Taboo topic? PCGS et. al. conflicts of interests.

DesertLizard

I am relatively new to the "slabbed world" of collecting but am learning fast. Over the past couple of months I have learned alot from this forum and its knowledgeable posters. I have attend 3 days of the LB show and asked alot of questions. Most interesting is dealers / collectors opinion on PCGS and co.

How people are aware PCGS, David Hall Rare Coins, North America Trading [i think that's what it's called], Bowers & Merena, Superior, Lyn Knight [currency dealers] and COllectors Universe are all basically owned / controlled by the same handful of people? Forgive me if I have added a name that does not belong there, I am certain someone will set me straight.

My question is how can there NOT be a conflict of interest when a grading company also acts as a dealer? Moreover it is confusing as they operate under so many multiple entities. I have read the various websites saying conflict of interest does not exist but the money, ease, temptation, etc. are all to great. How comfortable would you be to buy antiques from a company that authenticated, bought/sold, auctioned and dominated 80%+ of the market?

Every system should have its checks and balances, like the US govt. with COngress & Senate.

OK, I am not bashing PCGS. I actually like the concept and feel they are a godsend. I own/buy nothing but PCGS, sold all my raw. BUt when one entity becomes too powerful and can control sales, auctions and grading I start to get a little nervous. If there were 4 equally weighted PCGS's then my concern would be less. Please don't get me wrong we need PCGS and more of the same caliber and more uniformity in grading / variety recognition.

At the LB show, some dealers refused to speak about it. They clamed up saying they had no opinion. Others would say there was nothign wrong with it but would look away when saying that, could not look me in the eye. After some 60+ yrs wobbling around on this earth I have learned I can tell alot by a person's body language. The language from some dealers was most disturbing. Seem like again a handful of influential players control many "large" dealers, some small ones too.

Anyone care to speak freely on this forum?

littlewicher

David Hall and PCGS have always been accused of "insider grading". I, for one, don't know if it is true.

EVillageProwler

Sure, I'll speak freely.

First, let me make it perfectly clear that I have no evidence that the CU family of coin-related companies do anything wrong. It is principally the potential for and perception of wrong doing that I'll comment on...

David Hall has hands-on operational control over 4 major entities: Kingswood auctions, PCGS grading, DHRC retail, and the CU/PCGS retail price guide. That means that David Hall has control over the production of the widgets (i.e., grading), the pricing of the widgets, and a sales outlet of the widgets.

He and his top people would *all* have to be the most ethical bunch of people ever assembled in the history of humanity for their not have any slight shred of collusive behavior.

I vaguely recall that in the recent past, the CU/PCGS price guide adjusted its pricing on a conditionally rare modern issue. Very shortly thereafter, the pops went up, and DHRC had a bunch of 'em for sale. And, try selling to DHRC the coins at their retail pricing level, and see what percentage you really get!

Huh?!?

EVP

merz2

DL
I've been around this forum since almost the begining.I too have no solid evidence.As most will tell you"even the look of impropriety" can hurt.It has been said by many"they'd feel much better if all those things weren't controled by the same people".Dealers know that there are things going on behind the scenes.Prices are being manipulated.Of this I'm sure.I only hope that in the end,it doesn't come back to haunt them.The CEO's of many large corporations are finding out that they aren't immune to prosecution for illegal or unethical business practices.

Russ

At the very least, an appearance and potential exists. We certainly slam AH Collectibles and ACG for what essentially amounts to the same thing - although in their case the sleaze factor is a magnitude greater.

However, I believe that as long as there are viable competitors (such as NGC and ANACS) in the marketplace and with the existence of eBay, Teletrade and many other instant sources of pricing and information, the issue with Hall and PCGS is not of major concern.

Russ, NCNE

FrattLaw

Interesting thread, I actually posed a similar question to Rick Montgomery in the Q&A Forum, and guess what - never answered. I also specifically asked whether DHRC has the ability to discuss grading on their coins with the PCGS graders and does PCGS segregate "in house" submissions from the other dealers and the general public - obvious areas where conflicts could exist.

Needless to say, I didn't get anywhere. I would imagine that there are certain controls in place, but it does make you wonder. I think though that this type of problem won't affect us the collector. However, I met a dealer, non-CU owned that sends in about 5000 coins a month for grading (so he says). I would worry if I were him. That potential MS70 or PR70 may just get lost or mixed up with a CU dealer's submission and how could one prove which coin was his.

Perhaps placing a serial number on the rim prior to slabbing that can be identified through the holder would help, sorta like they do with diamonds. But that would probably be cost prohibitive and what would that do to the coin. Perhaps a visual map of the coin surface, sorta like a finger print.

Anyway, I don't think I have to worry about my pr69's, none of the coins that I submit are that valuable. As for the extremely valuable coins, I just don't think that PCGS and CU would chance that kind of problem.

All it would take is one "whistle-blower" to come forward and say "hey, guess what PCGS is switching coins on people or they're overgrading DHRC's submissions" and that would pretty much end their business immediately.

