[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
H.R. 6149, THE COIN AND PRECIOUS METAL DISCLOSURE ACT
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COMMERCE, TRADE,
AND CONSUMER PROTECTION
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
SEPTEMBER 23, 2010
__________
Serial No. 111-160
Printed for the use of the Committee on Energy and Commerce
energycommerce.house.gov
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COMMITTEE ON ENERGY AND COMMERCE
HENRY A. WAXMAN, California, Chairman
JOHN D. DINGELL, Michigan JOE BARTON, Texas
Chairman Emeritus Ranking Member
EDWARD J. MARKEY, Massachusetts RALPH M. HALL, Texas
RICK BOUCHER, Virginia FRED UPTON, Michigan
FRANK PALLONE, Jr., New Jersey CLIFF STEARNS, Florida
BART GORDON, Tennessee NATHAN DEAL, Georgia
BOBBY L. RUSH, Illinois ED WHITFIELD, Kentucky
ANNA G. ESHOO, California JOHN SHIMKUS, Illinois
BART STUPAK, Michigan JOHN B. SHADEGG, Arizona
ELIOT L. ENGEL, New York ROY BLUNT, Missouri
GENE GREEN, Texas STEVE BUYER, Indiana
DIANA DeGETTE, Colorado GEORGE RADANOVICH, California
Vice Chairman JOSEPH R. PITTS, Pennsylvania
LOIS CAPPS, California MARY BONO MACK, California
MICHAEL F. DOYLE, Pennsylvania GREG WALDEN, Oregon
JANE HARMAN, California LEE TERRY, Nebraska
TOM ALLEN, Maine MIKE ROGERS, Michigan
JANICE D. SCHAKOWSKY, Illinois SUE WILKINS MYRICK, North Carolina
CHARLES A. GONZALEZ, Texas JOHN SULLIVAN, Oklahoma
JAY INSLEE, Washington TIM MURPHY, Pennsylvania
TAMMY BALDWIN, Wisconsin MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas MARSHA BLACKBURN, Tennessee
ANTHONY D. WEINER, New York PHIL GINGREY, Georgia
JIM MATHESON, Utah STEVE SCALISE, Louisiana
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
Subcommittee on Commerce, Trade, and Consumer Protection
BOBBY L. RUSH, Illinois
Chairman
JANICE D. SCHAKOWSKY, Illinois CLIFF STEARNS, Florida
Vice Chair Ranking Member
JOHN SARBANES, Maryland RALPH M. HALL, Texas
BETTY SUTTON, Ohio ED WHITFIELD, Kentucky
FRANK PALLONE, Jr., New Jersey GEORGE RADANOVICH, California
BART GORDON, Tennessee JOSEPH R. PITTS, Pennsylvania
BART STUPAK, Michigan MARY BONO MACK, California
GENE GREEN, Texas LEE TERRY, Nebraska
CHARLES A. GONZALEZ, Texas MIKE ROGERS, Michigan
ANTHONY D. WEINER, New York SUE WILKINS MYRICK, North Carolina
JIM MATHESON, Utah MICHAEL C. BURGESS, Texas
G.K. BUTTERFIELD, North Carolina
JOHN BARROW, Georgia
DORIS O. MATSUI, California
KATHY CASTOR, Florida
ZACHARY T. SPACE, Ohio
BRUCE L. BRALEY, Iowa
DIANA DeGETTE, Colorado
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
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Page
Hon. Bobby L. Rush, a Representative in Congress from the State
of Illinois, opening statement................................. 1
Hon. Ed Whitfield, a Representative in Congress from the
Commonwealth of Kentucky, opening statement.................... 2
Prepared statement........................................... 4
Hon. Anthony D. Weiner, a Representative in Congress from the
State of New York, opening statement........................... 6
Hon. Steve Scalise, a Representative in Congress from the State
of Louisiana, opening statement................................ 7
Hon. Henry A. Waxman, a Representative in Congress from the State
of California, opening statement............................... 8
Hon. Joe Barton, a Representative in Congress from the State of
Texas, prepared statement...................................... 90
Hon. Phil Gingrey, a Representative in Congress from the State of
Georgia, prepared statement.................................... 93
Witnesses
Julius A. Bazan, Private Citizen, Lynbrook, New York............. 9
Prepared statement........................................... 11
Lois Greisman, Associate Director, Marketing Practices Division,
Bureau of Consumer Protection, Federal Trade Commission........ 17
Prepared statement........................................... 20
Answers to submitted questions............................... 112
Charles Bell, Programs Director, Consumers Union................. 30
Prepared statement........................................... 33
Scott Carter, Executive Vice President, Goldline International... 42
Prepared statement........................................... 44
Answers to submitted questions............................... 117
Howard Beales, Ph.D., Associate Professor, The George Washington
University School of Business.................................. 56
Prepared statement........................................... 59
Answers to submitted questions............................... 123
Submitted Material
Letter of July 20, 2010, from Messrs. Rush and Weiner to Goldline
International, Inc............................................. 97
Response from Goldline International, Inc.................... 100
Letter of September 21, 2010, from the National Consumers League
to the Subcommittee............................................ 107
Letter of September 23, 2010, from the Professional Numismatists
Guild, Inc. to the Subcommittee................................ 109
Letter of September 21, 2010, from the American Numismatic
Association to the Subcommittee................................ 111
H.R. 6149, THE COIN AND PRECIOUS METAL DISCLOSURE ACT
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THURSDAY, SEPTEMBER 23, 2010
House of Representatives,
Subcommittee on Commerce, Trade,
and Consumer Protection,
Committee on Energy and Commerce,
Washington, DC.
The Subcommittee met, pursuant to call, at 2:07 p.m., in
Room 2322 of the Rayburn House Office Building, Hon. Bobby L.
Rush [Chairman of the Subcommittee] presiding.
Members present: Representatives Rush, Schakowsky,
Sarbanes, Weiner, Barrow, Waxman (ex officio), Whitfield, Terry
and Scalise.
Staff present: Timothy Robinson, Counsel; Michelle Ash,
Chief Counsel; Michael Ostheimer, Counsel; Will Wallace,
Special Assistant; Elizabeth Letter, Press Assistant; Kevin
Kohl, Minority Professional Staff Member; Brian McCullough,
Minority Senior Professional Staff Member, CTCP; and Shannon
Weinberg, Minority Counsel, CTCP.
OPENING STATEMENT OF HON. BOBBY L. RUSH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Rush. The Subcommittee on Commerce, Trade, and Consumer
Protection will now come to order. I want to extend my
greetings to all who have gathered here.
The subcommittee is holding today's hearing on a bill, H.R.
