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This section contains law enforcement references and news articles on fraudulent investments which are sold based on a perceived rarity of the item. Such false goods will include the collection for investment purposes of wine, spirits, drinks, liquors ( rare whisky ), coins, art and stamps.


Collectible Coins and Currency



FTC CHARGES FLORIDA RARE-COINS MARKETER WITH FALSE MARKETING CLAIMS - 02/92

U.S. Rarities, Inc., a Miami, Florida-based rare-coin telemarketer, has been charged by the Federal Trade Commission with making false claims that the coins it sold were excellent investments likely to produce substantial profits for consumers within a short time.

The FTC alleged that U.S. Rarities routinely sold coins for anywhere from three times to more than 10 times their actual dealer-to-dealer market values.

According to the FTC complaint, which also names U.S. Rarities' president James A. Fullwood and vice president, Robert Ramos, since 1989 the defendants have induced consumers to purchase their rare coins at inflated prices by falsely representing their competitive pricing and their potential for high- profit return within a short period of time.

The FTC charged that the defendants falsely represented to consumers that they sold coins graded by an independent grading service that applies standards as strict as, or more strict, than the prevailing market standards.

Further, the complaint alleges, U.S. Rarities represented that its coins have regularly traded at or below resale market prices. In fact, because the independent grading service's standards were lower than the market standards, the defendants' coins traded at only a fraction of the prices for coins of the same grades, the FTC alleged. According to the FTC complaint, the defendants' practices made it "virtually inevitable" that many consumers would lose a substantial share of their investments.


RARE COIN TELEMARKETER AGREES TO SETTLE - 05/92

U.S. Rarities, Inc., a Miami, Florida-based rare-coin telemarketer, and its co-owners, James A. Fullwood and Robert C. Ramos, have agreed to settle Federal Trade Commission charges that they falsely portrayed the coins they marketed as excellent investments likely to generate substantial profits in a short period of time.

Under a proposed settlement agreement, the defendants would be prohibited from, among other things, misrepresenting any fact material to a consumer's decision to purchase any coin, investment, or telemarketed product and would be required to post a $25,000 performance bond before they engage in any coin, investment or telemarketing sales.

According to the FTC's complaint, since 1989, the defendants have induced consumers to buy their rare coins at inflated prices by deceptively representing their competitive pricing and their potential for high-profit return within a short period of time.

The FTC also charged that the defendants falsely represented to consumers that the coins they sold regularly trade in the market close to the prices listed in a numismatic publication recognized as the industry wholesale pricing guide.

The FTC complaint said that the telemarketer's practices made it "virtually inevitable" that many consumers would lose a substantial share of their investments.

The proposed consent decree to settle the charges would prohibit the defendants from misrepresenting, among other things, that any coin, investment or telemarketed product or service they offer is an excellent or low-risk investment and that it is being offered at or close to the price at which such products or services could easily be liquidated through a market sale. The proposed consent decree also would prohibit misrepresentations regarding the likelihood an investor will realize profits or income on any such product or service.

The $25,000 performance bond, for the benefit of consumers, is required for any future coin investment or telemarketing business that the defendants initiate. The bond requirement would increase to $50,000 if any two defendants jointly engaged in such activity, and to $75,000 if all three became jointly involved.

The defendants also would be required to place the following disclaimer on all brochures pertaining to coins and on the front page of all sales orders:

"THE INVESTMENT VALUE OF A RARE COIN DEPENDS IN LARGE PART ON THE PRICE YOU PAY. IT IS STRONGLY RECOMMENDED THAT BEFORE YOU PURCHASE A RARE COIN AS AN INVESTMENT, YOU SEEK TO DETERMINE ITS CURRENT MARKET VALUE AND LIQUIDITY BY CONSULTING A COIN EXPERT WHO IS NOT AFFILIATED WITH THE PERSON SELLING YOU THE COIN."

Before concluding the sale of any coins to consumers, the defendants would be required to get a signature from the customer, indicating that the customer has read and understood the required disclosure.

The individual defendants have filed for bankruptcy. Under the proposed settlement, the Commission would waive payment from the two individuals whose resources are insufficient to provide a distribution to the FTC justifying the attendant transaction costs. The defendants have stipulated to a judgment for $1,750,000, however, so that the bankruptcy plans can be modified in the future if either individual defendant has concealed assets.

The proposed consent decree also requires the defendants to turn over any remaining U.S. Rarities assets to the Commission to be liquidated and paid to the U.S. Treasury.



CALIFORNIA COIN DEALER AGREES TO SETTLE - 06/92

Hannes Tulving, Jr., president of Hannes Tulving Rare Coin Investments, Inc., a California retail marketer of numismatic coins, has agreed to settle Federal Trade Commission charges that he created and maintained an artificial coin market to induce the purchase of coins at inflated prices.

