WHEN COIN collectors gathered in Seattle last month for the nation's biggest annual coin show, two of Washington's oldest government agencies were on hand to provide conflicting news about the hobby.
The Postal Service showed up to offer the good news, unveiling the design of a commemorative stamp it will release next year honoring the 100th anniversary of the American Numismatic Association (ANA), which was hosting the show.
The Federal Trade Commission offered a darker assessment of the hobby, issuing some blunt warnings about misleading sales practices and serving notice that it intends to police the marketplace vigorously.
Just days before the ANA opened its annual convention, the FTC stunned many collectors by charging that Professional Coin Grading Service Inc. (PCGS), a leading coin rating service, had misled consumers by falsely claiming that its services eliminate the risks of investing in coins.
PCGS, formed five years ago by seven prominent coin dealers, settled the FTC action by agreeing to a consent decree that requires it to include warnings about the risks of coin investing in its ads for the next two years. David Hall, PCGS president and chief executive officer, called the FTC demands "very reasonable" and acknowledged the service's practices may have been improper.
"We may have been a little overly enthusiastic in our initial advertising," Hall said in an interview. The FTC action is the second that the agency has taken in recent months against a coin grading service. Last year the FTC obtained a consent decree against the Numismatic Certification Institute and its Dallas-based parent, Heritage Capital Corp., after charging that NCI also had misled customers about its grading rules.
Phoebe D. Morse, regional director of the FTC's Boston office, said the lastest investigation is part of an on-going effort by the agency to oversee the rapidly changing coin market in which Wall Street brokerage firms are becoming major players. Some firms are urging some of their clients to invest in rare coins funds, saying that coins graded by PCGS and others make the investments relatively secure and liquid.
But Morse said that poses a major problem for the industry. "You can't ask for Wall Street money and ask not to live by Wall Street rules," she said.
According to the FTC, PCGS overstated the value of its services by claiming in its advertising that coins it has rated can be "traded in a vital, modern financial market with safety, liquidity and guarantees."
In agreeing to the FTC action, PCGS said it would refrain from any future claims that its service is "objective, consistent, or unbiased" and that its grading "eliminates all risk." For the next two years all PCGS ads will have to contain notices about the risks of coin investing, including the warning that "For some coins there may be no active market at all at certain points in time."
Hall said PCGS, which recently became the first firm in the industry to offer a computer-based grading service, agreed to the consent order because the firm agrees the coin market needs more policing. The service, based in Santa Ana, Calif., said it planned to make the FTC-required disclosure statements a permanent part of its advertising.
Morse, who spoke to the ANA convention, said the agency's action is significant because it warns coin dealers that their advertising must meet the same truth-in-advertising standards that the FTC has long required of other industries.
In their effort to market coins as a major Wall Street commodity, some brokers have been selling large lots of coins to customers, often sight unseen. The FTC actions should remind collectors that grading coins remains a highly subjective task.
The FTC also moved last month against a major Southern California coin dealer, charging that Hannes Tulving Rare Coin Investments Inc. of Newport Beach had operated "a sophisticated scheme" that since 1987 had defrauded customers out of more than $40 million. The company and its principal, Hannes Tulving Jr., agreed to an FTC consent order settling the dispute without admitting any of the allegations.
IN GOOD NEWS for collectors, the ANA commemorative stamp will feature views of the 1907 Double Eagle $20 gold piece with the Saint-Gaudens Liberty figure and the 1858 One Cent Flying Eagle. Also pictured are parts of two banknotes: a $10 National Currency, Series 1902, and a $1 U.S. Note, Series 1875. The stamp's preliminary design bears two large zeroes, a warning that it will carry the new first-class rate.
Bill McAllister is a member of The Washington Post national staff.