6149, the Coin and Precious Metal Disclosure Act. The bill,
which was introduced by Mr. Weiner of New York, will cover the
sale of gold bullion, collectable coins made from other
precious metals, and certain coins for investment purposes.
H.R. 6149 requires dealers prior to selling these items to
make clear and conspicuous disclosures in writing and orally of
all fees that consumers could incur in association with the
sale of these covered items. The required disclosures would
extend to the purchase price the melt value of the covered
items and the reasonable resale price of the covered items to
other dealers. Many of us have seen at least one of the
television advertisements placed by Goldline International and
others that tell consumers to strongly consider purchasing
precious coins in order to preserve or protect the value of
consumers' investments in precious metals. One of the risks
that these advertisements and commercials cite repeatedly and
consistently is that the U.S. government could potentially
confiscate gold bullion. This is just one example, but I think
is one of which many of you can relate.
These advertisements and the reported sale practices of
these dealers concerned Congressman Weiner and myself enough
that we sent a letter to Goldline asking the company to respond
to a number of questions. Today the CEO of Goldline is with us
as one of our six witnesses, and we are very appreciative of
our witnesses. In our letter, we asked Goldline to reveal more
to us about, one, the company's sales staff training; two,
sales staff compensation, commission and incentive structures;
three, the average differential in value between the sale
prices of gold bullion, gold coins and how much Goldline would
pay to purchase those items back from consumers. We also asked
Goldline to tell us the following: whether it encourages its
sales staff through training or in sales discussions to refer
to government confiscation of gold when they speak to
consumers, whether sales staff receive different commission
percentages for selling bullion than for selling collectable
coins, and what is that difference. Finally, we asked Goldline
to tell us whether Goldline is required to be licensed or is
qualified in any jurisdiction to act as an investment advisor.
And Mr. Carter, I want to please extend my thanks to you,
and please thank your president and CEO for his prompt response
to us in a letter, that I might add is gold embossed, that was
dated August 12, 2010. That letter was useful to me and my
staff as it better defined some of the terms and words that
Goldline uses in his existing disclosures to consumers, and I
would like to request unanimous consent for the entry of both
letters, both mine and Mr. Weiner's letter to Goldline, and
Goldline's response into the hearing record.
[The information appears at the conclusion of the hearing.]
Mr. Rush. I would also like to take this opportunity to
request another unanimous consent, and that is for the entry of
four more documents into the hearing record. One is a letter
addressed to me from the National Consumers League dated
September 21, 2010, supporting H.R. 6149. The second is a
statement for the record on behalf of the Industry Council for
Tangible Assets dated today, September 23, 2010. There is an
additional letter from the Professional Numismatists Guild
dated September 20, 2010, and finally, a letter from the
American Numismatic Association dated September 21, 2010,
addressed to myself and to Ranking Member Whitfield. Hearing no
objection, these unanimous consent requests will be granted.
[The information appears at the conclusion of the hearing.]
Mr. Rush. I am very thankful to all of the witnesses for
agreeing to share their valuable time with us in the interest
of examining this bill and to making this bill a better bill.
With that, I yield back the balance of my time and now I
recognize the ranking member of the subcommittee, Mr.
Whitfield, for 5 minutes for the purposes of an opening
statement.
OPENING STATEMENT OF HON. ED WHITFIELD, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF KENTUCKY
Mr. Whitfield. Well, thank you, Mr. Chairman, and today we
do have a hearing on H.R. 6149, the Coin and Precious Metal
Disclosure Act.
I might say that after reviewing information about the gold
industry, we know that under current law certain fees and price
disclosures are already required by the federal telemarketing
sales rule. Now, this legislation would require many new
conspicuous disclosures including fees, markups and reasonable
resale and the melt value of the metal. I am particularly
interested in hearing testimony on why reasonable resale and
melt value information would benefit a customer and whether
they are reasonable for a seller to disclose. Prices for many
items including gold can fluctuate greatly day to day, and it
would be problematic if legislation required an estimate that
could mislead a consumer.
Moreover, it is not clear to me why the coin and precious
metals sellers in the private sector should be singled out to
disclose a resale value when it is not required of the federal
government. For example, my staff went out today and purchased
this from the United States Mint. It is Native American $1
coins. There are 25 of them in here. The cost of the roll is
$35. But the melt value of the roll turns out to be in the
markup of the gold compared to the melt value, there is a 2,393
percent markup on this from the federal government, and on this
collective set of quarters that comes from the U.S. Mint, the
retail value of this is $32.95 and yet the melt value of this
is only $19.20. So even the U.S. government is going a
tremendous job of marking up the price of their products as
well.
One other aspect of this that does bother me a little bit
is, I have read a number of articles in the news media about
this hearing, and it is disheartening to see that certain
political commentators are mentioned frequently in these
articles. Glenn Beck's favorite gold company is getting called
up to Capitol Hill for a grilling. Democrats on Capitol Hill
have targeted a big advertising sponsor of Glenn Beck and other
popular rightwing commentators. Congress will hold hearings
Thursday about the practices of Goldline, the precious metal
dealer, that is broadcast and advertises on popular
conservative political personalities such as Glenn Beck, Mike
Huckabee and Fred Thompson.
Now, hopefully that is not the reason we are having these
hearings, but it is disheartening to see that kind of news
coverage on it that a hearing might be held simply because
someone is advertising on a conservative talk show host
program.
But we do have some experts here today. We have people with
Goldline. We have the FTC. We have some consumers who have been
harmed by some of their purchases. So it is important that we
have this hearing. We know that the Federal Trade Commission
already does have expansive jurisdiction to tackle many
consumer protection problems and they have their priorities,
and I don't really believe that this is one of their priorities
but I may be wrong.
Anyway, we look forward to the testimony of all the
witnesses today, and I want to thank the chairman again for
holding this hearing and giving us an opportunity to explore
this issue.
[The prepared statement of Mr. Whitfield follows:]
[GRAPHIC] [TIFF OMITTED] 78137A.001
[GRAPHIC] [TIFF OMITTED] 78137A.002
Mr. Rush. The Chair now recognizes the author of the
legislation, Mr. Weiner of New York, for 2 minutes for the
purpose of opening statement.
OPENING STATEMENT OF HON. ANTHONY D. WEINER, A REPRESENTATIVE
IN CONGRESS FROM THE STATE OF NEW YORK
Mr. Weiner. Thank you, Mr. Chairman. I appreciate the
opportunity to hold this hearing.
You know, we are here talking about a classic consumer
issue that affects those people in the middle class and those
struggling to make it. This is exactly what this committee was
empowered to deal with, and I am glad that we are taking up
this important issue.
