The universe of rare coin and precious metals investing has exploded in recent years.  Rare coin sales have increased to six or even 10 times their annual levels in the 1980s.

Markups and Market Manipulations

Predictions that the gold price per ounce will reach $3,000 or $5,000, and the silver price $50 or $100 per ounce, are frequently parroted by companies claiming to provide “gold retirement,” “precious metal IRAs,” and “physical gold IRAs.”  The problem is, once markups and fees are paid, and the contractual fine print comes into play, some experts view such schemes as poor investments.

There are a series of investment frauds and advertising schemes that consumers are repeatedly falling prey to.  They involve companies, salespersons, promoters, and social media influencers:

• confusing consumers by obfuscating market prices, coin values, policies re returns, or customs in industry to block research into and long-term tracking of value for money;
• recommending that consumers buy “unique” coins/bullion, when, in fact, there is nothing unique about the offerings of the firm;
• recommending that customers allow a company to keep custody of their coins or bullion so holdings could be sold later at a profit or that the company can decide the “right time” to sell or reduce holdings, when such tactics are intended to merely delay consumer demands for their money back, hide market value and realized losses, and minimize return to consumer of coins, refunds of purchase prices, or any trade-ins or guarantees;
• making misleading claims for the purpose of deceptively selling coins, gold bars or bullion at a premium price, based on special valuation, certification, or knowledge of coin or bullion quality, when there is no accepted methodology for doing so, known and undisclosed flaws in the methodology, glut or counterfeiting issues in the category, or few entry barriers to valuation and/or the “certification” of the coins or bullion;
• misrepresenting the market value of “special/certified” coins to block consumer efforts to research the reasonable value or daily market price of coins or bullion;
• claiming a volatile market exists based upon the spot price of gold, and implying that there are huge opportunities to sell at a profit after an upswing, yet selling coins or bullion at such inflated prices to make “market prices” meaningless; and
• stalling customers with fraudulent alleged business interruptions such as auctions cancelling, claims that third-party buyers “backed out” of sales due to alleged bank or compliance issues, estate issues, accounting issues, shipping issues, etc.

A variety of factual claims are made about the value of rare coins and bullions.  Every few years, it seems like a new selling term pops up, like “Very Fine,” “Choice Very Fine,” “Mint State,” “Borderline Uncirculated,” “Perfect Uncirculated,” or even “Perfectly Preserved Coin.”  Claims have been filed regarding whether the value of these and other “special” claims have been inflated or manipulated.  Due to an influx of counterfeit coins and other factors, coin and bullion buyers are struggling to obtain anywhere near the “newsletter” or “grading firm” price that they may have seen listed for their investments when they bought them. 

Consumer Rights in an Uncertain Environment

There are clear federal and state law guidelines regarding the marketing of goods like coins and bullion to consumers, and business opportunities and retirement schemes to investors.  Often, a company will have purchased Commercial General Liability Insurance or Director & Officer (D&O) Insurance that covers claims for false advertising, breach of trust, or nondelivery. 

One right that exists in similar form in most states is the right not to be the victim of fraudulent or negligent claims.  A fraud is a statement, omission, or scheme that induces trust or confidence in a reasonable buyer or seller, and that naturally causes some loss or injury.  An intent or malice may be inferred from certain facts available to the person making the claim. 

A careless or negligent bit of hype, or reassurance to an investor or buyer, may violate the law if the person making the reassurance holds itself out as highly skilled or qualified to make the reassuring statement, the assurance is false or misguided the consumer or investor as to the value of bars or coins or entire opportunities, the consumer or investor desired the information contained in the representations for a serious purpose, the reassurance was negligently or unreasonably given because it should have been known to be incorrect given the higher level of skill and expertise the person delivering it held itself out as having, and the consumer or investor would have been justified in depending on the reassurance to his or her detriment.

State false advertising statutes or “unfair and deceptive acts and practices” laws are another key area.  In most states, there is a right not to be misled by statements or actions in commerce or business, including a significant false or misleading implication of fact.  Often times, being justified in relying on the statement to the injury of a consumer or investor need not be proven.

