By all accounts, the market for rare U.S. coins has been moving along like a bull's trot down Wall Street ever since the big crash of June, 1989, scuttled portfolios.
But don't tell that to Arlene Evans of Lucas, Ohio, who with her husband, Kenneth, was sold on the promise of a rare-coin investment return she said was faked and never materialized. The retired school teacher and her retired pilot spouse lost $150,000 of retirement savings in the rare coin market in the late 1990s, she said.
After attending a retirement investment seminar at Ohio State University in 1997, the couple decided to invest with a New Hampshire firm that promised a conservative investment in rare coins, along the lines of buying gold, Mrs. Evans said. Their local investment representative, who was at the seminar and introduced them to rare coins, had a Christian cross on his stationery, she remembered. He was a family man, someone to be trusted, she said.
In the end, the $150,000 yielded the couple about $4,000 in coins, which they eventually sold in disgust at an auction, she said. Then they sued. Because of the loss, the couple has had to alter retirement plans, such as not taking some larger trips they had planned.
"It wasn't presented as 'you are going to get great returns' but as something to buy and hold and that it would keep its value. As it turns out, this is a very risky thing," Mrs. Evans said over the telephone, her voice wavering with concern over even discussing the issue. "The worst thing that happened is you don't trust anybody. You look at everybody, and you don't take them at their word."
The Evanses' financial loss and their 2000 lawsuit against Numismatic Investments of America Inc., which included six other plaintiffs, mostly couples from Ohio nearing retirement, is more than a cautionary tale about general investment risk and misplaced trust.
The Evans scenario and others like it, many from the early 1990s when the coin industry was recovering from a crash, are examples of how the rare-coin market has been billed wrongly off and on over the decades as a conservative investment vehicle. In reality, the market is fickle and has suffered sudden drops numerous times since the 19th century, wiping out fortunes.
Because of the risk, numerous experts have told The Blade they believe rare coins are not a proper investment vehicle for public money. But the state of Ohio and its Bureau of Workers' Compensation Fund have chosen since 1998 to invest $50 million in two rare coin funds - Capital Coin Fund I & II - set up and managed by Tom Noe, a local coin dealer and prominent Republican fund-raiser. No other state has invested money into such a venture.
The return from Mr. Noe's funds has averaged 4.5 percent a year since 1998 for the first fund and 6.8 percent a year since 2001 for the second fund, according to state records based on numbers submitted by Mr. Noe.
By many accounts, Mr. Noe has a reputation as a skilled and savvy coin investor who is said to have ridden a steady upsurge in the U.S. rare-coin market. He is a member of the respected 50-year-old Professional Numismatists Guild, which requires its members to sign a code of ethics and requires them to agree to binding arbitration in the event of a lawsuit over a coin deal.
But the state's holdings in rare coins and a record of Mr. Noe's coin sales, purchases, and the details and returns of his investments for the state - including real-estate loans - cannot be verified by the public. They have been kept from the public by Mr. Noe and bureau officials, who claim the investment details are "trade secrets" and not subject to Ohio's open records laws.
The Ohio couples who sued the New Hampshire firm may have simply been taken, but the promise of rare coins as a conservative investment was the story that sold them, Mrs. Evans said. But what drives potential earnings in the rare antiquities and collectibles market is, in part, collector taste, and that can change as quickly as an old case of wine can fall out of favor.
The industry, like any that deals with investments, has endured its charlatans who fake returns by overvaluing coins or who are said to rely on unscrupulous grading firms that have been suspected of giving a higher grade to a coin than it might deserve. Many of the coin-trading operations that have been fined by the Federal Trade Commission in the past have worked through television or print advertisements or as telemarketers cold-calling people at their homes from so-called "boiler room" operations around the country.
A review by The Blade of past rare-coin scandals shows such cases are anything but rare:
●In 1992, Schoolhouse Coins Inc. agreed to pay $900,000 to 1,200 investors for making false claims to investors about the value of coins sold to them. Two principals pleaded guilty to mail-fraud charges. One got eight years in prison and another was a fugitive. Total consumer loss was $12.5 million.
