Is it LEGAL to sell a coin as an investment?

STEWARTBLAYNUMIS

I am not a lawyer(whew) but would like to hear what people like Anaconda think a coin dealer can and can not say when soliciting.

stewart

RYK

I am not a lawyer (double phew) but I seem to remember several northeastern coin firms getting in trouble with the SEC about 18 months ago for selling coins as investments without the proper licenses, disclaimers, etc. I will try to dig up the threads on this here.

MrEureka

New York State has successfully gone after coin investment firms by claiming that they are "unregistered securities brokers". However, that tactic has only been used in cases where fraud was alleged.

smselvek

Well I'm not a lawyer either. My guess is that it is legal to state that coins are an investment. Now it would be up to the buyer to decide how good of an investment it may be. Just like real estate or the stock market the value of coins can go up, down, or remain the same. In part, I collect coins because of their "investment" potential, but mainly I collect because I like to.

Edit: I agree that the proper brokerage licenses would be needed.

oreville

I saved an old letter and envelope personally addressed to me and signed by Mr. Sundman of Littleton Rare Coins in 1980 apologizing for the fact that Coin World ran an ad 6 months after Littleton cancelled the ad due to rapidly climbing prices in choice uncirculated prices. I am going to pull out that wonderful letter and post it here someday!

What was real interesting about the letter AND envelope was that the word INVESTMENT was part of the Littleton coin firm at that time. I had forgotten until I saw the letter for the first time in nearly 25 YEARS!

I never bought anything from them costing me more than $5 or so. But that ad in 1980 was for a uncirculated silver dollar too cheap to resist!! I have to recheck that letter to see how such a long letter was typed or printed since it seemed that hundreds of letters must have been done at the same time. I wonder if they had a laser printer in 1980 along with a computer and a word processor program?

Longacre

I'm a lawyer but unfortunately securities law is not my specialty. I will, however, try to do a search of Westlaw and find out more information on the cases that RYK refers to regarding the SEC. I will post again if I find any.

Longacre

Here is what I found on a quick search. It doesn't really deal with coin investments, but rather with commodities futures. The theory is probably the same, though. I will look some more when I get a chance.



CFTC 4331-99, 1999 WL 1016106 (C.F.T.C.)


Commodity Futures Trading Commission (C.F.T.C.)


(NEWS RELEASE)


*1 CFTC WINS CASE AGAINST WEB OF FLORIDA FIRMS AND THEIR PRINCIPALS ENGAGED
IN FRAUDULENT TELEMARKETING OF ILLEGAL FUTURES CONTRACTS


November 3, 1999


Federal District Court Rules that CFTC Has Jurisdiction Over Defendants' Sale
of Highly-Leveraged Precious Metal Contracts; Orders Florida Defendants to Pay
Restitution Totaling Over $12.4 Million to Defrauded Investors Nationwide