The television gold industry is an industry that is led by
one particular company that has built up an industry on fear,
lies and rip-offs. Fear of the impending collapse of our
economy is virtually a staple of every single statement from
the executives of Goldline and other companies that sell these
products. They get people scared about their future. Then they
quickly transition to a lie, that if you buy certain types of
coins it is a good hedge against the downturn in the economy.
Mr. Whitfield just held up some coins that he can freely buy,
no scarcity whatsoever, as many as he wants. Yet the only value
to the coins that are being sold is their scarcity. If not
that, then the small amount of gold that is in that coin, and
that leads us to the rip-off. Once people have been convinced
by their fear and the lies to purchase these products, they are
profoundly ripped off. They are products that it would take
years if not a generation, if ever, to make any money back on
almost irrespective of how high the marketplace rose.
They are finding themselves being sold a product that is
supposed to hedge against the collapse of the dollar when in
fact you would have to see years of continuing increases in
gold prices in order to be able to make up your losses. I
didn't make up this data. This is freely accessible to people.
They can go take a look. The exact same products that are being
sold by Goldline are being sold for a fraction of the price on
the open market.
But let me tell you what this hearing is not about. It is
not about whether you should buy gold. Some people say yes,
some people say no. It is not about whether or not Glenn Beck
is doing a disservice to his viewers for shilling for this
company. That is his problem. That is Fox News's problem. They
made a right decision by telling him he had to end his
contractual obligation and be a spokesman for this company.
This is, what is the right and wrong way for consumers to do it
and should they be protected. Should middle-class Americans who
are being exploited every single day by this company and this
industry be stopped and protected by legislation, and that is
what I hope we get to today.
Mr. Rush. The Chair recognizes the gentleman from
Louisiana, Mr. Scalise, for 2 minutes.
OPENING STATEMENT OF HON. STEVE SCALISE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF LOUISIANA
Mr. Scalise. Thank you, Mr. Chairman. I look forward to
today's hearing and hearing from the witnesses, but it just
seems rather odd that when we are sitting here and the country
is asking Congress to be focusing on creating jobs, when
unemployment is almost 10 percent, and you can see here from
when President Obama took office to today we are almost
hovering at 10 percent unemployment, the American people want
us to be focusing on jobs. They want us to be focusing on
controlling spending.
And so when you look at what is happening and why people
across the country are so concerned about the direction of our
country, a lot of people are going out and looking for other
things to do. They are sitting on their money. They don't want
to invest in the things that government has control over, so
people have been buying gold. Now, you can see right here, this
is a chart of the 5-year gold average over the last few years.
When President Obama took office, you can see a trajectory
going up. Now, I don't think there is any TV host that had
anything to do with controlling the price of gold yet people
are buying gold because they are scared to death about the
spending that is going on in Washington. If you look at
Moody's, the rating agency, Moody's is talking about
downgrading the United States's debt rating. This is serious
business, and it is because of the out-of-control spending in
Washington. It is because of these policies like a government
takeover of health care by the liberals running this Congress
that people are so scared to death about what is happening in
the country that they are buying gold. And so what is the
answer of the liberals running Congress? It is to go beat up on
the people selling gold instead of fixing the problems that are
happening in our country, instead of addressing the problems
with creating jobs, addressing the problems with out-of-control
spending.
And so if you look at what is going on and why we are at a
point now where we are looking at this legislation, it doesn't
do anything to solve some problem that is out there. The FTC
can address a problem. It has to do with politics. In fact,
here is a letter from a sitting Member of Congress. It is
nobody in this room. But it is a sitting Member of Congress who
wrote a letter trying to raise money off of this issue,
specifically mentioning the author of this bill in an attempt
to raise money for campaign purposes. So yeah, there is
politics going on here, but if we really were focused on things
the American people want us to be focused on, we would be so
concerned why so many people are buying gold since the day
President Obama took office. It is because of the out-of-
control spending and because of all these government takeovers
and all the problems that are leading to higher unemployment.
We ought to be focused on creating jobs. We ought to
control the spending in Washington, not beating up on the
people selling gold to people who want to buy it.
Thanks, and I yield back.
Mr. Rush. The Chair now recognizes the chair of the full
committee, Mr. Waxman, for 5 minutes for the purposes of
opening statement.
OPENING STATEMENT OF HON. HENRY A. WAXMAN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Waxman. Thank you very much, Mr. Chairman.
I am interested in the hearing today. I want to find out
what people who are experts in consumer protection think about
this bill, whether it is needed. We do have a Federal Trade
Commission and I am glad they are going to be testifying.
I do think that there is a very important role to protect
consumers from unfair practices, but I must say after hearing
Mr. Scalise's comment, the only politics I have heard injected
is all the political statements he just made. If people want to
buy gold for whatever reason, that is their business, but to
insist they are buying gold because liberals have control of
Congress, that seems to me a little farfetched. People can
decide they want to have a greater diversity in their
portfolio. They can decide to buy gold as a hedge against
inflation. People can have an interest in investing in gold for
whatever reason. That is their right. And in fact while other
investments have declined in value, the price of gold has
nearly doubled in the past 3 years. I don't think that is
because Barack Obama is President of the United States unless
that is the sales pitch that is made. I am not aware of it.
I also don't think it is appropriate to hold a hearing
because this is a substance that is being advertised on Glenn
Beck or Rachael Maddow or anybody else. The question is, are
consumers being informed of the information that they are
entitled to make the best judgment, and then quite frankly
after people have their information, they may not still make
the best judgment. A lot of people make mistakes. They don't
read the information that is given to them. They don't pay
attention to the whole other aspects that might be involved in
investing decisions. But government can't tell people what to
do. That is up to them.
So I am interested in what comes out of this hearing. I
know we did have a bill that we passed out of the committee and
I think out of the House dealing with whether purchasers of
precious metals could melt down or destroy a consumer's jewelry
or gold before receiving an affirmative acceptance of an offer
to purchase the jewelry for a specific price. But this is a
different issue. This is a question of how much we need to
inform consumers and whether there is a problem sufficient for
us to change federal law to do that.
I thank you for the hearing, and it should be an
interesting one, and I expect we will learn a lot. I yield back
my time.
Mr. Rush. The Chair thanks the chairman.
The Chair now recognizes the gentleman from Nebraska, Mr.
Terry, for 2 minutes.
Mr. Terry. Thank you, Mr. Chairman, but I am going to waive
so I will have more time for questions. Thank you.
Mr. Rush. The Chair now recognizes the gentleman from
Maryland, Mr. Sarbanes, for 2 minutes.
Mr. Sarbanes. Thank you, Mr. Chairman. I don't need 2
minutes.
I just want to thank Congressman Weiner for bringing
attention to this issue and echo what Chairman Waxman said,
which is it is just a matter of making sure people have good
information at their fingertips and then they can make sound
judgments, and the problem here is that oftentimes the
information is far away from the reality of the situation.