Negligence laws also come into play.  There may be a seller or promoter duty to adequately account for the situation and properly advise a person with whom one has a certain relationship, such as broker-client, financial adviser-client, accountant-client, or attorney-client.  The federal Investment Advisers Act may reinforce this duty, and override certain boilerplate contract language (like contractual disclaimers of any duty to give “reasonable” investment advice). In many states, a heightened or “fiduciary” relationship does not depend solely upon the language of any contract between the client and the person helping him or her buy or invest in an asset.  Generally, a fiduciary relationship arises from “a relation of trust and confidence.”  Often times,  fiduciary guarantees may apply when a broker does not “conduct proper diligence before making an investment recommendation.”  Also, fiduciary duty law may impose a duty to monitor investments “aggressively marketed” to a consumer.

State investment laws and franchise (business opportunities laws) may also be relevant depending on how and where an asset is marketed and sold.  Acting as an unregistered investment adviser or its agent may be illegal, depending on the circumstances. 

At the federal level, there may be an opportunity to undo certain bad investments under the Federal Investment Advisers Act. It may apply to a contract with an unregistered investment adviser who made use of the U.S. Postal Service or other means or instrumentality of interstate commerce (email, FedEx, etc.) in connection with his or its business as an investment adviser.

Under federal securities law, there are opportunities to seek compensation on both an individual and class action basis for a misleading statement, in connection with purchase or sale of a security, which the defendant knew was false or was reckless or very negligent.  In practice, the methods of proving negligence and recklessness can be similar, and involve believing or repeating doubtful claims, refusing to recognize obvious mistakes or problems, and failing to correct reassurances or statements that a person or company knew or should have known were wrong.  In addition, reliance upon the misrepresentation or omission, economic loss, and a relationship between the loss and the misstatement so that general “business conditions” alone did not cause the loss.   It has been argued that a “statement of opinion that lacks a good faith basis in fact – i.e., an investment recommendation without due diligence – constitutes an actionable misrepresentation or omission under the federal securities laws.”    

Under the federal commodities laws, there is a right to certain protections under statutes and Commodities Futures Trading Commission (CFTC) regulations involving contracts relating to physical items (oil, precious metals, orange juice, pork bellies, and other “commodities”).  According to the CFTC, “Gold Is No Safe Investment” because commissions “could reach upwards of 15 percent on the leveraged amount” invested, there are “suspicious…claims of big returns for very little risks, or that offer guarantees or agreements that limit your losses,” and there may have been false claims that “physical precious metals … were allegedly held in depositories in London or Hong Kong.”  As a result, consumers and investors have a federal right not to be victimized by a deceptive or manipulative scheme in connection with the sale of any commodity for future delivery, or any security based on a group or index of commodities. 

The CFTC has said rare coins are commodities.  Gold bullion and bulk gold coins under standard contract are mentioned in relevant legislation.  One section refers to the direct or indirect use, or attempt to use, in connection with any contract of sale of any commodity in interstate commerce, a manipulative or deceptive statement or scheme, in violation of such rules and regulations as the CFTC shall announce.  One regulation prohibits a misleading statement or omission of material fact, or any “act, practice, or course of business, which operates or would operate as a fraud or deceit upon any person….” 17 C.F.R. § 180.2.  In addition, 7 U.S.C. § 9(3) makes it unlawful for “any person, directly or indirectly, to manipulate or attempt to manipulate the price of any … commodity in interstate commerce, or for future delivery [etc.].” 7 U.S.C. § 9(3); see 13(a)(2). 

Next steps

Leeds Brown Law P.C. is experienced in consumer and investor class actions.  It has brought claims for false advertising, misrepresentation, unjust enrichment, securities violations, and investor-broker arbitration laws.  It has been appointed class counsel and found by several courts to be competent to represent classes of similarly victimized New Yorkers.  In addition, it has won praise for its professionalism during the federal court proceedings, and separately appointed to serve on a class action executive committee in a matter involving Walmart shoppers.

It is important to know your rights when it comes to consumer goods and investment opportunities.  A free consultation can help you understand your rights and take action to protect them, including by requesting a refund or restitution, filing suit, or contacting the government.