Under the proposed settlement filed in federal court, Tulving would be prohibited from misrepresenting, among other things, the degree of risk or any other fact material to a consumer's decision to purchase any investment offering. The order also imposes a monetary judgment, which will be partially satisfied by the payment of $260,000 over a five-year period.

In August 1990, the FTC filed a complaint against Tulving and his company, Hannes Tulving Rare Coin Investments, Inc., of Newport Beach, alleging that they misrepresented the degree of risk and appreciation of their coins, falsely represented that the figures published in their coin price guide reflected the actual wholesale market price of their coins and that their customers' portfolio updates reflected the current value of the customers' coins; and that they failed to maintain a reserve of funds to enable them to honor their buy-back guarantee. The case against the corporate defendant, Hannes Tulving Rare Coin Investments, Inc., is still pending.

Under the terms of the proposed consent order settling the charges against Hannes Tulving, Jr., he would be prohibited from, among other things, falsely representing that his coins are an excellent, low-risk investment or that they have consistently appreciated in value; that portfolio updates given to customers reflect the current value of their coins; and that the prices he charged for his coins were at or near the prevailing market price.

He also would be prohibited from falsely representing the profitability of any investment offering, the services he offers in connection with such an offering, or the earnings of any of his customers.

Further, the proposed order would prohibit Tulving from falsely representing that he has a reserve of funds sufficient to honor any buy-back guarantee for a substantial number of customers, if he offers such a guarantee; misrepresenting any other fact material to consumers' decisions to purchase any investment from him; and from representing that the FTC endorses or approves his activities. Misrepresenting the terms of the settlement also would be prohibited.

The proposed settlement would further require Tulving to place a written notice on all coin-related promotional material to alert consumers to the risk of investing in rare coins. If he offers a buy-back option, he also would be required to disclose clearly and conspicuously the following notice on all promotional material:

"BUY-BACK OF COINS: We cannot guarantee that, when you desire to liquidate your coins, we will be able to repurchase them from you. Moreover, if we are unable to repurchase your coins and you are forced to sell them to another dealer at the current wholesale price, you will probably receive much less for the coins than what you paid for them."

Defendant Tulving has agreed to the imposition of a $10 million judgment. In light of his recent filing for bankruptcy and the absence of security, however, the Commission cannot be assured that it will collect the full judgment. The $10 million judgment against him would be non-dischargeable in bankruptcy -- that is, he still would owe it. Under the settlement, Tulving would pay $50,000 within 14 days of the entry of the court order, $210,000 over five years, and the remainder at the end of the five years.

The Commission vote to file the consent order was 4-1, with Commissioner Deborah K. Owen dissenting. Owen stated, "I find no financial justification for reducing the defendant's required monthly payments from $5,000 to $2,500 after two years. More- over, I disagree with imposing, on paper, a monetary judgment that may be 'empty' in practice. Such an empty judgment is a departure from recent practice, and could give the impression that the Commission's monetary judgments are illusory."



RARE-COIN SELLERS MISREPRESENTED PROFIT POTENTIAL AND RISK  - 08/93

The Federal Trade Commission has charged a California-based rare-coin marketer and its principals with deceptively telemarketing rare coins as investments to consumers by misrepresenting the value and risk of such investments, as well as the markups on the coins they sell.

As a result, the FTC charged that consumers were misled into buying overpriced coins and risked losing a substantial part of their investment money. In addition, the FTC alleged that, by holding themselves out as providing expert information and advice on rare-coin investments, the defendants falsely implied that their coins are offered at prices similar to those that could be obtained by informed investors elsewhere.

The FTC asked the federal district court to permanently bar the defendants from engaging in the alleged deceptive practices. In the meantime, at the FTC's request, the court has appointed a receiver to handle the defendants' financial affairs, frozen the defendants' assets to preserve funds for consumer redress, and temporarily ordered them to halt the alleged practices.

The FTC's complaint names Goddard Rarities, Inc. (Santa Barbara, California), its affiliate, Goddard Rarities of Los Angeles, Inc. (Encino, California), as well as Dennis S. Goddard and Iraj Sayah-Karaji, who are officers and directors of one or more of these firms.

The FTC complaint, which details the charges, cites several statements made in the defendants' telemarketing calls and promotional materials, through which they allegedly represented to prospective investors that:

--they are a large full-service brokerage firm providing expert investment advice on the purchase and sale of rare coins;
--they sell coins that are excellent, low-risk investments; and
--they offer competitive prices and low markups.

According to the FTC complaint, the latter two representations are false and misleading.

The FTC charged that, by holding themselves out as providing expert information and advice on rare-coin investments, the defendants have implied that the coins they sell to consumers are offered at prices similar to those at which an informed investor could obtain the same or similar coins elsewhere.