And so we are looking forward to the testimony. We are
looking forward to moving forward on this piece of legislation,
and I yield back. Thank you.
Mr. Rush. The Chair thanks the gentleman. The Chair thanks
all the members for their opening statements.
Now we want to recognize our witness for the first panel,
and I want to introduce him. He is a private citizen. His name
is Dr. Julius A. Bazan. He lives in Lynbrook, New York, and he
is going to testify regarding his experiences with this product
and with this company. And so Dr. Bazan, it is important for
you to know that this subcommittee has a standing practice that
we will swear in all the witnesses, so would you please stand
and raise your right hand?
[Witness sworn.]
Mr. Rush. I want to thank you to much for taking time out
from your busy schedule to be a participant in this hearing,
and you are recognized for 5 minutes for the purposes of your
opening statement.
TESTIMONY OF DR. JULIUS A. BAZAN, PRIVATE CITIZEN, LYNBROOK,
NEW YORK
Dr. Bazan. Thank you very much.
I would like to say I have a little bit of difficulty, if
you would gentlemen would speak up so I can hear you.
As was mentioned, you know, I am originally from
Czechoslovakia. I have been in the United States for 31 years,
and I have been living in Lynbrook in New York and have been
practicing neurology for 25 years.
I am also an investor and I have been investing in the
stock market in mutual funds, even commodities and options, for
about 20 years. However, after 9/11 I lost about 60 percent of
my investments, maybe probably more. So I decided about 8 years
ago to get out of the market. I was just having my account in
Ameritrade, and I was thinking what to do with my money. At
that time it was clear that the dollar was declining, the value
was losing, and I was thinking about what kind of investment I
would be able to make.
Around the same time, you know, you listen to the news
about gold and you listen to these advertisements and all
different spokesman that you mentioned and you are exposed to
these bombardments every day, especially I remember Goldline
because I didn't know anything about gold but whatever they
were saying was making sense to me because, you know, gold was
holding its value and actually was increasing in value, so I
said if I invest in gold, maybe I can maintain the value of my
dollar, you know, going forward.
So I decided I would like to invest in gold but I didn't
know what company to choose. However, at that time Goldline was
advertising on a daily basis and you were basically bombarded.
There was no other company which I could find to invest in
gold. So eventually I decided to contact Goldline by phone
number and I decided to open an account. Then eventually I was
able to transfer the money and I was contacted by one of the
salesmen from Goldline, and we decided, you know, how to invest
the money. Initially I was thinking to purchase the bullion but
I was told that bullion is not a good value to invest in
because in the 1930s the government confiscated the gold and
set the prices of the bullion and that would not be a good
investment. On the other hand, I was told that coins have much
better sell value, they are increasing in price and that will
be an excellent investment for me because I can preserve my
capital.
So not knowing anything about it, I eventually decided I
will invest in gold coins as the representative suggested, and
at that time I didn't know actually that his decision to sell
me coins was based on commissions. It looked like if I was to
purchase bullion, he would be getting about 5 percent of
commission. However, if I bought coins he would get 35 percent
of the commission. So anyhow, I bought the gold and I was
waiting for about 6 months. I got the promise that it is very
likely that gold price will reach $3,000 in one year. However,
after 6 months I didn't see the price of gold move too much. It
stayed around $1,100. So I decided, because I found another
investment opportunity, that I will liquidate my holdings in
gold.
To my shock, when I called the representative, he mentioned
that there is something called spread, which I didn't know too
much about, which now I understand is the difference between
selling and buying the price of the gold. And he told me, I had
my initial investment which was $140,000. He said that my
investment now is worth only $83,000. So essentially it meant
that that the day I purchased this gold, my value, he took
about $60,000 in profit and left me holding a bag, $83,000. So
I essentially felt robbed. It felt like legalized robbery. And
so in any case, I decided to sell gold at that time, and that
is my story.
[The prepared statement of Dr. Bazan follows:]
[GRAPHIC] [TIFF OMITTED] 78137A.003
Mr. Rush. Thank you so much. We sympathize and are
sympathetic to you for your loss of your dollars and your
substantial loss to your individual retirement account, which I
understand you lost as a result of your investment. Again, you
have the sympathies of both myself and the other members of
this subcommittee.
I have a few questions that I want to ask you, and I have 5
minutes in which to ask these questions. How many transactions
did you conduct with Goldline?
Dr. Bazan. This was just one purchase but I bought multiple
different coins, but the bulk of it was in premium gold eagle.
I believe they call it golden proof eagle, which at that time I
was sold for $3,300 and I understand that the melt price of
that coin was only $1,000 when I bought it. And on the market
price, I think it was hiked up by about 30 percent or 35
percent. I was charged for one coin $3,300 while the melt price
was only $1,000.
Mr. Rush. So am I to assume that you only spoke with one
salesperson?
Dr. Bazan. Only one salesman, yes.
Mr. Rush. Were you ever informed of fees that would incur
in association with your transaction?
Dr. Bazan. No, absolutely not, no discussions of any fees
or any commissions or anything else.
Mr. Rush. Okay. Before contacting Goldline in July 2010,
when you wanted to sell your investment, did you hear or see
any disclosures about how much Goldline was marking up the
proof American eagle coins you agreed to purchase?
Dr. Bazan. No.
Mr. Rush. Or how much the spread was on those coins?
Dr. Bazan. I had no information about prices of coins at
that time.
Mr. Rush. After purchasing the coins, did you receive any
disclosures?
Dr. Bazan. No.
Mr. Rush. Thank you.
I will now yield the ranking member 5 minutes for the
purposes of questioning the witness.
Mr. Whitfield. Is it Dr. Bazan or----
Dr. Bazan. Bazan, yes.
Mr. Whitfield. Well, Dr. Bazan, thank you very much for
taking time to be with us today, and I also would like to offer
my apologies for the loss of your investment. I do want you to
know, I have lost a lot of money in investments as well and
that is something that we all deal with.
I believe I heard the chairman ask you if you had received
any sort of disclosure when you purchased this gold, and I may
be wrong, but it is my understanding that before this company
will actually sell gold product to a purchaser, that they send
this out, which is called an account and storage agreement, and
on the back it says ``client acknowledges that he or she has
read and understands all of the terms and conditions of the
account and storage agreement and shall be bound by them.'' And
I was just reading through here, and I know that the very first
thing it says here is that ``this is speculative, unregulated
and volatile and that prices may rise or fall.'' And then it
says ``profit can only be made if prices rise over the
investment period in an amount sufficient to overcome the
spread as set forth in paragraph 13.'' Did you receive this at
all before you purchased----
Dr. Bazan. I don't know if it was in this form, but of
course you mentioned the storage fees. You know, I was aware of
the storage fees. I mean, my question was about the purchase
fees and those prices I didn't know nothing about.