WASHINGTON The Commodity Futures Trading Commission (CFTC) announced today that a federal district court has found that Midland Rare Coin Exchange, Inc. (Midland) of Lauderdale Lakes, Florida; its principals, Robert J. Mitchell of Tamarac, Florida and Terry A. Sands of Coral Springs, Florida; and eight other defendants violated federal commodity laws by fraudulently telemarketing illegal futures contracts.
Judge William P. Dimitrouleas of the U.S. District Court for the Southern District of Florida ruled on October 20, 1999, that the defendants sold leveraged investments in such precious metals as silver, palladium, and platinum by fraudulently claiming that customers would achieve huge profits with little risk.
Judge Dimitrouleas also found that the defendants illegally sold futures contracts, which should only be sold on a contract market designated by the CFTC. Concluding that the defendants ran "a systematic scheme to defraud investors, the court permanently barred Midland, Mitchell, and Sands from the commodities industry, and ordered them to pay restitution to defrauded customers totaling over $12.4 million.
The CFTC filed a complaint against the defendants on November 20, 1997 (see CFTC News Release #4082-97, November 24, 1997). The complaint alleged that since at least 1993, Midland used high-pressure sales tactics to convince prospects that they would reap tremendous profits in a short time, with little or no risk, if they participated in the firm's investment scheme. Under Midland's program, a customer paid for a portion of the commodity (usually 20 to 23 percent) in cash (known as "initial margin"), with other firms, including defendants Globex Bullion and Financial Services Corporation (Globex) and Global Asset Management, Inc. (Global), purporting to loan the customer the balance of the purchase price of the commodity and claiming to purchase and hold the commodities on behalf of each customer.
According to the CFTC complaint, when decreases in the price of a commodity or accumulating credit and storage fees caused a customer's equity to drop below a specified level, the customer had to pay additional money to return his or her equity to a specified level (known as "maintenance margin"). Midland telemarketers claimed they would monitor the market and instruct customers when they should liquidate their accounts for a profit.
In its October 20th ruling, the court found that, in soliciting customers to purchase the leveraged investments, Midland telemarketers falsely claimed that "investors could double, or even triple their money within a relatively short period of time" and that "a 350 percent profit was a conservative estimate.
*2 The court concluded that "such profit and risk claims are false," finding that "the defendants cannot identify a single investor who made a profit." The court also found that "approximately fifty percent of an investor's initial investment was comprised of various commissions and fees," leading investors to suffer a fifty percent loss as soon as they invested."
The court also concluded that defendants' commodity sales constituted futures contracts and not, as defendants characterized them, investments in physical commodities. In so ruling, the court rejected "self-serving statements from defendants [designed] to evade the CFTC's legitimate jurisdiction."
In addition to the orders entered against Midland, Mitchell, and Sands, the court barred defendants Edward N. Tabb, Globex Bullion and Financial Services Corp., Eurex Marketing Corporation, GlobalMark Corporation, Southwest Research Associates, Inc., Southern Advertising and Marketing,-Inc., Quantum Advertising and Marketing, Inc., and North American Asset Management, Inc. from the commodities industry, and ordered each of them to pay restitution for their unlawful actions associated with the Midland telemarketing fraud scheme and a similar fraudulent scheme carried out by Eurex Marketing Corporation.


CFTC has Continuing Litigation against Two of the Defendants

The CFTC's litigation continues as to defendant Global Asset Management, Inc. and its principal, Mark Modist. The CFTC is seeking permanent civil injunctive and other remedial relief as to both. The CFTC's complaint alleges that Global and Modist aided and abetted Midland's illegal sale of futures contracts. It also charges that Modist issued reports to customers that charged "storage fees" when Modist:*did not, in fact, purchase and store commodities on behalf of Midland customers and charged "credit fees" when Modist did not lend Midland customers any funds for the purchase of commodities.

CONTACT John C. Phillips
or

David Gary
(202) 418-5080

Fax: (202) 418-5525

CFTC 4331-99, 1999 WL 1016106 (C.F.T.C.)
END OF DOCUMENT

Copr. (C) 2004 West. No Claim to Orig. U.S. Govt. Works.

earlwbollinger

In my humble opinion:
There have been a huge number of companies or businesses that have done their best to defraud "investors" of millions of
dollars of money by selling overgraded, or even non-existant coins for that matter. It has been really bad too, as so many people
or companies have out and out just simply stole from unsuspecting people. I simply do not believe that any of the companies out there are legit, honest, and trustworthy. It is just not possible.
Thus in the current climate, anything that may be construed as a "investment" will likely fall under the auspices of some state or federal agency for regulation. So it is best to not use "investment" or "investor" in anything (or any other word or phrase similar), and if you sell someone something, give it to them up front. Don't keep it for them at all.

Sell all the coins you want, let the buyer decide what value the coin has for themselves, don't help them.
As soon as you help them and the value goes down, they'll sue you for sure, and the government agencies may become interested.

cointagious

<< <i>Thus in the current climate, anything that may be construed as a "investment" will likely fall under the auspices of some state or federal agency for regulation. So it is best to not use "investment" or "investor" in anything (or any other word or phrase similar), and if you sell someone something, give it to them up front. >>



Well put.

As a rule of thumb never use the word "investment" when dealing in coins unless you are a licensed broker.

dorkkarl

to my knowledge, it is legal.

K S

poptopsRus

I get people asking me all the time if a particular coin is a good investment. My standard answer is "if I could predict the future I would be a millionare already, but the has gone up/down in the past year or so".

Dahlonega

If PCGS, NGC or whomever became so consistent grading coins wouldn't that essentially make coins a commodity? Next would follow government regulation of the market...some think we came periously close to this in '89.

