All That Glitters May Be Going

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All That Glitters May Be Going
Shuttered: Former home of Merit Gold.

The luster has come off Santa Monica precious metals broker Merit Gold.

Just six months after city officials accused the company of running a bait-and-switch scam, Merit last month hastily closed its doors and sold its property to a liquidation company.

Though Merit co-owners Peter Epstein and Mike Getlin have proclaimed their innocence, a judge has frozen their assets – including a Topanga mansion and a Big Bear ski lodge – and said the city is making a case that Merit “was permeated with fraud.”

Attorneys for Epstein and Getlin declined to comment; the men themselves could not be reached.

Merit operated from a small office building on Fourth Street in Santa Monica, a city that has emerged as an unlikely mecca of mail-order gold companies. This is in spite of the fact that the city is not afraid to go after precious metals companies they suspect of dirty tactics.

The city took on one of the largest such firms in the country, Goldline International, after a congressional report accused that firm of the same bait-and-switch tactics the city has sued Merit for allegedly using. Goldline settled and is still in business, but a lawsuit from the city took down another firm, Superior Gold, in 2012.

Adam Radinsky, a deputy city attorney, said the unregulated nature of the industry – which appeals to a large swath of its customer base – creates conditions in which scammers can thrive and people can be victimized.

“We have been kept busy with Santa Monica’s precious metals companies,” he said. “Precious metals in the past 10 years or so have become a very popular investment thanks to the very heavy advertising. Customers are often investing large sums of money in an industry that has no direct regulation.”

Fool’s gold?

The City Attorney’s Office in February filed a lawsuit against Merit, claiming the company used fraudulent tactics to push overpriced coins on customers responding to the company’s deluge of ads on Fox News.

The case is set for a trial next year, but Merit has closed its doors, and a liquidation company is trying to sell desks and other assets to pay about $3 million owed to Merit’s vendors and customers – even though Merit is estimated to have earned more than $60 million in profit since 2010.

Merit’s alleged scam rests on the myth that collectible gold coins cannot be confiscated by the United States government.

It dates back to a 1933 executive order issued by President Franklin D. Roosevelt that criminalized the possession of gold bars, bullion and certificates, and forced people and businesses who owned them to deliver them to the Federal Reserve in exchange for paper money. The order exempted gold used in jewelry and industry as well as “gold coins having recognized special value to collectors of rare and unusual coins.”

Though there are no current laws protecting collectible coins today from confiscation, that was the main hook Merit used to sell its customers collectible coins for well above the value of the metal they contained, according to the city’s suit.

Bullion in coin or bar form has been legal to own in the United States for nearly 40 years and it is a commodity that trades on global markets. But there’s no such transparency with collectible coins. And while bullion, by definition, trades at the value of its metal, nonbullion coins can be sold at a significant premium by implying they are rare – or that they cannot be confiscated.

Merit, whose legal name is Seacoast Coin Inc., acquired customers through a $12 million-a-year advertising campaign on Fox News, which has personalities who are known to play to fears of another government precious metals confiscation. The firm promised in ads to sell bullion at “1 percent over cost,” but the city says the company’s sales people instead steered customers away from bullion and toward collectible gold and silver coins.

Ramtin Ghaneeian, who was a salesman at Merit from September 2011 until the company shut its doors, elaborated on the process in a sworn statement this month.

“What we were trained to do was to get the money in from customers first and then use that leverage to convince them to switch to nonbullion,” Ghaneeian said, according to court documents.

Former Merit client William Kraner of Ohio made similar claims in a separate lawsuit, also filed in February. Kraner first called Merit in 2011, intending to buy bullion coins. Instead, for more than a year, Kraner was sold about $4 million in nonbullion coins from Merit, today worth about $2 million at the current spot price of gold. Kraner accuses Grossman of misrepresenting the nonbullion coins as rare and nonconfiscatable, according to court documents.

Merit’s still-active website describes nonbullion coins as “premium,” and implies that they have value well beyond the spot price of gold because of their scarcity.

Charles Morgan, a coin expert and lead writer of Coinweek.com in Longwood, Fla., which has reported on the Merit saga, said this is basically nonsense.

“Outside of a couple coins that rarely trade without going to auction, there aren’t that many U.S. coins that are so rare that there’s always a market for them,” he said. “They have to promise that these old gold coins are rarer than they are.”

Getlin told Coinweek in February that the Santa Monica City Attorney’s Office is putting forth as facts “several statements that they know to be false and or misleading.” He denied using misleading tactics to upsell customers on nonbullion coins and said the city’s charges are meritless.

Coin operators

Selling customers nonbullion coins proved lucrative for Merit’s co-owners.

Radinsky estimates Epstein and Getlin took in at least $63 million in profit from nonbullion sales over the last four years, based on financial information provided by Merit.

Epstein founded the company in 1986 and Getlin, 31, started working there after graduating from Harvard University in 2006.

The court last month froze both men’s assets. That includes Getlin’s hilltop mansion on Del Mar Road in Topanga, currently listed for $3.6 million, and a mountain lodge in Big Bear Lake, listed for $199,000. For Epstein, frozen assets include a Santa Monica home. Other assets of the two of them that have been frozen include bank accounts and four late-model BMWs and Porsches.

After closing the company Aug. 4, Getlin and Epstein assigned Merit’s property to Credit Management Association, a Burbank non-profit that liquidates the assets of insolvent companies.

Michael Joncich, a manager at CMA who is in charge of Merit’s assets, said the company owes about $1.5 million to customers and $1.5 million to vendors. That doesn’t include the potential legal judgments, which could total many millions of dollars.

Merit’s single most valuable asset, Joncich said, is its list of customers. CMA is trying to sell that list, but the court is requiring that customers be allowed to opt out. Joncich said he thinks that even adjusting for customers who elect not to have their information sold, there’s a good chance the list will net enough to meet Merit’s obligations, lawsuits aside.

“If we get a good value for the customer list, we anticipate there will be sufficient funds to cover it,” Joncich said.

Other than the list, he hopes to sell off assets such as office furniture to help make Merit’s creditors whole. The gold is long gone.

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