Mr. Whitfield. You didn't know anything about the purchase
fees?
Dr. Bazan. Nothing about the price but I know about the
storage fees.
Mr. Whitfield. Okay. And how long did you actually keep the
gold?
Dr. Bazan. The gold, I bought it sometime in December of
2009 and kept it until May of 2010, 6 months.
Mr. Whitfield. Six months. Well, I noticed that in another
one of their documents, it does specifically say, it says, ``If
you are purchasing coins, bullion or rare currency for
investment purposes, they should be considered a long-term
investment. We believe that rare coins and currency should be
held for at least 3 to 5 years and preferably 5 to 10 years to
maximize any potential for gain.'' Did you see that in any of
these documents or did you consider that?
Dr. Bazan. I don't think I read it. However, you know, I
was aware of the risk I am taking. However, I was under the
impression that when I am buying these coins I am buying them
at the market price. So of course I naturally assumed if the
price of the gold will go down, I will lose my money. However,
I didn't expect at the time of the purchase to lose $60,000 the
minute I purchased that gold.
Mr. Whitfield. Yes. Well, you know, I just read this
legislation, and I haven't read it thoroughly and I don't know
what the actual definition is for a precious metal dealer, but
once I want to go back to the U.S. Mint, because you can go to
the U.S. Mint today and you can buy a 2010 American buffalo 1-
ounce gold proof coin, 1 ounce, and that is $1,560. Well, the
actual price of gold today is around $1,290 per troy ounce, so
buying this from the federal government, you walk out the door
and you have already lost approximately $300. And so if this
legislation is actually going to be going after private
dealers, then I am just wondering are we being discriminatory
if we don't do something about what the U.S. government is
doing.
Dr. Bazan. Well, you know, that price was $1,000. He sold
me that 1 ounce for $3,300. There is a big difference between
the price.
Mr. Whitfield. One ounce for how much?
Dr. Bazan. This one coin is 1 ounce. I paid $3,300 for it.
Mr. Whitfield. Were you aware of the price of gold on that
day in the market, 1 troy ounce of gold?
Dr. Bazan. Yeah, I know those prices of $1,200. I was told
that that was a numismatic value of that coin, that it was an
additional $2,000 worth of numismatic value on that coin.
Mr. Whitfield. So even though you knew the price of the
gold for that day, it was your understanding that the value of
the coin was what you paid for it? I mean, is that what you are
saying?
Dr. Bazan. Well, I assumed that the $3,300 was the price of
that coin on the market, so if I go to redeem it I understand I
will lose some money and I would not be able to recover $3,300,
but I didn't expect that I will lose $2,000 on that coin.
Mr. Whitfield. Well, like I said, we do appreciate your
being here today and being willing to talk about this issue. I
might say, and of course, I may be totally wrong because I am
in a rural area of this country but I haven't had any
constituent write to me about this issue. Now, that doesn't
mean that there are not a lot of people maybe in the same boat
you are, but thank you for being with us and we look forward to
the other testimony.
Dr. Bazan. Thank you very much.
Mr. Rush. The Chair recognizes Mr. Weiner for 5 minutes for
the purposes of questioning.
Mr. Weiner. Thank you, Mr. Chairman.
Just to pick up on what Mr. Whitfield said, Dr. Bazan, you
are a perfect witness because you are not alone. The same exact
experience led to 50 Better Business Bureau complaints,
$170,000 consent order signed by this company in Missouri
because they are ripping off Missouri constituents, 28 FTC
complaints. They are under investigation by the L.A. district
attorney, the Santa Monica District attorney. There is a class
action lawsuit against them in South Carolina. ABC News just
this morning reported that three of their high-ranking current
employees were banished from selling securities of their
fraudulent activities.
But you are perfect for another reason. I talked about the
fear, the lies, the rip-off. Your case speaks to all three. You
called because you were fearful and you were probably led to be
fearful maybe by a document like this that Goldline puts in all
of its pitch packets. It is a scary looking executive order
saying that gold can be seized at any time. Gold bullion, don't
get into gold bullion because it can be seized. Now, they don't
explain to you that this executive order hasn't been enforced
since the 1970s. It was only seized then because it was the
currency backer for the dollar, which it no longer is, and they
don't explain to you well, if you want to really get
frightened, they can seize your coins as well. And then you are
told oh, no, it is a better value not to be in bullion, which
you called for, but for these coins.
Let me explain to Mr. Whitfield and the rest of the
committee how these coins operate. Numismatic coins have their
value derived from two things. One is the amount of gold in it.
If you are really scared about the economy and you want to buy
gold, that is the little element that you care about. There is
another element, though, in fairness. It is the scarcity. Mr.
Whitfield demonstrated the scarcity of these products by
calling up the Mint and buying some. There is no scarcity. If
tomorrow the dollar goes into rapid inflation, maybe it will,
maybe it won't, you will have those coins. Good luck buying a
loaf of bread with those coins, because if you went on eBay
today, you will find that those coins are readily available for
nowhere near the price is being sold at, which brings us to the
rip-off, and this is the part I want Mr. Whitfield and Mr.
Scalise to understand. This gentleman thought when he spent
$3,000, he got $3,000 worth of gold. Is that a preposterous
assumption? Is he a naif? Is he naive? No, it is a reasonable
assumption. I am buying gold, here is my $3,000, give me $3,000
worth of gold. He gave them $140,000. That moment he lost about
$80,000. That second, he was ripped off.
This is not about whether or not you should buy gold, Mr.
Scalise. It is not about whether or not you can buy a coin, Mr.
Whitfield. You have to understand, these people are being told
to buy these coins for investment purposes. If you want to buy
a nice van Gogh because it is very scarce and you think it will
still be valuable in generations to come, more power to you.
But no one is saying that in these ads. None of these salesmen
are saying that. They are saying it is a hedge against a
downturn in the economy; they will have value. And to say that
the disclosure says that there is a 30 percent spread value,
well, you know, Dr. Bazan, that what that means for consumers
is a 54 percent markup. It is a clever use of language, but
that is really what it is.
Look, it is fair to say we should get a few extra dollars
because we are storing it or we should get a few extra dollars
because we have these high-quality salesmen like the ones who
were investigated by the FCC. But it is simply wrong to leave
our constituents, middle-class people struggling to make it who
are getting the bejesus scared out of them based on these lies,
who are then taken from a bullion investment and put into a
coin investment based on the out-and-out near fraud of saying
that those things are going to retain value better and then
taking the exact same product and saying we are going to
provide triple and quadruple what this is available for
elsewhere. This is why we need improved laws. And I say to my
friend, Mr. Whitfield, yes, you can open this thing and say 30
percent, it is right here, does that make it less of a rip-off?