The only thing that I would worry about is preferential grading for CU retailers. Supercoin once stated that all most all of the PR70 DCAM Ike proofs came from the same submission. I've seen one and he's recently downgraded one, at best the one I saw was a 69 and could have been a 68 DCAM, makes you wonder.

Just my 2 cents, on a perplexing issue.

Michael

braddick

The first step to ackowledging any accusation would be to find even one coin that David Hall sold, in a PCGS holder that is overgraded. Of course then the NEXT step is to find a pattern and then prove there is some type of insider influence going on. If the coins offered are NOT overgraded (and my experience has shown they are not) then there can be no conflict of interest.

The way I read this, and had it explained to me by an 'insider', is the coins are graded without David Hall's influence or control (ie: the Graders no not from wence the coins come from).

He buys and sells PCGS coins, graded, offered to him by submitters.

There is one submitter working out of Carlsbad who sends in multiples of coins, sometimes 1,000+ at a time, who is given a standing offer for the coins depending on the grades they receive.
He doesn't get his coins back, but instead a check.

If David Hall consistantly sold overgraded coins, and it wouldn't take long for collectors to either figure that out, or get the word, he'd be out of business quickly.

So, I guess it's fun to speculate, but that's all it is- hyperbole.

Bustman

This whole topic is exactly why John Albanese started NGC. He was a partner and founding member of PCGS, but objected to David also selling coins as well as grading them.

braddick

<< <i>This whole topic is exactly why John Albanese started NGC. He was a partner and founding member of PCGS, but objected to David also selling coins as well as grading them. >>



MONEY didn't play a role in it at all?!

Bustman

Oh, heck yeah!
But you have to admit, NGC has kept grading their primary focus. That is of course untill recently, when they started the conservation company.

DesertLizard

This thread has taken a slight turn in the wrong direction.

Let me reiterate / state : I am not accusing any PCGS entity of wrong doing.

However, the POTENTIAL for manipulation and other sheenanigans is there. I met some very bright people at the LB show who have been in the business for 25, 30, 35+ years. They have seen it all. They know all the players. How come they are not making more noise about this "alliance".

You see, this is not an issue of whether or not anyone has DONE anything wrong. It is about ethics and removing all possibility of such speculation. The more I think about it the more it causes me to wonder, not worry.

Did you know when a major elected official gets into office he / she has to turn his investment portfolio into a blind trust? He has no idea what the investment advisors are investing in. The procedure is done to remove any POTENTIAL conflict of interest. This is the right thing to do.

I wish one day David Hall and co. would recognize that. He may be the most honest guy in the world but it would take just one bad apple in the organization to create a scandal and ruin PCGS [and the hobby would suffer greatly].

DCAMFranklin

C'mon Braddick-
Do you think the Carlsbad situation cannot be repeated in reverse direction? Wake up! Large dealers are always looking to puchase sizeable lots of PCGS coins from other dealers. Do you want to tell me a large dealer wouldn't/doesn't JUMP at the opportunity to acquire a large lot of PCGS coins at very attractive prices from DHRC? That dealer who submits substantial coins to PCGS for grading isn't real likely to show much dissatisfaction with the overgraded coins from DHRC knowing their current and all future submissions could be subject extra-hard overview from from employees (indirectly) of David Hall! OTHER DEALERS HAVE A VESTED FINANCIAL INTEREST IN KEEPING COLLECTORS BELIEVING THERE IS NO CONFLICT OF INTEREST!!! The collector who buys the overgraded coins from this 2nd dealer doesn't ever have the opportunity to attribute the coins to the DHRC name, does he?????

Just look at the creation of Independent Coin Grading Co., ICG. Why do you think their founders felt it was monumentally important to put the following safeguards into place? No employee or owner can deal in coins or own any interest in an entity that deals in coins. If they are ever found to be in non-compliance of that rule, then they lose all their stock or stock options in ICG. All coins are NOT submitted directly to ICG. Instead, the coins are submitted to an INDEPENDENT, local CPA firm. After the CPA firm logs in the invoice, the invoice is then duplicated into a numbered (no names) invoice before going to the grading room of ICG. No one in ICG knows who submitted the coin, how many coins the submitter has sent in the past or how much in grading fees the submitter has paid in any given time frame. If the founders of ICG didn't KNOW the graders at PCGS & NGC knew the identity of the submitting entity, why do you think they would have felt the need for this tedious and expensive additional step in the grading process????

You, and others, may not like ICG's grading of modern coins. However, I think everyone will admit the above additional safeguards eliminate the conflict of interest and the founders are to be commended for taking those steps. I know I would feel better if the grader didn't know if the coins before him/her belonged to me or David Hall. I'd like to feel they felt the same pressure to provide accurate grades to my coins as they do to those submitted by other large PCGS dealers. Just because you or I don't send in 5,000/year doesn't mean we should expect anything less than an accurate grade.

Dog97

If there is or isn't conflicts of interests my reply is that I simply don't care as it has nothing to do with my pursuit of coins for my collection.