In fact, according to the FTC, the defendants sell coins for as much as two to six times their market value and at markups that are much higher than the prices the consumer would pay through a market purchase.

Thus, the FTC charged that the coins are neither a low-risk nor an excellent investment, adding that it is "virtually inevitable that many consumers will lose a substantial part of their investment capital."


CALIFORNIA RARE-COIN MARKETERS SETTLE FTC CHARGES - 10/94

Dennis S. Goddard and his Santa Barbara, California-based firm Goddard Rarities, Inc., agreed in a settlement to post a $100,000 bond for the protection of their customers, before they market any coin or other investment opportunity in the future.

Goddard Rarities of Los Angeles, Inc. and Iraj Sayah-Karaji have agreed to a settlement with the Federal Trade Commission that would prohibit them from making a host of false and deceptive representations in connection with the future marketing of any coin or investment, and in any future telemarketing effort.

The settlement also requires Sayah-Karaji and one other individual, who is not a defendant in the case, to release their claims to various real estate and other assets so that the assets can be liquidated for consumer redress or disgorgement to the U.S. Treasury.

 The settlement specifically would prohibit them from making false claims:

-- that the item is an excellent or low-risk investment;
-- that it is being sold at a reasonable, competitive, low, or specified markup price, or a price that is close or equal to the item's liquidation value or market price;
-- that its price is based on an analysis of the market for similar items;
-- regarding the likelihood that consumers will profit from the investment; or
-- about the past appreciation, earnings potential or current customer earnings for the item.

The settlement also would require these defendants, when selling coins to consumers, to include a clear, prominent and specifically-worded disclosure in sales brochures and on invoices warning consumers about the risks of investing in coins. Further, these defendants have agreed under the settlement to comply with all state registration, filing and bond requirements before engaging in any telemarketing business in the future.



CALIFORNIA COIN DEALER CHARGED IN DECEPTIVE TELEMARKETING SCHEME - 12/91

Golden Oak Numismatics, a rare-coin marketer based in Marina Del Ray, California, has been charged by the Federal Trade Commission with making numerous false and misleading representations to consumers to induce them to invest in coins with markups of several hundred percent.

According to the FTC complaint, Golden Oak and Ronald H. Michel have made numerous deceptive claims -- through direct-mail solicitations and telemarketing -- about the investment value of the coins they sell. The defendants allegedly have told consumers, for example, that their coins are excellent, low-risk investments, that Golden Oak offers competitive prices, and that the company charges low markups over its cost to acquire the coins.

In fact, the FTC alleged, the defendants sell many coins for as much as four to five times their market value. In addition, the defendants falsely represented that their coins are sold at prices close to their resale value, the FTC alleged.

In sum, according to the FTC complaint, the defendants' practices make it "virtually inevitable that many consumers will lose a substantial part of their investment capital."


CALIFORNIA RARE COIN MARKETER AND ITS PRESIDENT AGREE TO HALT FALSE CLAIMS - 01/93

California rare-coin telemarketer Golden Oak Numismatics, Inc. and its president, Ronald H. Michel, have agreed to settle Federal Trade Commission charges that they made numerous false and misleading representations to consumers to induce them to invest in rare coins.

The settlement contains several prohibitions against, among other things, false claims regarding the risk, price, mark-up, or likely earnings associated with investing in the defendants' rare coins. It also enables the FTC to monitor any future telemarketing or investment promotion Michel under- takes, and requires written disclosures to consumers in connection with future coin sales.

Golden Oak is based in Marina Del Ray, and Michel resides in Pacific Palisades, California.

Now the defendants have agreed to a permanent injunction that would prohibit them, in connection with the marketing or sale of coins, investments or investment services, or with the telemarketing of any product or service, from falsely representing:

-- that they are excellent or low-risk investments;
-- that they are promoted or sold at, or close to, the price at which they could be liquidated through a market sale;
-- that they are sold or promoted at reasonable, competitive, low, or specified mark-ups over the defendants' cost to acquire them;
-- the likelihood of profit or income;
-- past or likely future earnings or returns on the investment; and
-- any other fact material to a consumer's decision to purchase such products or services.

In addition, if approved by the court, the settlement would require Golden Oak and Michel to place in all promotional brochures and order acknowledgement documents for coin sales the following boxed disclosure:

"The investment value of a rare coin depends in large part on how the price you pay compares with the coin's current resale value. If the markup over resale value is sufficiently large, you risk losing money even if the coin later goes up significantly in value. You can get information that may help you to determine a coin's resale value from other coin dealers and coin experts not affiliated with the person selling you the coin."

The defendants further would be required to obtain a signed statement from all customers indicating that the customers have received and understand this disclosure.

The settlement includes a $5 million judgment against Golden Oak and a $1 million judgment against Michel. Recovery on these judgments is uncertain.

 

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