CITY HALL — One of the nation’s largest precious metals dealers is being sued by City Hall for allegedly engaging in a nationwide “bait and switch scam” by using false, deceptive and aggressive sales tactics to trick customers into buying heavily marked-up collector coins instead of gold or silver bars.
The Consumer Protection Unit of the City Attorney’s Office filed the lawsuit Thursday against Santa Monica-based Seacoast Coin, Inc., which does business as Merit Gold and Silver. The company has been in business since 1986.
The complaint alleges that when consumers call in to buy bullion, Merit’s salespeople tricked them into buying heavily marked-up so-called “collector” coins instead, including falsely telling consumers:
• That the coins are a better investment than bullion;
• That the coins offer more privacy than bullion;
• That the coins are not “reportable” on consumers’ taxes;
• That the coins can’t be confiscated by the government, while bullion can be.
The complaint further alleges that the collector coins pushed by Merit have none of those advantages over gold or silver bullion.
City attorneys claim the scheme bilked consumers out of tens of millions of dollars. Many of Merit’s customers are seniors, according to the complaint.
The complaint names Merit co-owners Peter M. Epstein and Michael J. Getlin as defendants for their role in training, controlling, and overseeing the operation.
Getlin told the Daily Press that the company has some of the lowest pricing available in the industry and more than 50 percent of the ounces of gold and silver shipped is bullion “and priced at 1 percent over dealer cost.”
“We are shocked by this lawsuit,” he said. “We have what we believe to be the best, most transparent and fairest practices in our industry.”
Getlin said the company has been in contact with the City Attorney’s Office since March 2013 and has cooperated with their investigation by “providing them with very detailed explanations of our advertising, sales, and pricing practices.”
“They claim that we represent that certain coins offer protection from tax reporting and potential government confiscation when in fact they knew that we explicitly prohibit our sales staff from discussing those topics in recommending one product over another,” he added.
Merit holds a AAA rating from the Business Consumer Alliance, a nonprofit founded in 1936 to provide consumers with assistance in resolving complaints with businesses and to provide reviews on a business’ reliability. It uses various aspects of a business to assign them letter grades, AAA being the highest, according to the nonprofit’s website.
Another website, Ripoff Report, a for-profit site founded by consumer advocate Ed Magedson in 1988, tells a different story. Several complaints about Merit are featured. In one, a man named Michael from East Windsor, Conn. says he purchased precious metals from Merit for $64,000, but never received them.
“Merit has an impressive web site that makes all kinds of claims to include that your order will be shipped within seven days,” the post states. “A couple weeks later you receive a booklet that basically says we will ship your order whenever the hell we please.
“I am still hopeful that I will someday get my product and hopefully it will be what I ordered, but I am not holding my breath.”
The post was from March of 2013. It doesn’t say if Michael from Connecticut ever received his order.
Ripoff Report generates several million dollars of revenue a year, the company says, by charging criticized firms various fees to have inspectors make sure complaints have been resolved. If they have, the website inserts a positive headline and text above complaints.
Merit’s website includes a handful of positive reviews, with customers, some of whom only give their first name and last initial, saying they were pleased with the service provided and found the prices to be competitive.
The City Attorney’s Office brings the case under California’s Unfair Competition Law, which protects consumers from false advertising, fraud, and other unlawful business practices.
Attorneys are seeking an injunction to prevent future acts of alleged unfair competition, financial penalties and restitution, as well as cash to cover the cost of the lawsuit.
This case marks the third time in the past three years that the city attorney has taken a national gold dealer to court for alleged wrongdoing.
In 2012, Santa Monica obtained judgments against Goldline International and Superior Gold Group, both of whom were said to be using schemes similar to what Merit is being accused of. Goldline agreed to provide more than $5 million in refunds and to a sweeping injunction; its practices are still being scrutinized by a court-appointed monitor, according to the City Attorney’s Office.
Superior Gold was shut down, placed under receivership, and ordered to pay $2 million in restitution to customers.
The Santa Monica City Attorney’s Office is continuing to investigate Merit and is asking former customers and former employees of Merit to contact the Consumer Protection Unit at (310) 458-8336 or file a complaint online at gold.smconsumer.org