Conder101

Back before 1972 if a coin dealer used the word investment in an ad or solicitation the government/SEC would come down on him like a ton of bricks. then in 1972 they greatly relaxed their stand so that the GSA could use the term in the marketing of the CC dollar hoard. (Tere was a lot of complaining at the time about how the government could get away with offering coins at a much higher price than the dealers were and being able to call them investments while the dealers selling at the lower prices could not without getting seriously fined.)

I do believe there have been cases of dealers being charged with selling "unlicensed securities" for selling coins as an "investment". So it MIGHT be legal but I wouldn't recommend doing it. Because if they do decide to go after you, even if you win you lose. (legal fees greater than the fines would have been.)

lloydmincy

ABSOLUTELY:

Under the NASD, coins fall under the catagory as TANGIBLE ASSETS, which include precious metals, gemstones, coins and collectibles.

BUT, ONLY COINS and GOLD are under the series 7 license (Broker full-service license) as INVESTMENTS.

You CAN even contribute coins in YOUR IRA!!! (up to $2000 worth per year). To prove this, at my financial planning firm, there are CLIENTS WITH COINS (WITH CURRENT MARKET VALUES) IN THEIR ACCOUNTS, MAINLY IRA'S.

We used to provide educational seminars, which would last for 4 sessions, 3 hours each. One section, which I was primary speaker, was on investments - from stocks, bonds annuities to TANGIBLE ASSETS. The section I used to speak TO THE GENERAL PUBLIC on coins actually recommended only purchasing coins "from two grading agencies of PCGS and NGC ONLY", for credibilty and proper coin market valuation! The script, WAS APPROVED FOR SMMS (SUCCESSFUL MONEY MANAGEMENT SEMINARS) FOR GENERAL public information by the NASD and the SEC!!!

I have not been speaking at the SMMS seminars through my firm anymore, but I do remember even speaking of what MS and PROOF meant, and the different grades and how there can be a big price difference. This was as far back as 1996!!!

To add to this, HERITAGE had a representative that visited our office regularily, trying to convince us why to use rare coins for investing, how we as brokers would be paid, (10% commission to us, 10% to Heritage), and how they figured out what was worth $2000 for IRA contributions!

SO it is definetely by securities law, considered an investment. The risks of market fluctuation of value must be disclosed. The disclosure for investing in gold and coins IS THE SAME FOR STOCKS AND BONDS.

lloydmincy

To add to this, I believe you have to have the security license IN ORDER TO SELL COINS AS AN INVESTMENT. It is ironic, Anaconda can NOT sell coins as an investment if he does not have the license, but I could, yet I am not a dealer. ???

merz2

Stewart
This is just my opinion:Under no circumstance should a dealer or collector represent any coin as an investment coin.Coin collecting is a hobby and nothing else.There is no way to tell if any coin can be guarenteed to appreciate in value.It would be very dangerous to say other wise.IMHO

MrEureka

For those interested, here's info about the NY case:

LINK

RYK

This is the thread to which I was referring.

STEWARTBLAYNUMIS

Lloydmincy

Do you know if this varies from state to state?Can you tell me if someone like Wondercoin who is selling 2004 Proof and mint state coins can declare these as investments?There are certainly coins that are not investments.Yourself as a coin buyer/investor knows the difference but what about the poor schmuck who has zero chance of making money?

Stewart

Steve

<< <i>Stewart
This is just my opinion:Under no circumstance should a dealer or collector represent any coin as an investment coin.Coin collecting is a hobby and nothing else.There is no way to tell if any coin can be guarenteed to appreciate in value.It would be very dangerous to say other wise.IMHO >>



I agree 100% with Don Merz.

Steve

oreville

Lloydmincy: I was under the impression that the coins that are purchased for IRA purchases must be held by an independent licensed custodian that attests as the the contents of the coins held at least once a year.

There has been a amazing lack of available independent custodian available for this purpose at a reasonable cost.

Quite frankly, I much prefer coins for placement in a Roth IRA as opposed to a traditional IRA.

Your thoughts?

lloydmincy

Merz2:

Sounds like you believe an investment must have a guaranteed appreciation in value!!! Not true at ALL!!! An investment is variable, and can go up or down. According to the NASD, variable investments (stocks,bonds,mutual funds, variable annuities), and tangible investments that only include GOLD or coins, must have the same disclosure to investors: Yes, I am including coins as investment vehicles:

This is under compliance ruling for advertisement of any of above variable investments:

"Investments may experience fluctuation more than others based on market conditions and investment objectives. When selling you may receive more or less than what was originally invested. " This again is the RECOMMENDED NASD (National Association of Securities Dealers) disclosure when selling an investment in the securities industry TO ONE OR MORE PERSONS.

