In the Matter of the Complaint Against:

SECURITY NATIONAL RARE COIN CORP.,
429 East Commerce St. at
San Antonio, TX 78205 and

RIVERSIDE COIN CO.,
431 East Commerce St. at
San Antonio, TX 78205

P.S. Docket No. 5/130

05/10/77

Grant, Quentin E.; Administrative Law Judge

Thomas A. Ziebarth, Esq.
Law Department
United States Postal Service
Washington, D.C., for Complainant

Anthony Nicholas, Esq.
Terrence W. McDonald, Esq.
Nicholas and Barrera, Daniel Kruger, Esq.
San Antonio, Texas, for Respondent

Before: Quentin E. Grant, Administrative Law Judge

INITIAL DECISION

On February 4, 1977 complainant filed a complaint, initiating this proceeding, alleging that respondent is engaged in conducting a scheme or device for obtaining money or property through the mails by means of false representations in violation of 39 U.S.C. 3005. Specifically, complainant alleges that by means of advertisements and direct mail catalogs calculated to induce readers thereof to remit money or property through the mails, respondent represents as follows:

"(a) All coins furnished to its customers are unconditionally guaranteed to be genuine;

(b) All materials furnished to its customers are correctly graded;

(c) All coins furnished to its customers will be of the grade and quality specified in its catalogs; and

(d) Persons remitting money for merchandise described in its catalogs will be furnished with said merchandise within a reasonable period of time or receive a prompt refund."

Complainant further alleges that such representations are materially false as a matter of fact.

A hearing in the matter was held in San Antonio, Texas on March 14 and 15, 1977. Both parties have submitted proposed findings of fact and conclusions of law.

FINDINGS OF FACT

1. Respondent, doing business under the names set forth in the complaint, is engaged in the business of buying and selling coins and bullion. Riverside Coin Company has been in business since 1969, Security National Rare Coin Corp. for about two years. Respondent mails approximately 175,000 catalogs per year. It has approximately 45,000 customers. In 1975 it did a gross business of nearly $15 million.

2. By means of representations substantially as characterized in the complaint, respondent seeks to induce readers of its advertisements and direct mail catalogs to remit money or property through the mails.

3. This proceeding was initiated by complainant as the result of four complaints by customers of respondent brought to complainant's attention by Virgil W. Hancock, president of the American Numismatic Society (hereinafter ANA), and certain test purchases made by USPS. Mr. Hancock also testified as complainant's expert witness in this proceeding. One complaint, that of a Michael J. Gorman, was that an 1856 "Flying Eagle" cent purchased by him in April, 1976 was not the coin certified for respondent by ANACS (ANA Certification Society) as genuine but was a counterfeit coin substituted for the coin which had been certified. The other three complaints were that coins purchased from respondent were of a lower grade when received than as advertised by respondent.

4. The test purchases, made at the instance of Postal Inspector R. F. Scheid, involved four coins ordered from the Riverside Coin Company catalog (CX 7-10). According to Inspector Scheid the coins ordered were all represented in respondent's catalog as being "brilliant uncirculated" (BU), or better. At the hearing the test purchase coins were examined by Virgil Hancock. Mr. Hancock pronounced the four test coins to be two grades lower than represented by respondent, partly because they had been "whizzed." Mr. Hancock defined whizzing as including vapor honing or buffing with a motor-driven metal brush (Tr. 98).

5. Respondent's Riverside Coin Company catalog states that all material is graded correctly by Riverside Coin Company's "unique grading system."

6. According to Mr. Hancock there are two grading systems universally accepted among coin collectors. They are the "Official Brown and Dunn Grading System, a Guide for Grading U.S. Coins," described by Mr. Hancock as the "bible" for grading coins (Tr. 121) and "Photograde, a Photographic Grading Guide for United States Coins" by James F. Duddy (Tr. 83-85, 121). The evidence shows, however that there are other grading guides such as the "Redbook" (Tr. 121) and that a new one is about to be published by Whitman Coin Products, entitled "The Official Grading Standards of U.S. Coins" by Abe Kosoff, described by Mr. Hancock as the dean of coin dealers in the United States (Tr. 123, 124). This new guide will be officially sanctioned by ANA (Tr. 125) which has approximately 33,000 members (Tr. 127). However, there are approximately 125 other associations of coin collectors in the United States (Tr. 116).

7. According to an article appearing in the December 1976 issue of "COINAGE", a widely circulated (approximately 706,000 (Tr. 145)) numismatic publication, while both the Brown & Dunn and Photograde guides have been helpful, neither is comprehensive enough to satisfy buyers and sellers in many transactions, especially those involving uncirculated coins and "while both books are widely used, neither has the hobbywide acceptance and prestige that an ANA-sanctioned book seems to enjoy".

8. There is at the present time no one, official standard for grading coins binding on both collectors and dealers (Tr. 221, 222). The Brown and Dunn book and Photograde are merely widely accepted guides to grading. Grading is one of the most controversial areas in the coin industry (Foreword to "New Photograde", p. 4; Tr. 86). Even according to Mr. Hancock, who holds rigidly to the standards of the Brown & Dunn guide, there can be honest differences of opinion as to grading the same coin (Tr. 161). This is affirmed in the foreword to that guide wherein it is stated,

"The idea has prevailed among collectors and dealers that the grading of coins is a matter of personal opinion and that no two people will grade the same coin alike. This has been repeated so often that it has become axiomatic ***." (A Guide to the Grading of United States Coins, Sixth Edition, Official Brown and Dunn Grading System, intro. p. 5).