Does it make it less of a rip-off? Does it mean that consumers
shouldn't be protected? Dr. Bazan, who is an articulate, smart
guy, was it so naive of him to believe that if I invest
$100,000 in gold I am going to have $100,000 in gold?
These coins, this firm, this industry is an orchestrated
effort first to scare people, then to lie to them--the coins
are a better deal--and then to rip them off on those coins.
That is what happened to this gentleman. That is what happened
to all these people that I just listed and that is why we need
improved disclosure.
And I say to Mr. Whitfield, you concluded, ``I haven't
heard a lot of complaints.'' Well, here is something you might
be interested to know. If you complain to Goldline and they
agree to settle with you, do you know you have to sign an
agreement saying you won't file a complaint with the Better
Business Bureau, you won't file a complaint with Congress, you
won't call Congressman Whitfield? What kind of reputable
company does that? So not only you are only going to try to
settle this with you, your complaint, if you don't talk about
it. Well, I am glad you are here to talk about it and so I am.
Dr. Bazan. Thank you.
Mr. Rush. The Chair wants to announce that there is a vote
that occurs on the Floor. There are five votes remaining, and
there are less than 5 minutes to get to the Floor. So this
subcommittee will have to recess for approximately 40 minutes
until we conclude voting on the series of votes that are now
occurring on the House Floor. So please accept our apologies
for the recess but we have to get to the Floor in order to vote
on these important matters on the Floor.
So the subcommittee now stands in recess until 10 minutes
after the last votes.
[Recess.]
Mr. Rush. The subcommittee will come to order again.
The Chair now recognizes Mr. Scalise for 5 minutes for the
purposes of questioning the witness.
Mr. Scalise. Thank you, Mr. Chairman.
Is it Mr. Bazan?
Dr. Bazan. Yes.
Mr. Scalise. What was the motivator to make you want to buy
gold? I think you were kind of talking about that earlier, but
can you give----
Dr. Bazan. The main thing was to hedge against inflation.
Of course, we knew that the dollar was losing its value and
investment was going down so the only way I believed to protect
myself was to invest in gold to hedge against inflation.
Mr. Scalise. And the value of the dollar obviously
dropping, when did all this really start? When did your
interest in buying gold come about?
Dr. Bazan. I mean, at that time there was a lot of talk
about gold and, you know, indeed the price of gold was going
up. That was the only investment which sounded reasonable. I
didn't want to trade too much so I put it in gold and keep it
there and see what happens.
Mr. Scalise. And obviously with the price, and I know I
have shown the chart earlier with the price of gold, there are
dramatic increases. I am not sure exactly when----
Dr. Bazan. The problem, the minute I bought the gold, they
charged me 35 percent on my commission so I invested 140 and at
that moment I had only $83,000 so that means that I will have
to wait years before I can recover my losses. I was hoping that
I am buying it at market price and I was deceived. There was no
discussion about price of gold, and I was almost forced to buy
coins instead of bullion because I was told that government
will confiscate the bullion or they fix the price and it may be
useful, and the coins are the only way to go because they will
always increase in price and government cannot touch them,
which is a lie.
Mr. Scalise. Right, but ultimately you could have brought--
--
Dr. Bazan. Say again?
Mr. Scalise. Ultimately you did have the option to buy
either one?
Dr. Bazan. And I bought all the coins, which was suggested
by the representative.
Mr. Scalise. And then how long did you hold it for?
Dr. Bazan. For 6 months.
Mr. Scalise. Six months. All right. Thanks.
Yield back.
Mr. Rush. The Chair doesn't see any other members from this
side.
Mr. Bazan, we certainly appreciate you taking time out from
your schedule to be with us.
Dr. Bazan. Say again, please.
Mr. Rush. I said we certainly appreciate you taking the
time out from your busy schedule to be here with us, and again,
you have our sympathy and our sincere regrets for your
experiences, and we intend to continue to take a serious look
at this issue and try to resolve this issue so that we can
bring your situation and similar situations experienced by
other Americans to a screeching halt, so again, thank you so
very much, and we wish that you will continue to be the kind of
citizen that you would be a courageous citizen. Thank you so
very, very much.
Dr. Bazan. Thank you.
Mr. Rush. The Chair would ask the second panel now, would
you please take a seat at the witness table.
I want to welcome all those who are the witness desk, those
who comprise the second panel for this subcommittee hearing,
and before we begin, I want to introduce each and every one of
the members of the second panel. Seated to my left is Ms. Lois
Greisman. Ms. Greisman is Associate Director of the Marketing
Practices Division for the Bureau of Consumer Protection for
the Federal Trade Commission. Next to Ms. Greisman is Mr.
Charles Bell, who is the Program Director for Consumers Union.
And seated next to Mr. Bell is Mr. Scott Carter. He is the
Executive Vice President of Goldline International. And seated
next to Mr. Carter is Mr. Howard Beales. Dr. Beales is
Associate Professor at the George Washington University School
of Business.
Again, I want to thank each and every one of you for
participating in this hearing and sacrificing your time for
this committee and this Congress.
It is the practice of this subcommittee to swear in
witnesses, so I would ask that each of you stand and raise your
right hand and answer this question.
[Witnesses sworn.]
Mr. Rush. Please let the record reflect that the witnesses
have all answered in the affirmative.
And now each one of you will be recognized for 5 minutes
for the purposes of an opening statement. Ms. Greisman, we will
recognize you for 5 minutes.
TESTIMONY OF LOIS GREISMAN, ASSOCIATE DIRECTOR, MARKETING
PRACTICES DIVISION, BUREAU OF CONSUMER PROTECTION, FEDERAL
TRADE COMMISSION; CHARLES BELL, PROGRAMS DIRECTOR, CONSUMERS
UNION; SCOTT CARTER, EXECUTIVE VICE PRESIDENT, GOLDLINE
INTERNATIONAL; AND HOWARD BEALES, PH.D., ASSOCIATE PROFESSOR,
THE GEORGE WASHINGTON UNIVERSITY SCHOOL OF BUSINESS
TESTIMONY OF LOIS GREISMAN
Ms. Greisman. Thank you, Chairman Rush, Ranking Member
Whitfield and member of the committee. I am Lois Greisman,
Associate Director in the Bureau of Consumer Protection at the
Federal Trade Commission. I appreciate the opportunity to
testify before you today about consumer protection issues
arising from the sale of coins and precious metals as
investments.
As you know, the Federal Trade Commission's written
testimony has been provided. My own statement and any responses
to questions you may have solely represent my own views.