I could say in an advertisement (let us assume the statement is true and factual, and approved by NASD) "rare coins have gone up 14% a year the past 5 years!!!" But I must also disclose either the above NASD recommended disclosure to would-be investors, or something like Merrill Lynch uses: "variable investments can fluctuate up or down. There is no assurance that the stated objectives will be achieved". My ad example is simular to adds for mutual funds - like, 56% RETURN IN ONE YEAR! Check the add further, you will see a disclosure.

If a coin dealer is promoting coins as an investment, the NASD would like to know about it. If there is no disclosure of the risks of possible loss of principle like the above examples, I am sure the advertising is misleading, and the NASD (police of the securities industry) could go after someone if reported to them. www.nasd.com is one place to look.

lloydmincy

Stewart: Is NOT based on state regulation. It is federal, so all states could have coins as investments. I see your point about Wondercoin. I could try to sell a 1909-s VDB cent for a million dollars and say it is a great investment. As long as I have the disclosure, the NASD might approve of the ad.

When I advertise investments, I write my pitch, and send it into the NASD for public advertising approval. I always have the disclosure, BUT THEY MIGHT MAKE ME CHANGE SOME OF THE WRITING BECAUSE IT IS POSSIBLY MISLEADING. Wondercoin can SAY it is an investment. Doesnt mean it will go up!! But I believe he is pushing the envelope by selling coins as an INVESTMENT, with no disclosure of risk, OR A SECURITIES LICENSE.

If I advertised without approval, someone could check on the ad with the NASD. If I could not verify approval with them, I could get $10,000 fine.

sliderider

I think there is a fine line between selling something as a collectible and selling it as an investment. If you just sell an item, take the customers money, and he/she walks away happy and no words are exchanged concerning future values, then there's nothing wrong with that. If you make statements concerning future appreciation and/or the security of the buyers capital prior to purchase, then you have crossed the line to being an investment broker and should fall under SEC regulations.

lloyd,

I checked the IRS regs concerning IRAs a while back. They state that only silver, gold and platinum eagle bullion coins can be included in your IRA account. All other coins are not allowed. Here is an excerpt from a series of questions asked of an IRA professional a while back.







Question: One of our customers called me with an unusual request. He was born in 1947. To celebrate his birth his father bought 47 "Walking Liberty" silver half-dollars the year he was born. Our customer now has these coins and wants to put them in his IRA because they have a fair market value that exceeds their face value. Can he do this?

Answer: No. He could not contribute them at fair market value as this would be a contribution of property and annual contributions to an IRA must be in cash. To contribute the cash equivalent of their fair market value, assuming it is under the maximum allowable contribution for the year, and have his IRA purchase the coins from him would be a prohibited transaction and his IRA would de disqualified. The coins are legal tender in the US so your customer could contribute them as cash, at face value, but his contribution would be $23.50 and the coins would be lost to general circulation. Finally, the coins could not be an investment in his IRA as most coins, as collectibles are not allowed as IRA investments. There really is no legal way to get the coins into his IRA. (posted 12/07/01)

And you can go to the IRS website for more info concerning adding bullion coins to an IRA.

lloydmincy

Oreville:

You are right. But most BIG firms are custodians. My firm is owned by PERSHING, the largest brokerage/trading firm in the world. If someone wanted coins as an IRA contribution, PERSHING would/could be the "independent custodian". In our case, Heritage is the custodian with PERSHING. (Might not make sense), but PERSHING knows nothing about coins, but Heritage would verify the market value to make sure not over $2000 contribution. This is a tough one, (to get EXACTLY $2000 contribution) and coins that I have seen in the IRA's are average at best, and have gone down in value from original purchase.

(I have never done this. Other reps in my office have sold coins to people for IRA contributions).


Sliderider: I have not been perfect. You are correct. I don't think you could put a penny or a nickel in your IRA. It does have to be one of the "precious metals". I am going to check some of the statements tomorrow, and see what they have in them!!!

Newmismatist

<< <i>I am not a lawyer(whew) but would like to hear what people like Anaconda think a coin dealer can and can not say when soliciting. >>



Soliciting What Stewart - I'm sure there are laws against soliciting - sometime's they're just not enforced - particularly in expensive hotel bars

michael

i hope not.........................

michael