Sunday, December 31, 2006

Beware of Rare Coin Auctions Too Good to be True

“My father recently passed away and this was his favorite coin an 1864 Type-1 Double Eagle from the S.S. Republic Ship Wreck (sic).”

This was the opening line in a description of a coin being auctioned online. That line is what initially caught my attention. You see, at the time that I saw the auction, the first group of S.S. Republic Double Eagles had been released only a couple of months earlier by Odyssey Marine Exploration. So, what this person was basically saying was that when his father bought this coin, he loved it so much that he immediately went into cardiac arrest, or some other malady, and died on the spot. Enough time just hadn’t elapsed for this story to ring true. To me, this was a major red flag!


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Image used in fraudulent Overstock.com auction

With all the recent letters to the editor in numismatic publications regarding both the positive and negative aspects of buying coins through online auction sites, such as eBay or Overstock.com, I feel that it is important to share with you a personal experience that I had regarding a seller whose auction had many classic red flags indicating the auction was not legitimate. Although the auction occurred in 2005, the lessons to be learned are still relevant. You will see, as I go through each red flag, that some are very obvious. But they are easy to overlook when a buyer thinks that they know more about the item than the seller or that they will be getting an unbelievable bargain.

Wow! I wouldn’t expect to find this coin here.

The coin being auctioned was an 1864 $20 Double Eagle recovered from the S.S. Republic and graded MS63 by Numismatic Guaranty Corporation (NGC). If you are not familiar with Type-1 Double Eagles, the first thing you need to know is that the 1864 Philadelphia is extremely rare in mint state. Professional Coin Grading Service (PCGS) has only graded one coin at MS63 with none finer. NGC has graded two at MS63 with one finer at MS64. The coin being auctioned was the only example of this coin graded MS63 with none finer recovered from the S.S. Republic. So, this auction was for a unique, finest known example from the shipwreck. Overall, it was definitely a condition census coin (i.e. within the top 5 or 6 examples known). A coin of this magnitude seemed very out of place among the many listings of more common double eagles that are generally found on this particular auction site. The fact that the auction did not fit its surrounding was a definite red flag.

Everyone wants a bargain.

The starting bid for this auction was $4,000 with no reserve! The estimated value of the coin was around $50,000. This was a huge red flag. But this is the red flag that many people choose to ignore. Everyone wants a bargain, especially when they buy something at auction. A buyer might think that because it was this seller’s father who was the coin collector, the seller might not be aware of the true value of the coin. In this case, that turned out to be true, only not in the way you might think. The seller knew that the coin was worth well over $4,000 because at the very end of the seller’s description was the statement, “This coin is valued at $30,000 . . .” But that is the estimated value of the coin if it had been graded MS62. The coin in the auction is described as a MS63. This would make the estimated value closer to $50,000! Before bidding on a coin, it is important to have a good idea of what the fair market value is for the coin. If it seems too good to be true, it probably is.

Haven’t I seen that picture before?

They say a picture tells a thousand words. I find this to be especially true regarding coin auctions. One of the most common scams that I’ve come across in auctions is the use of someone else’s coin photo for the auction. I have actually gotten pretty good at being able to tell who a coin really belongs to based on the photos. Most dealers are consistent with how they take coin photos and the backgrounds that they use.

This auction was no different. The photos looked very professional and not like something from a cheap digital camera or scanner. I was pretty sure I knew whose photos they were and I went out to their website to have a look. Sure enough, I found the exact same photos on their website for a coin they were selling. This alone was enough to tell me the auction was not legitimate. The same coin could not be sold by two different people at the same time. Since the dealer is a very reputable one that I trust, I knew that they really had the coin in question.

When I find a dealer’s photos being used in someone else’s auctions, I always notify the dealer so that they can go to the auction site to report the suspicious auction. Many times the dealer will reply back that someone else has already brought this to their attention. In this particular case, I was the only one that notified them and they said they would contact the auction site.

Hey! The picture doesn’t match the description!

The auction listing stated, “I guarantee every item sold will be exactly as the picture shows and the description describes.” Remember, according to the title and description, the coin reportedly up for auction was an 1864 $20 double eagle graded MS63 by NGC. One photo showed the coin, DVD, and display box, but the picture of the coin was too small to make out the grade on the holder. Another photo was a close-up of the obverse side of the NGC holder that did show the grade. When I clicked to enlarge this photo, what I saw was not a coin graded MS63 as the auction stated, but a coin graded only MS62. Certainly this could just be a mistake on the part of the seller. But if the description was accurate, and the picture was wrong, where did the MS62 picture come from? Did the seller have two coins graded MS62 and MS63? I felt this was highly unlikely. But, if the picture was accurate, then this coin was being incorrectly described as MS63 in both the title and description. This was a possibility, but still a red flag.


