News and Analysis regarding scarce coins, coin markets, and the coin collecting community #17

A Weekly Column by Greg Reynolds

I. The filing and re-filing of this lawsuit

Over the last forty years, especially from the late 1990s to 2006 or so, the coin collecting community has suffered from the terrible problem of coin doctoring; coins are deceptively altered for the purpose of tricking experts, particularly those employed by the PCGS and the NGC, into concluding that a coin is of higher quality than it was before it was doctored. The process of doctoring a coin reduces its level of quality and, in many (though not nearly all) cases, permanently damages the coin. Coins ranging in value from less than $50 to more than $1 million have been doctored.

In many instances, doctored coins ‘turn’ at a later time, as unintended byproducts of doctoring processes result in unsightly delayed chemical reactions or the decomposing of added matter on the doctored coins. It is not unusual for a coin doctor to deliberately harm (often permanently) a coin that grades MS-64 in order to try to deceive experts into believing that it grades MS-66.

John Feigenbaum is president of David Lawrence Rare Coins (DLRC), and has been involved in the coin business for more than twenty years. In 2004 and 2005, DLRC sold one of the fifteen greatest collections of classic (pre-1934) U.S. coins ever to be publicly auctioned. Feigenbaum says, “in general I [John] applaud PCGS for taking action on this matter, and I think they should take any and all actions in the future towards parties that are trying to slip doctored coins past them.”

In my column of June 2, I analyzed the CU-PCGS lawsuit against alleged coin doctors, which was filed in late May. I encourage readers who wish to learn about this lawsuit, its importance and its implications, to read my column of June 2nd. On Aug. 10, CU-PCGS filed a “second amended complaint” along with a new motion.

II. The basics of the lawsuit

Although technically PCGS is a subsidiary of Collectors Universe (CU) and it is CU that filed this lawsuit, the PCGS predates CU and the PCGS is the core of Collectors Universe. Further, the PCGS certifies coins. So, it is clear and helpful to refer to the plaintiff as the PCGS as the lawsuit concerns allegations that dealers deliberately submitted doctored coins to the PCGS, without disclosing intentionally added defects, for the purpose of deceiving graders at the PCGS into assigning higher grades to such coins than the coins would have merited before they were doctored. Coin doctoring, of course, reduces the grade of a coin, often to the point where the coin no longer merits a numerical grade.

The submission contract that each dealer signs to be a dealer-submitter of coins to the PCGS for grading and authentication prohibits dealer-submitters from sending in doctored coins for numerical grading. At the very least, it is argued that dealers who submit doctored coins for numerical grading have breached their respective contracts with the PCGS. Moreover, the PCGS argues in the lawsuit that such coin doctoring is in violation of several Federal and California State laws. Curiously, attorneys for the PCGS declare that conspiracies to doctor coins and submit them to the PCGS fall under RICO statutes, and are thus said by the PCGS to constitute racketeering.

Importantly, attorneys for the PCGS argue that coin doctoring is not just a civil offense, a racket and a breach of contract. Attorneys for the PCGS maintain that coin doctoring is a crime under Title “18 U.S.C §331,” which is cited in the lawsuit as follows, “Whoever fraudulently alters, defaces, mutilates, impairs, diminishes, falsifies, scales or lightens any of the coins minted at the mints of the United States … [or] … Whoever fraudulently possesses, passes, utters, publishes, or sells, or attempts to pass, utter, publish or sell … any such coin, knowing the same to be altered, defaced, mutilated, impaired, diminished, falsified, scaled or lightened … Shall be fined under this title or imprisoned not more than five years or both.” (more…)

The Next Step To Improve And Protect the Coin Collecting Hobby

Professional Coin Grading Service (PCGS) today revealed additional steps it is taking to improve its ability to detect altered coins. PCGS announced that it has a process in development which will detect any foreign substance on a coin’s surface.

According to PCGS officials, in conjunction with the development of coin recognition technology launched in March of this year, PCGS has been developing a process to detect foreign materials and other enhancements to a coin’s surfaces.

Using energy dispersive X-ray spectrometry (EDX), Fournier Transform Infra-Red Spectral analysis (FT-IR), Raman Spectroscopy and other similar analytical techniques, this detection process (code-named by PCGS, the PCGS Coin Sniffer™) will analyze the surfaces of a coin in a matter of seconds to detect foreign substances and provide quantitative information about the coin.

“Coin doctors” often apply numerous materials to the surfaces of coins to conceal problems with the coin, and/or alter the surfaces to improve its appearance in an attempt to artificially increase its value. The simultaneous alloy determination will further aid in the detection of counterfeits as an additional benefit.

David Hall, cofounder of PCGS and President of its parent company Collectors Universe, Inc. said, “[w]hen we launched PCGS Secure Plus featuring coin recognition technology we stated that it was just a first step in improving grading and battling coin doctoring. The PCGS Coin Sniffer™ is the next significant development in our ongoing efforts. When combined with our existing PCGS Secure Plus service, this new process will make it extremely difficult for altered coins to go undetected.”

“This new process is somewhat similar to what we often see as we are going through security at an airport,” said Don Willis, PCGS President. “We have already filed a patent which covers the methodology and unique techniques we are using for processing coins. The new PCGS Coin Sniffer™ process will be integrated with the help of our partner CoinSecure, Inc into the PCGS Secure Plus service and will be available at no additional cost. Our targeted production implementation is this year, although we will be conducting live testing much before then.”

The all-time finest set of Indian Head Eagles was among the first coins certified under the new PCGS Secure Plus (http://www.pcgs.com/secureplus.html) system.

Known as “The Simpson Collection” and now added to the popular PCGS Set RegistrySM, the 32-coin set was assembled with the help of Laura Sperber of Legend Numismatics of Lincroft, New Jersey.

The set includes 18 of the finest known gem mint condition examples of their date and mint with none graded higher. Eleven of those are unique in their top grade including a 1920-S graded PCGS MS67+, the owner’s personal favorite coin in the set.

The set was displayed at the Professional Coin Grading Service booth during the American Numismatic Association National Money Show™ in Fort Worth, Texas, March 25 – 27, 2010. The revolutionary new PCGS Secure Plus system was formally announced there on the first day of the show by David Hall, PCGS Co-Founder and Collectors Universe, Inc. President, and Don Willis, PCGS President.

“This is the finest $10 Indian set ever assembled,” said David Hall – Co-Founder of PCGS. “The quality and originality of the set are unsurpassed in numismatic history. In my opinion, the 1920-S is the most important $10 Indian in existence.”

The Simpson collection is ranked in the PCGS Set Registry as the All-Time Finest set of gold Indian Head $10 circulation strikes, 1907- 1933 (http://www.pcgs.com/setregistry/alltimeset.aspx?s=71313). It has a weighted grade point average of 66.335 and is 100 percent complete.

“We couldn’t have asked for a better inaugural set to be submitted through PCGS Secure Plus. Thirteen of the coins received the ‘+’ designation. Our entire team was blown away by the quality of these coins,” said Willis. (more…)