With the downturn of the American economy, the Commission
has committed substantial resources to shut down scams that
harm financially distressed consumers with a particular focus
on job and business opportunity scams, foreclosure rescue
scams, scams preying upon the economic stimulus package and
scams targeting those seeking health insurance. With the
economic downturn, we also see scams focusing more directly on
investment opportunities as people seek low-risk, high-yield
investments and not surprisingly, coins and precious metals
often are promoted as such good, safe investments.
We are well aware of consumer complaints involving precious
metals and coins of investment and are looking closely into
some of the issues raised, and as always, we are consulting
with our colleagues at the State and federal level and in
particular the SEC and the CFTC. While I cannot address whether
we are or are not looking at any particular area or entity, I
do want to highlight some of the problems we have seen thus far
and then turn to the new consumer educational materials we are
issuing today.
Now, although the written testimony notes that the volume
of complaints received by the Commission is quite low both for
coins and precious metal, there are three main categories of
complaints. First, complaints that some dealers use high-
pressure sales tactics to persuade consumers to purchase
collectible or historic coins rather than bullion coins and
that they always may misrepresent the value of those
collectible coin investments. Second, there are complaints that
some unscrupulous marketers urge fast investment in a
particular metal before the price skyrockets. In fact,
consumers end up entering into risky and high-leveraged
investments. Finally, as you are well aware from prior
testimony on the Guarantee of a Legitimate Deal Act, we have
seen complaints about companies that purchase consumers'
jewelry and family heirlooms for their melt value but fail to
provide a price quote before actually melting those items.
Now, the Commission takes investment fraud very seriously.
The fact that we have not brought any law enforcement action in
recent years is not to be taken as an absence of concern in the
area of precious metals and coins. To the contrary, the
revamped consumer educational materials, and I believe each
office has been provided them, entitled ``Investing in Gold:
What is the Rush'', highlights the Commission's concern with
ensuring that consumers understand the differences among
investments in gold coins, bullion coins and collectible or
historic coins. In fact, the consumer educational materials
consist of three discrete brochures.
As each of these brochures makes clear, these kinds of
investments require a level of sophistication that one can
acquire only by serious research. You have to know what you are
buying and whether you were buying it as a collectible item or
for the value of the precious metal itself. We hope these
brochures will provide a solid starting point for consumers.
Finally, I do want to touch upon the Coin and Precious
Metal Disclosure Act. This Act would address many of the
consumer protection concerns that we have mentioned by
requiring coin and precious metal dealers to disclose not only
the purchase price but also other fees associated with the sale
of the coins and precious metals as well as the melt value and
reasonable resale value for coins and precious metals.
Critically, I know that our revised consumer educational
materials do suggest that the consumer ask for information on
the melt value of a coin before making any purchase.
Now, as the testimony notes, we do have some concerns with
respect to the proposed definition of the term ``reasonable
resale value'' in section 1 of the bill and we would be pleased
to continue to work with staff to address those concerns. Also,
as noted in the testimony, we do not support the exemption of
section 6 because it would exclude from the bill's coverage
certain collectible coins that have been the subject of
consumer complaint.
With that, I thank you very much for the opportunity to
address the subcommittee. I look forward to working with you
and to answering your questions. Thank you.
[The prepared statement of Ms. Greisman follows:]
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Mr. Rush. Thank you very much.
Mr. Bell, you are recognized for 5 minutes.
TESTIMONY OF CHARLES BELL
Mr. Bell. Chairman Rush, members of the committee, thank
you so much for the invitation to testify here today on ways to
protect consumers who purchase gold coins and metal bullion. We
commend you for holding this hearing to focus attention on ways
to protect consumers and encourage a safer marketplace.
As you know, Consumers Union is the independent, nonprofit
publisher of Consumer Reports and Consumer Reports Money
Advisor. We work to empower consumers by informing and
educating them about the top consumer issues of the way, and we
also as part of our work report on scams and fraud both to
alert consumers and also advocate for public policy measures
for greater protection.
As I summarize in our testimony, over the last several
years we have seen numerous news reports and complaints
received by regulators and law enforcement agencies indicating
that consumers are experiencing significant problems in
transactions related to gold coins and metal bullion and we
think that those problems are indeed worthy of attention by
your subcommittee.
Many of the problems that we have seen come to public light
are related to high-pressure sales tactics that entice
consumers to buy coins that have high markups, that turn out to
have much less resale value that the consumer initially
expected.
Consumers are also at risk because sellers of gold coins
and bullion may not be licensed or regulated either by the
Securities and Exchange Commission or the Commodities Futures
Trading Commission, and sales representatives may not be
licensed as investment advisors, even though they present their
products as an investment and may be perceived by the consumer
as a financial advisor. So we are concerned that coin and
bullion sellers are subject to relatively limited public
oversight, and that state consumer protection authorities may
only be able to offer limited help for consumers who feel they
have been defrauded.
Through our publications, Consumers Union has urged
consumers to be cautious in buying gold coins, and to be
particularly wary of high-pressure sales tactics over the
phone. We emphatically agree with the Federal Trade Commission
that this is an area where consumers need to do extensive
homework before making a purchase decision. We generally advise
consumers who are interested in investing in gold as a portion
of their portfolio not to buy physical gold, but instead to
purchase shares in an exchange-traded fund that purchases gold
for clients and holds it in a bank, because of the much lower
trading fees and annual expenses.
By contrast, companies selling gold coins may mark them up
by significant margins of 20-30 percent or significantly more
such that it will take many months or years for consumers to
even break even.
We then summarize issues and concerns that have been raised
by a number of companies in the marketplace. We have seen
complaints on this issue over the years ebb and flow but we
believe that for a significant number of customers there has
been an ongoing problem for many years, and while the number of
complaints that was noted may seem small as a portion of
business transacted by the industry, it is generally accepted
in most customers relations work that for each official
complaint that is lodged with a company or government
authorities, there are a significant number of other consumers
who experience similar problems but did not complain, and this
is especially so in things like financial scams where the
consumer or investor may be very embarrassed and they may hope
that the situation will get better with the passage of time and
they may be very reluctant to talk about it.
So we also believe that in the stories that have come to
public light, we often see a significant financial loss
experienced by the customer and bitter disappointment expressed
by people who felt that there was significant upside to the
investments, did not understand the structure of what they were
putting their money down for, so we think that there is a
significant potential for misunderstanding about the value of
the coins they are purchasing and the fees and services related
to transactions.