●In 1992, Hannes Tulving Rare Coin Investing Inc. of California settled FTC charges that the firm "created and maintained an artificial coin market to induce the purchase of coins at inflated prices." The firm was fined $260,000.
●In 1993, Federal Coin Repository agreed to pay $95,000 to consumers for false advertising.
●In 1994, more than 1,300 investors lost $15 million in Los Angeles when three rare-coin funds operated by Bruce McNall collapsed. Merrill Lynch ended up paying $30 million to make investors whole.
●In 2000, several couples, including the Evanses, filed a civil lawsuit in U.S. District Court in Akron. They proved that a New Hampshire-based coin dealer, Numismatic Investments of America Inc., had defrauded them of $475,000. The firm told the couples they would be buying solid investments, collecting cash, and sending them coins. But many of the coins never arrived, and when they were finally appraised, they represented roughly 40 percent of the stated value.
The couples filed their lawsuit under the Racketeering-Influenced Corrupt Organizations (RICO) law. They won. But they won't be getting any money because one of the defendants filed for bankruptcy, and the other did not have any money.
"There's an old saying: If you don't know coins, you better know your coin dealers," said Donn Pearlman, a spokesman for the coin industry and president of the media relations firm Minkus & Pearlman. "Just as you should never accept a cold call for any investment, you should not with coin investors, either. Anytime there's money anywhere, whether it's stocks or real estate or any kind of investing, you have to know who you're dealing with."
Mr. Noe found that out this week when The Blade uncovered that a former manager of one of his subsidiaries was once convicted in federal court of faking a rare-coin transaction to cover up drug money.
Mark Chrans pleaded guilty to fraud and perjury in U.S. District Court in Springfield, Ill., in 1986. He spent less than a year in a federal penitentiary. Mr. Noe told The Blade on Thursday he knew nothing of Chrans' convictions.
Chrans is the same rare-coin dealer who caused Mr. Noe's Ohio-funded Capital Coin to write off $850,000 in bad debt when he failed in the late 1990s to repay loans and salary advances made to him by Mr. Noe with the state's money, as well as losing more than $300,000 in coin deals that went bad.
According to court documents, Chrans altered business records in 1981 to make it appear that $33,000 in drug money was instead the by-product of a rare-coin transaction.
Federal authorities said Chrans was not implicated in any way in the sale or distribution of the drugs, but he admitted that he knew the $33,000 were drug profits.
Twelve years after he served time in prison, Chrans was brought in as a manager by Mr. Noe to help invest Ohio Bureau of Workers' Compensation money in rare coins. Mr. Noe said Thursday that he did not know that Chrans was a convicted felon. He also acknowledged that he did not do a background check on Chrans before giving him state money to buy and sell rare coins.
Rare coin experts say some investors searching for riches in rare coins have felt the sting of faked returns. Others have been the victims of false advertising and of coins that have been over-graded and over-valued, they say. And then there have been the occasional crashes in the rare-coin market.
The latest and perhaps most famous fall from Wall Street grace related to rare coins began in June, 1989, when coin values plummeted. At that time, the word that Merrill Lynch and Kidder Peabody were forming a mulitmillion dollar partnership with Mr. McNall energized the rare coin market and sent prices soaring. A Coin World trade magazine cover before the crash lauded the coming of the investment giants and the hundreds of millions that would be pumped into the investment subculture.
"It was the idea that this was on its way," said Scott A. Travers, who has written several books on the coin industry and who as a 14-year-old lost $30 in the mail when he tried to buy a coin. He went on a crusade to find his money and realized after talking to "seven government agencies" that he could run a coin business honestly and effectively, he said.
He eventually received his $30 after a New York television network broadcast his story, he said.
The 43-year-old is now considered the "Ralph Nader" of rare coins and an expert in the field. He just wrote the book How to Make Money In Coins Right Now.
"A copy of Coin World magazine right before the crash said something like, 'Shhhh, Merrill Lynch is coming.' That one Coin World front page with that expression symbolized the thought at the time," he said. "The anticipation was maybe even greater than what was actually being spent by the fund. The Kidder Peabody fund was buying and selling at the same time, and no one was sure what they were actually holding.