PCGS, David Hall Rare Coins, North America Trading, Bowers & Merena, Superior, Lyn Knight and COllectors Universe are not the only game in town nor the sole supplier of all my coins so I simply don't care.

Probably not the reply you were expecting but you asked.

braddick

DCAM- Who cares if there is a conflict of interest or not when ICG's grading blows?

Their "send the coins to a third party and then to us" hype is just that- needless/pointless and above all bogus considering the grades they "give".

I still stand by not blaming anyone for any wrong doing UNTIL you can produce one shread of evidence. Otherwise it is just pure, armchair, weekend speculation and only in the interest of sport.

EVillageProwler

Otherwise it is just pure, armchair, weekend speculation and only in the interest of sport.

Pat,

I don't think it is fair to dismiss others' fears simply because of a lack of a pressing need. Safeguards, say in the securities industry and with holding political office, is is intended for two things: to address matters reactively as well as to serve as a proactive instrument.

It seems to me that if, not when, inappropriate ethics is introduced, then without safeguards how will we know? That's reactive, of course. But, if we run the risk of not knowing, wouldn't it have been better if the safefguards were simply proactive? There's a reason why ``an ounce of prevention saves a pound of cure'' is a cliche!

It seems to me that there is a parallel in your profession as well. (I don't mean to profess expertise here, but as a member of society, I am entitled to a view of society's finest!) In NYC, we often send out large numbers of our men and women in blue as a proactive, preventive instrument. It is not because we're indicting those people to whom we're showing force, and it's certainly not an irresponsible speculation on the part of the authorities. Rather, we just want to do what we can to insure nothing goes bad.

It is quite commonplace for society to implement measures of all sorts as proactive safeguards. It is not an indictment of those to whom the safeguards are directed. It is not necessarily an armchair exercise done for sport.

In my opinion, David Hall, et all, is innocent until proven guilty. This is, after all, America! But, it is still a wise move to implement safeguards or somehow eliminate potential conflicts of interest.

EVP

cointagious

<< <i>He buys and sells PCGS coins, graded, offered to him by submitters >>



you wanna hear the one about the dealer that got a call re: selling his pcgs submission for a matte proof indian gold piece that came back in pf66...except he hadn't even gotten the coin back yet and didn't yet know the grade himself. looks like someone in the universe jumped the gun on that one.

fcloud

Maybe we should all take our coins to coin shows and have them graded by AGC.

braddick

EVP- excellent point, please allow me to rebute. We as a group of people and collectors are anal when it comes to protecting that which we hold dear. It is part of our character, part of our mak- up (and I'm proud to be a part of that).
Look at the topics that are raised!
We are definitely self-policing and if David Hall or anyone else was involved in any shananigans or tomfoolery threre would be Thread after Thread regarding it and exposing it.
Instead, after years of his performing his PCGS duties and selling coins we have only speculation.

I need more than that to even begin to condemn.
Until I get it I guess I am somewhat dismissive (my fault- a flaw on my part) of anyone doing anything other than hinting at an inproprioty.

EVillageProwler

Pat,

The court of public opinion should not indict and convict DH, et al, on unsubstantiated claims of shenanigans or impropriety. But, I think there is something appropriate about proactively examining the elimination of *potential* venues of impropriety.

You know full well that there are plenty of people who start out on a venture and do excellent work. But, many of those people get tested in life. Some will pass the test and deserve our trust and some will not pass the test. How will we know to separate them until after the fact? That is why we constantly need to re-examine the methods by which we police them.

For starters, I'd like to learn more about the so-called self-policing that you wrote about. How formal and comprehensive is it? Has the process been checked out? To be honest, I am completely in the dark regarding any method of policing them -- formal or informal.

EVP

braddick

Fair enough. I guess I'm just at a point in my life where I don't so much care what something looks like, but only what it IS.

EVillageProwler

I guess I'm just at a point in my life where I don't so much care what something looks like, but only what it IS.

I can understand this sentiment. I interpret it as not making too big a deal out of nothing. There's much wisdom in that, especially when there's so much else to deal with in life.

I don't really advocate a course of action aside from discussing this matter. If nothing else, getting people to be aware of the potential of conflict is a good thing. Probably that wouldn't be creating too big of a deal...

EVP

DesertLizard

EVP,

You get it 100% .

This is an issue about ethics. Is it ethical to allow a dealer to control the most influential grading company in the US? When there is a potential for abuse you remove it or monitor it.

We know DH is an honest guy and have no reason to believe otherwise BUT suppose one of his top execs had a "problem" and need to make some money fast. The mechanism is in place to circumvent the system and help him/her cash in on their inside track.

Stranger things have happened.

tradedollarnut

I have no reason to believe that anything untoward occurs at CLCT. At the same time, the potential conflicts of interest are one important reason NOT to have an attitude like WSM. To have one's eyes closed completely is not good collecting practice. It certainly benefits the collecting community to have two strong grading companies worried about each other - that's the American (capitalist) way!!!