COINS CAN YIELD LITTLE SPARE CHANGE

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COINS CAN YIELD LITTLE SPARE CHANGE

Gold coins have been a staple television commercial for late night television. The commercials delude viewers into believing that precious metals, particularly gold bullion and gold coins, are a hedge against the vagaries of the economy. In 2014 the U.S. Senate Special Committee on Aging estimated that more than 10,000 Americans have been duped by sales of gold.

The coin market was rife with ex-convicts and con artists who routinely misled or defrauded customers — frequently senior citizens looking for a safe investment. In some cases, the dealer never shipped the coins to the investor. In other cases, the coins were worth a fraction of their sales price.

In 2011, Attorney General Lori Swanson took action against “Reputable Rare Coins” and its principal. The lawsuit alleged that sales people employed by the company:

  • Sold coins at a loss of $200,000 to a consumer in West Virginia
  • Sold coins at a loss of $50,000 to a customer in Texas
  • Sold coins at a loss of $10,500 to a customer in Wyoming
  • Sold coins at a loss of $68,800 to a customer in South Dakota
  • Sold coins at a loss of $28,000 to a customer in Florida

The lawsuit alleged that the company misrepresented the value of the coins, failed to deliver some coins, and when a customer sought to sell the “investment,” paid substantially less for the coins than was represented by the dealer. The owner ended up with a prison sentence. In a separate case, General Swanson filed a lawsuit against Crescent Equities and its principal, asserting that they ripped off nine customers of $409,000 with the sale of inflated values. In 2012 her office secured a judgment against these actors.

In 2012, Swanson took action against the Stella Group. One Massachusetts customer stated that he paid $1,400 a piece for ten coins, but the company never sent him the coins. Swanson obtained a judgment against the company for $520,000. She then referred the matter to the U.S. Attorney, who secured a guilty plea in 2015.

In 2013, General Swanson took action against Guardian Gold & Silver Exchange in Plymouth Minnesota. Her office secured a court order against one of the owners, a former roofing contractor, which barred him for life from engaging in the precious metals industry.

Seeing fraud in the coin industry, Swanson packaged up the cases and made referrals to state and federal criminal authorities, the latter of which secured many convictions against perpetrators.

In 2013, Swanson also lobbied for enactment of the new state legislation to create a special regulatory regime for coin dealers. The law required dealers to undergo criminal background checks and post a surety bond and banned people who had been convicted of a financial crime in the previous decade from dealing in coins.

Under the law dealers were required to provide specific details of each transaction in writing to the customer, accurately describe the content of the coin, and deliver the coins within 30 days of the sale. Unfortunately, the coin dealers hired their own lobbyists to water down aspects of the law.

These cases are illustrative of two tools in the “toolbox” of an attorney general: (1) to bring civil lawsuits quickly and then refer the civil actions to criminal authorities for criminal prosecution; and (2) to use feedback from the public to change and improve state laws.

References:

  1. Swanson v. Crescent Equities and Robert Gundy, Hennepin County District Court, File #27-CV-11-5234 (2011).
  2. Swanson v. Reputable Rare Coins, Hennepin County District Court, 27-CV-11-3169 (2011).
  3. Swanson v. The Stella Group, Hennepin County District Court, File # 62-CV-12-8452.
  4. Browning, Dan, “Missing coin dealer arrested in Arizona,” Star Tribune, October 14, 2011, Page D2.
  5. Browning, Dan, “Coin dealer hit with $295,000 fraud fine,” Star Tribune, July 31, 2012, P. D1.
  6. Browning, Dan, “New Minnesota coin law targets shady dealers," Star Tribune, July 29, 2013.
  7. Mohr, Elizabeth, “Coin dealer charged with wire fraud,” Pioneer Press, March 10, 2015.
  8. Walsh, Paul, “St. Paul coin dealer charged with cheating clients of $750 K,” Star Tribune, March 10, 2015, p. B7.
  9. Browning, Dan, “Judge firmly throws the book at coin fraudster,” Star Tribune, July 24, 2015, p. B1.
  10. Browning, Dan, “Ex-coin dealer ordered to pay $2M, barred from industry,” Star Tribune, December 16, 2015, page B4.
  11. https://www.startribune.com/feds-charge-st-paul-coin-dealer-with-cheating-clients-out-of-750k/295628041/
  12. https://www.startribune.com/mpls-coin-dealer-hit-with-295-000-fraud-fine/164320836/
  13. https://www.startribune.com/new-minnesota-coin-law-targets-shady-dealers/217320721/