"The word was suddenly out that they stopped buying, and [it was true].... It was over [in June 1989]," Mr. Travers said. "You had a number of factors, and they were pushing the market. The fact that they were in there and actually buying something and [also] the anticipation of it. You take away the anticipation and the market values came down."
Silver was at the heart of another rare-coin crash.
In 1980, the Hunt family of Texas tried to corner the silver market, driving up prices. Rare coins are fellow travelers with precious metals and as a result also soared in price. When an oversupply of silver became apparent and the government intervened, prices plummeted.
The Hunts began stockpiling silver in 1973 as a hedge against inflation. The price at the time was a little less than $2 an ounce. As the 1970s came to a close, the price of silver exceeded $5 an ounce and continued to climb, peaking at $54 early in 1980.
Once the Hunts cornered the silver market, the price began to slide, culminating in a 50 percent, one-day decline on March 27, 1980, when the price fell from $21.62 to $10.80. The collapse of the silver market meant countless losses for speculators. The Hunt brothers later declared bankruptcy.
Among those caught up in the fray were rare-coin dealers and investors. Many rare-coin dealers also deal in precious metals and were buying the silver from a public hungry to unload any scrap in their possession, including grandmother's melted down tea service. Many of the rare-coin dealers then sold the silver and reinvested the profits in rare coins. Some just held onto their silver. When the silver market collapsed, rare coins fell too about three weeks later.
"The market literally turned on a dime at the Central States Numismatic Society convention" in April, 1980, Mr. Travers said. "One day people were buying coins and the market was active and increasing, the rise in bullion prices was●...●the economic justification."
While some coin investments rely on the value of the amount of silver or gold in the coin, and might be considered more stable, the pricier coins are traded as pieces of history and as rare collectible items, such as a 1913 Liberty nickel, which sold in 1996 for $1.45 million and became the first million dollar rare coin. Before that, a 1907 Ultra High Relief U.S. $20 gold piece sold in 1974 and became the first coin to eclipse $200,000.
Since then about 278 coins have sold for more than $200,000, with the most expensive ever a 1933 Double Eagle purportedly from the collection of King Farouk of Egypt (1920-1965). It sold in 1999 for $7.59 million.
There are poor and negative returns in any field of investment, such as the stock and bond markets, experts say. In the rare-coin market, cautionary tales exist of investments that are oversold and of coin values declining simply because collector tastes have changed, causing demand to decline.
More than half of the 278 higher-end coin sales since 1974 have been handled over the years by Q. David Bowers and his longtime auction director, Rick Bagg.
Mr. Bagg, who has worked for Mr. Bowers since 1979 as his auction director, said he loves coins and that they have been a good investments over the years. But they are not considered a traditional investment for a state or other government.
"Coins don't do anything; General Electric does something," Mr. Bagg said. "If the market turns, the buyers run for the hills."
Mr. Noe in his rare coin investment proposal to the state warned repeatedly that investing in rare coins was not a conservative investment and that the state could lose part or all of its investment if the coin market turned south.
Mr. Bagg also said rare coins are not as liquid an investment as some investors would want to believe, causing additional risk for a state or other government. To fetch the best returns, the state would need to sell its coins at an auction, he said. This takes time to set up, he said.
"If the state of Ohio wanted to sell their coins, we would say, 'We'll squeeze you in [an auction] in June and pay you in July.' [The bull market] could be over by June," he said.
Mr. Bagg said the 2005 rare-coin market is on pace for a banner auction year. About $300 million in rare coins are bought and sold at auctions each year. And Mr. Bagg studies the records, which do not list the names of buyers and sellers, he said.
Last year, 56 coins were sold at auctions for more than $200,000 each for a total of $19.7 million. This year, the number is already 44 for a total of $22.3 million.
According to sources in the rare-coin business, Mr. Noe deals almost exclusively in the U.S. coin market. It has been on a steady climb since the mid-to-late 1990s and is basically on a bull market run. The American market is much more vibrant and in demand than any other in the world, they said.
But the market is set by the "true" collectors, who are invariably experts or are guided by experts at auction houses. It ultimately comes down to how much he or she is willing to pay.
And, those same experts say, the rare-coin market can - and has - fallen and fallen fast.
Contact Christopher D. Kirkpatrick