity or condition. Some of the best known bullion coins are the U.S
American Eagle, Canadian Maple Leaf, and the South African Krugerrand.
These coins are bought and sold worldwide through banks, brokerage firms,
gold dealers, and precious metals dealers.
Bullion coin prices change daily depending on the spot market price for
precious metals. Fraudulent sellers of bullion coins often overprice their
coins, or mislead buyers about the coin’s precious metals content. When
purchasing bullion coins, call several reputable dealers or brokerage
firms to compare prices and be sure to ask about any additional hidden
costs or charges. Fraudulent sellers also mislead buyers 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.” There are
some private mints that issue their own imitation bullion coins that
resemble bullion coins produced by the U.S. Mint. Make sure you know what
you are buying. As always your best protection is to study the bullion
market before you buy, and be sure to choose your dealer carefully.
Where To Go For Help
If you have a problem with a coin dealer, and the dealer will not resolve
the problem to your satisfaction, there are a number of places you can get
help from. Some dealers will resolve disputes through binding arbitration
by an independent third party. This may be through one of their
professional organizations. Consumer protection organizations such as the
Federal Trade Commission, are often 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 some sound advice about how to proceed with your dispute.
Most coin organizations can help you if the dealer is a member of their
organization.
Coin Organizations
The American Numismatic Association is a non-profit organization of coin
collectors, but many coin 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.
The Industry Council for Tangible assets is a national trade association
of coin dealers and precious metals dealers. The ICTA urges its members to
subscribe to a program of binding arbitration administered by the American
Arbitration association. 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 can write to the ICTA at P.O. Box 1365, Severna Park, MD 21146.
The Professional Numismatists Guild is an organization of coin dealers and
numismatists. Membership in the PNG is rather selective. To qualify, a
dealer must have a minimum number of years of 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 the PNG at 3950 Concordia Lane, Fallbrook, CA 92028.
Other Agencies
The Better Business Bureau 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 State Attorney General’s Office
may also be of help. 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 also be contacted if you have a complaint
and you ordered, received or paid for your coins through the mail.
The Federal Trade Commission works for the consumer to prevent fraudulent,
deceptive and unfair business practices in the marketplace and to provide
information to help consumers spot, stop, and avoid them. To file a
complaint or to get free information on consumer issues, visit www.ftc.gov
. The FTC enters Internet, telemarketing, identity theft, and other
fraud-related complaints into consumer Sentinel, a secure online database
available to hundreds of civil and criminal law enforcement agencies in
the U.S. and abroad.