Investment disputes are an important part of our litigation practice. Buffington Law Firm’s Orange County business trial attorneys have broad experience in litigating investment disputes arising from investment frauds of various types. In this Blog article we will discuss how investment fraud sometimes arises in the context of collectible coins. With the US Government holding interest rates to effectively zero, and Governments around the world printing money at an immoderate pace, many people have sought to find a refuge for their life’s savings that irresponsible Government monetary policies cannot destroy. One cannot turn on a television set without hearing advertisements for gold, silver, and rare coins being offered as such a solution. And indeed, precious metals and similar investments can indeed be an intelligent addition to one’s investment portfolio — for some people.
Unfortunately, buying valuable coins as investments can be as risky as any other investment. In this Blog article I will discuss one of the dangers in investing in rare coins.
Precious Metal Coins versus Numismatic Coins
The most important lesson when investing in precious coins is the same lesson as any investment: know what you are investing in. Many investors confuse investing in precious metal coins such as US Gold Eagles, South African Kruggerands, with numismatic investments. The difference is simple, but nonetheless our litigation team has learned that this is often a point of confusion. True bullion coins like US Gold Eagles, etc., are basically valued solely for the content of their metal. A Gold Eagle or Kruggerand is one ounce of fine gold, and the buyer pays only a slight premium over what would be paid for an equivalent gold ingot, and the slight premium is simply based upon the fact that these coins are reputable and guaranteed to have the weight and purity specified. So when an investor buys these coins, he or she is investing in the precious metal and nothing more or less. Numismatic investments, by contrast, are very different. A numismatic coin is a “rare” coin (maybe not all that rare) usually made out of precious metal, such as gold or silver. However, its “value” usually lies mostly in its collectability. So for example, a silver dollar may contain $20 worth of silver but may be offered to the public for $100, with the $80 difference being its collectibility. Nothing wrong with that if that is what the investor wants, but it is vital for purchasers to understand that this type of “investment” is vastly different than purchasing simple precious metal coins. For example, the bid-ask spread for US Silver Eagles is fairly negligible. If you buy one on Monday and the price of gold does not change, the buyer can sell it for about what he or she paid on Friday. On the other hand, for a numismatic investment, such as our hypothetical numismatic silver dollar, there is typically a wide buy-sell spread, where the buyer will take an immediate high-percentage loss if he or she needs to sell soon after buying. Typically, the bid-ask spread for the investor’s numismatic investments can be as much as thirty percent! This means that for this “investment” to break even for the investor, it would have to appreciate 30%. Such appreciation may take years or even decades (or never occur at all). A less liquid “investment” would be hard to imagine. And yet unwary investors often purchase numismatic investments while confusing them with pure precious metal investment coins such as US Gold Eagles. In Part II of this Blog Article we will discuss this issue in detail along with some of the legal issues presented. The important thing to know is that if you have been inveigled into making a numismatic investment you may very well have rights against the seller. If you believe that you are in this situation, we urge you to call our office for a free legal consultation with one of our experienced investment fraud attorneys. There is no obligation and we will review your case with you.