“Boiler Room meets Antiques Road Show.” That’s the way Elliot Spitzer, former New York attorney general, described a $25 million dollar rare coin sales scam that defrauded over 1,000 customers a few years ago.
In Florida, a coin dealer from Miami was indicted for allegedly pulling a similar scam. A sad fact is that even when these fraudsters are convicted, coin investors will likely still lose their money. That’s why it’s important for you to understand a little about the rare coin market and where to get independent information before you buy or invest.
Coin fraud usually involves lies about the scarcity and value of the coins you are considering. When fraud occurs, the purchase price is often drastically inflated. It is common for the coins to have a real value at a lowly 10 to 20 percent of the purchase price. What you pay for the coins is way above fair market value and most likely they will never obtain a higher price, even if you keep them for years.
Many times fraud involves misleading or phony coin appraisals to make you believe you are buying valuable coins. In some cases these exaggerated appraisals are actually completed by the person selling you the coins. In other situations a swindler may refer you to an “independent” appraiser who turns out to be a crooked business associate or manager of another coin sales operation owned or controlled by the swindler.
Historically, coin scams involved boiler room operations. In a boiler room, high pressure sales people operate from desks crammed with telephones. They make hundreds of calls a day looking for someone who will say yes. They market over priced or falsely graded coins to trusting seniors and unsophisticated investors. The pitch usually involves guarantees and promises that the coins will go up in value. They also lie about scarcity and condition of the coins.
Boiler room sales reps often use aliases over the phone so you will never know who they really are. They earn huge commissions from the coin sales and their profits come out of your pocket. Fraudsters selling you rare coins also falsify their expertise in coin buying, selling and evaluating. Most crooks know little about buying and investing in rare coins. What they do know is how to sell. They just need to convince you that they are knowledgeable. Unfortunately, in this business a little knowledge goes a long way. That’s because many novice coin investors and collectors know even less about the coin market than the crooks.
To protect yourself from fraud you should become knowledgeable about rare coins and coin grading before making a purchase. Be leery of telemarketers with claims of expertise and who “guarantee” high rates of return on coin investments. The fact is, this market has ups and downs just like the stock market and even legitimate rare coins fall in and out of favor with collectors and investors.
Instead of buying coins over the phone from someone you don’t know, consider buying them from a local coin dealer whose credentials and reputation for honest dealings can be investigated. Learn about the industry and ask lots of questions before taking the plunge. Here are a couple of resources to start your search for information about buying and investing in rare coins.
An interesting and informative book about coin buying and investing is How To Make Money In Coins Right Now by Scott A. Travers. Traves refers to his book as “the ultimate guide to the coin market.” It is in fact an excellent primer on how the rare coin market operates. A particularly informative chapter is titled “The Biggest Mistakes And How To Avoid Them.” Other chapters cover coin grading, market risks for coin collectors and insider information on how professional coin dealers handle deals. An appendix to the book addresses rare coins as securities. This appendix is worth mentioning because in Florida securities investment frauds frequently surface.
On-line you can visit the Web site of the American Numismatic Association (ANA) - www.money.org. The mission of the ANA, a nonprofit educational organization chartered by the United States Congress, is to promote the study and collection of money, including coins, tokens, medals and paper currency. At this Web site you will find useful information and links, including a consumer alert prepared by the Federal Trade Commission and the ANA. The alert gives consumer protection tips and where to go for help if you are ripped off. There is also a short list of coin organizations and government agencies that provide free information on rare coin buying and investing.
Mark Mathosian is a financial frauds investigation manager with the Florida Office of Financial Regulation. He has an investigative background in banking, finance and securities. He can be reached at firstname.lastname@example.org. 850-410-9859.
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