It is possible that five different graders will grade the same coin five different ways (Tr. 86). This is the reason coin dealers generally guarantee a full refund if the customer is not satisfied (Tr. 86, 316). Another indication of the uncertainty pervading the entire matter of coin grading is that portion of Mr. Hancock's curriculum vitae which shows that it was not until 1975 that ANA was committed by Mr. Hancock to the adoption of "recognized standards for grading of coins" (CX-18).

9. "Whizzing" or polishing of coins, although anathema to certain experienced collectors such as Mr. Hancock (Tr. 98) and ground for expulsion from ANA if habitually practiced by a collector, is practiced and accepted by a large number of collectors and dealers (Tr. 81, 129, 165, 309, 310). It is not illegal. There is no law or regulation or otherwise binding sanction requiring dealers to identify whizzed coins as such. ANA is the only one of the numerous numismatic associations in the United States which has attempted to force the advertising of whizzed coins as such (Tr. 116, 117). Many of respondent's customers request that the coins they purchase be "whizzed" (Tr. 310). Although in the judgment of many collectors "whizzing" reduces the grade of a coin one step, for many other collectors this is not true. They prefer the "whizzed" coins.

10. Although there was at the times relevant to this matter no single, official, universally accepted standard for grading of coins, all systems, including that employed by respondent, employed much the same vocabulary for grading, viz. (from highest to lowest), uncirculated (gem, choice or brilliant), almost uncirculated, extra fine, very fine, fine, very good, good, fair, and uncollectible (Tr. 94, 95).

11. The price which a coin will bring is dependent on its grade (Tr. 112, 113).

12. Although not entirely free from doubt, it appears likely that a coin sold by respondent to Michael J. Gorman is a counterfeit, or altered, in that it appears that the mint mark "D" has been added thereto. The doubt is caused by evidence to the effect that mint marks are applied in the mints in as many as six different ways some of which might be consistent with the appearance of the one in question. Mr. Gorman was offered a refund of his money but has not taken advantage of it. Also there is some evidence that on one or two other occasions over the years respondent may have sold altered coins. But both the quality and quantity of this evidence are insufficient to sustain a finding that respondent makes a practice of selling counterfeit, or altered, coins or knowingly sold the counterfeit, or altered, coins mentioned.

CONCLUSIONS OF LAW

1. Respondent at the times relevant to this proceeding was engaged in conducting a scheme or device for obtaining money or property through the mails.

2. Respondent's advertising makes representations substantially as characterized in paragraph 3(a), (b), and (c) of the complaint. On complainant's motion made in its post-hearing brief paragraph 3(d) of the complaint is dismissed.

3. The evidence fails to sustain complainant's charge as to the material falsity of such representations.

4. There are various, similar guides for the grading of United States coins, some of them widely accepted, but there is no single, official standard for grading accepted by, and binding on, all dealers and collectors of such coins. The grading of coins is a matter of judgment. Five experienced graders may grade the same coin five different grades.

5. Respondent used its own unique system of grading and so stated in its Riverside Coin Company Catalog. Complainant has not proved that respondent was bound, legally or morally, to use any other system. Because of differences in grading systems employed by different collectors, respondent extended a full "10 Day Money Back Guarantee" under which purchasers were given 10 days from receipt to return coins if not satisfied, sales not becoming final until the expiration of that period. Generally in proceedings of this nature a money-back guarantee is no defense to a charge of misrepresentation. But it assumes substantial significance in the numismatic field where honest differences of opinion frequently exist between buyer and seller as to the grade of the merchandise involved. Such a guarantee reflects the recognized uncertainty inherent in the matter of grading coins. This uncertainty allows a degree of legitimate "puffing" by sellers as to the grading of coins offered for sale. Such "puffing" may be offensive to purists such as Mr. Hancock but the record shows that the practice should be a matter of common knowledge among collectors.

6. "Whizzing" or polishing of coins is considered by some collectors to degrade a coin. For others it enhances the desirability of a coin. There is nothing illegal about "whizzing" or polishing. There is no unanimity of opinion as to the effect of such procedures on the grading of coins although increasing experience in collecting may tend to cause a collector to shun "whizzed" or polished coins. However, this is a matter of personal preference. Therefore, I find no misrepresentation involved in respondent's practice of "whizzing" or polishing coins.

7. Honest differences of opinion and judgment as to the grade and genuineness of the particular coins involved in this proceeding, including the effect of "whizzing" thereon, may account for differences in grade found by the various witnesses in this matter. Differences of that nature do not furnish the basis for a finding of misrepresentations, as alleged in the complaint, on the part of respondent.

8. Although it is likely that respondent on occasion may have sold counterfeit or altered coins, the evidence is insufficient to sustain a finding that respondent knowingly did so, or made a practice of so doing.

9. Complainant has failed to sustain the burden of proving the falsity of the representations alleged. Accordingly, the complaint is dismissed.