In addition to Prada handbags, Burberry scarves, UGGS boots, and DVDs of Hollywood movies, Chinese copycats have expanded their counterfeit offerings to collectible coins, including silver dollars and other rare U.S. coins.

It’s perfectly legal. In China.

It’s not here in the United States. The problem is, U.S. authorities don’t seem all that concerned.

Under the Hobby Protection Act it is not illegal to manufacture replicas of rare coins. However, by law, they must be clearly stamped with the word “COPY.” That’s what is missing from the Chinese counterfeits, according to an alliance of groups representing coin dealers, grading services, and collectors.

Thousands of coins described as “replicas” can be found on Internet auction sites. Photos show they are stamped “COPY.” However, when someone buys one of the Chinese-made “replicas,” it allegedly arrives without the required marking.

When a reporter for the publication Coin World traveled to China last year she located four factories turning out counterfeit coins. Ironically, the owner of one establishment said he makes 100,000 fakes per month of rare Chinese coins! He admitted that at this point, he is “only” selling 1,000 counterfeit U.S. coins a month - primarily on eBay (EBAY). But he explained that his hope is to make contact with individuals who want to import them in large numbers.

David Ganz, a coin collector and attorney who represents the Industry Council for Tangible Assets [ICTA] charges that “the coins being sold on eBay and at flea markets are being sold for a third of what the price would be if they were legitimate. People think they’re getting a bargain. If they try to re-sell it, they’re committing an illegal act.”
In addition to unsuspecting collectors who believe they’re getting the genuine article, there are buyers who purchase these coins knowing they’re getting fakes. Their intention is to pass them off to others.

Here’s the drill: An individual orders a coin online that, based on its photo, appears to have “COPY” stamped into it. Next, Eloise Ullman, executive director of ICTA says, “I take it to the local swap meet and I sell it as the real thing. I paid $6.95 for it and I sell it for $140.00. I’ve made a killing.”

Don Willis, president of the Professional Coin Grading Service [PCGS], says so far most of the Chinese counterfeits turning up have been “silver coins such as Morgan dollars minted from 1878 to 1921 or Flowing Hair Liberty dollars stamped 1794, the first year they were produced.”

If genuine, one would sell for $400-$500, depending upon its condition. But the Internet price was a fraction of that. According to Willis, “A guy walked into a coin shop and tried to sell them.”

The issue is not simply that coin collectors are being defrauded. Though rare, these coins are still legal tender. Each is officially worth one dollar, so you could walk into a store and make a purchase using them.

Willis complains that federal authorities “are not doing a good job of enforcing the laws we’ve got on the books.” He’d like to see them “either stopping the counterfeit coins from coming across the border or prosecuting the sellers.” Ganz charges federal authorities “are not taking it seriously. The FTC just sent us a form letter.”

But as Ullman points out, catching the fake coins won’t be easy. “They’re not coming in in huge shipments, just drips and drabs of $10 and $15. They’re hard to spot. It’s not like there’s a container ship loaded with these.” In addition to being carried into this country by visitors from China, no one knows how many coins are being shipped directly from Chinese factories to Americans buying them at online auctions.

Ullman says she was “pleasantly surprised” at the response of the Federal Trade Commission and says her organization is working with the FTC to put out a consumer alert. Furthermore, a spokesperson for the FTC says that stopping the importation of illegally-marked U.S. coins is the job of the Secret Service.

The Secret Service, however, does not seem especially concerned. Here’s the response I received via e-mail:

This is not a new problem. Counterfeit coins have been around for years. Traders, consumers and collectors need to be aware of this problem and should request the opportunity to verify the authenticity of coins prior to purchase.Public education is key to avoiding becoming a victim of such fraud and the Secret Service appreciates your work to alert citizens.

Consider yourself duly “alerted.” For further education and a (genuine) U.S. dollar, you can order a copy of What You Should Know Before You Buy Rare Coins from the Professional Numismatists Guild, 3950 Concordia Lane, Fallbrook, CA 92028.

At this point, the best advice is what it’s always been: only purchase coins from reputable coin dealers or services such as PCGS or the Numismatic Guaranty Corporation (NGC), which offer a money-back guarantee on the value of the coins they certify.

Remember, whether you’re buying a coin, a car, or a Cuisinart: If it sounds too good to be true, it probably is.

Ms. Buckner is a Retirement and Financial Planning Specialist at Franklin Templeton Investments. The views expressed in this article are only those of Ms. Buckner or the individual commentator identified therein, and are not necessarily the views of Franklin Templeton Investments, which has not reviewed, and is not responsible for, the content.

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