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Image used in auction shows MS62 grade, not MS63

Sometimes 100% positive feedback can be a negative.

At first glance, the seller of this coin appeared to be legitimate based on 100% positive feedback. However, a closer examination revealed that the only activity prior to the current auction was a couple of low priced purchases from other sellers. The seller was also listed as having become a member just a couple of weeks earlier. This was a very high ticket item for someone just beginning to sell by auction. Also, it was the only coin auction out there by this seller. If this was their father’s favorite coin, where was the rest of the collection? Why only sell the favorite coin? Hmm, another red flag.

Beware of a new seller who lists many high ticket 3-day auctions all at once.

A look at the other auctions listed by this seller revealed that there were close to 30 other auctions for $300 iPods and $1,000 plasma TVs. The reason illegitimate auctions are frequently only 3-day auctions is because the seller really isn’t looking for multiple bidders for each auction. The seller just wants to hook one victim per auction. The idea is that one auction with a $300 starting bid might have ten bidders that bid the item up to $500. On the other hand, all were willing to bid at least $300, so having ten auctions with a $300 starting bid would allow all ten bidders to win an auction and net the seller $3000 instead of the $500. What shocked me was how many of these auctions had at least one bidder!

Justice prevails! . . . Right?

With all of the red flags pointing to illegitimate auctions and only a couple of days before they were to end, I did what any person with concern for others about to get ripped off would do. I clicked on the link on the auction page to report the auction as suspected of being illegitimate. The link brought up a form for submitting your concern about the auction. I laid out much of my reasoning above and added that if nothing was done soon, all those people bidding on the auctions were about to lose a lot of money. I clicked submit and felt good that I had helped to stop a lot of people from losing their money. I also knew that the dealer I had notified had also contacted the auction site. A short while later I received an email that stated, “Your submission for Content Review has successfully been received and will be reviewed shortly.” That was the last and only message I ever received about the matter. I then proceeded to forget about the whole thing. Justice had prevailed! . . . or so I thought.

A failure to protect.

A few months later I came across that email confirming my “submission for Content Review” and I wondered how it all turned out. Did the folks at the auction site take a look at this seller and stop all their auctions? Did they warn the bidders that they might be getting ripped off? I had saved the item number for the coin auction, so I was able to get quickly back to that listing. To my relief, the auction had expired with no bidders and I could see that the seller’s account had been disabled. But what happened to all the bidders of those other auctions? I clicked on the seller’s feedback and was shocked at what I saw. Those auctions were allowed to continue. The auction site had done nothing to stop the auctions. Certainly if they had done a “content review” there would have been no way that they would have allowed the auctions to continue. But the feedback doesn’t lie. Here is a sampling of some of that feedback (with some spelling errors corrected):

· “My first, last & only experience with . . . Auctions got me ripped off.”
· “Never received the TV. . . NIGHTMARE!!!!!”
· “she is a criminal stay away”
· “she is a crook”
· “This was a complete disaster. And I never got my iPod.”
· “These people are scammers. They received $328.00 from me . . .”
· “I was also scammed by this seller. I am now out over $300.00.”
· “I paid for an Apple iPod, sale was a scam, still trying to get my money back. . .”
· “Seller turned out to be illegitimate. . .”
· “This seller was a scam artist and ripped me off to the tune of $319.50.”
· “Total scam they stole my $260.00. . .”

Once again, everyone wants a bargain.

I was disappointed with how the auction process failed to protect those buyers. The feedback system, the suspected fraud reporting and subsequent “content review” did not work as intended. But I place most of the blame for all those people losing money back on the bidders. The red flags were all there for them to see. Even if they were not knowledgeable enough about the coin auction, the other red flags should have been enough to stop them from bidding. Just a few minutes of trying to get an idea of who the seller was should have revealed to everyone that something was amiss. But they were all blind to it because it all comes back to everyone wanting a bargain. If the deal seems to good to be true, it probably is.

Links Related to this Story

The last I checked (12/31/2006), the fraudulent auction (item #3936172) could still be found on Overstock.com. Unfortunately, the seller's account has been disabled so you can no longer see the small child's picture that was used in the seller's profile. But the photos and feedback can still be seen. To see this auction, click on the following link:
http://auctions.overstock.com/item/3936172

The Arlington Collection actually contains an 1864 SS Republic $20 Gold Double Eagle graded MS62, which is part of the reason why I found the fraudulent auction on Overstock.com in the first place. Some truly beautiful coins have been recovered from shipwrecks. To see images of this coin, please click on the following link:
The Arlington Collection: 1864-P $20 SS Republic Double Eagle

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