We are also concerned that the prospective purchase of gold
coins and bullion may be an impulsive decision for some
consumers who may be responding to well-placed TV or Internet
ads as was noted earlier today. This does not excuse consumers
for looking out for their economic interest but it does raise
the possibility that large number of customers in times of high
gold prices and/or economic distress may be enticed through
slick advertisements to quickly agree to Internet or telephone
offers without carefully considering their options. And so for
those customers, we think they need to be aware that there is a
high cost to national television advertising and companies that
use that business model may use very aggressive sales practices
to try to upgrade them to products that are more lucrative or
remunerative for the sales advisor that is selling that product
that is earning a high commission.
So with that in mind, we believe that the draft bill that
is being considered here today would be very much in the public
interest of consumers to have much more prominent, conspicuous
disclosures in the sale of coins and precious metal bullion.
These disclosures, in our opinion, should include the item's
purchase price, melt value and reasonable resale price as well
as any fees that the customer will incur if the purchase is
completed. We strongly favor provisions to make those
disclosures orally to consumers if the sales are being
solicited by telephone and to ensure that the FTC and State
attorneys general have appropriate authority to investigate
deceptive practices.
We believe that the people who are selling these products
have a very good idea of what they are worth and they have
access to information through numerous trade groups and
industry sources that regularly compute the value of these
coins and the person that generally may not have that
information is the less experienced and less sophisticated
consumer.
So we think that we have an opportunity to craft a bill
here that would be very much in the consumer and public
interest. The stories we have seen do not inspire confidence
that consumers are getting the information that they need, and
we hope this bill will give them that information. And other
organizations in the consumer protection community such as the
National Consumers League we expect will strongly support this
legislation. Thank you.
[The prepared statement of Mr. Bell follows:]
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Mr. Rush. The Chair thanks the witness.
And now the Chair recognizes Mr. Carter for 5 minutes for
the purposes of an opening statement.
TESTIMONY OF SCOTT CARTER
Mr. Carter. Mr. Chairman and members of the committee, I am
Scott Carter, Executive Vice President of Goldline
International. Thank you for this opportunity to discuss
Goldline's role as an industry leader in the precious metals
and rare coins markets.
Goldline has long supported the comprehensive disclosure of
information for an individual to make an informed decision
about acquiring precious metals and rare coins. Indeed,
Goldline believes its disclosures represent the best practices
in an industry of more than 5,000 precious metals and rare coin
dealers. These disclosures include clear examples and
explanations of the risks and costs associated with acquiring
precious metals, information which we provide throughout the
sales process.
In the highly competitive precious metals industry, there
are numerous sources available to compare prices and policies.
This intensive competition coupled with existing regulation
protects individuals when choosing if and where they acquire
precious metals. We believe that H.R. 6149 does not improve the
information currently required under regulations and imposes
requirements that cannot be met by the industry. As presently
written, the proposed legislation appears unworkable and may
actually result in inaccurate information being conveyed to the
consumer.
Goldline has been offering precious metals to individuals
since 1960 and has grown to more than 300,000 full-time
employees. Over the years Goldline has assisted thousands of
people to acquire and liquidate precious metals and rare coins.
We are proud to be rated A+ from the Better Business Bureau.
Goldline provides each of our clients with a risk
disclosure booklet, Coin Facts for Investors and Collectors to
Consider. Coin Facts is written in a large, easy-to-read font
and contains important information regarding the acquisition of
precious metals. In Coin Facts, Goldline explains its pricing
policies in extensive detail and provides a mathematical
example to ensure its clients understand how this pricing
works. Goldline also provides important information about its
sales staff and commission structure in Coin Facts.
Also, even though gold prices have increased every year in
the past 10 years, like any asset, precious metals can rise and
fall in value. Accordingly, Coin Facts clearly spells out the
risks of owning precious metals for a potential client. For
example, we recommend that coins and bullion are appropriate
for no more than 5 to 20 percent of a portfolio and we believe
that assets should be held for at least 3 to 5 years,
preferably 5 to 10 years. Goldline's marketing and risk
disclosure materials encourage prospective to conduct their due
diligence before they acquire any product. Additionally,
Goldline discloses its pricing, fees and risks involved in
acquiring precious metals and rare coins in its account and
storage agreement which all clients must read and sign before
they finalize their purchases.
The entire sales process beginning with an individual's
initial inquiry to Goldline and culminating with an expiration
of the applicable cancellation and refund period often occurs
in a span of days or weeks. During this time, Goldline clients
can easily conduct their own due diligence to compare products,
prices and policies among the thousands of competing precious
metals dealers.
In addition to providing comprehensive information to
Goldline customers about the risks and costs of acquiring
precious metals, Goldline has an internal compliance program to
ensure best practices among its sales staff. This compliance
program was reviewed by lawyers and former senior regulators
with expertise in consumer protection, telemarketing,
numismatics and regulatory compliance. Goldline's policies are
administered by a full-time compliance department with regular
input and assistance from outside counsel. Among other things,
Goldline's compliance program trains the sales staff about the
requirements of the FTC's telemarketing sales rule, Do Not Call
obligations, state telemarketing requirements including seller
identification and disclosures, and the importance of adhering
to Goldline's compliance rules and code of contact.
Mr. Chairman, in my written testimony I discuss our
concerns about H.R. 6149 in greater detail. Today I
specifically would like to note that the requirement in the
bill that sellers disclose the reasonable resale value of a
product would create an insurmountable burden on precious
metals dealers and likely would mislead consumers.
Mr. Chairman and members of the committee, thank you, and I
would be happy to answer any questions from the committee.
[The prepared statement of Mr. Carter follows:]
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Mr. Rush. The Chair thanks the gentleman and now recognizes
Dr. Beales for 5 minutes for the purposes of an opening
statement.
TESTIMONY OF HOWARD BEALES
Mr. Beales. Thank you, Mr. Chairman. My name is Howard
Beales. I teach at the business school at George Washington
University and I have long experience at the FTC. I directed
the Bureau of Consumer Protection from 2001 through 2004 when
we created the national Do Not Call Registry, one of the most
popular government consumer protection measures ever
undertaken. Both inside and outside the agency, I have studied
the FTC's approach to consumer protection issues for over 30
years.
Thank you for asking me today to discuss these important
issues. Although I have consulted with Goldline on issues
relating to their marketing practices under the FTC Act, the
views I express in this testimony are my own.
The cornerstone of the FTC's consumer protection mission is
its fraud program through which the Commission has returned
hundreds of millions of dollars to defrauded consumers. As the
FTC has detailed, the agency has a long history of activity
against deceptive investment claims. Common themes in these
cases are false claims that high returns are virtually certain
in a short period of time. The cases involving commodities also
feature misrepresentations, usually expressed, of the
relationship between the selling price and the market value of
the item combined with grossly inflated prices.
Such claims are a far cry from Goldline's practices.
Instead, Goldline's marketing and sales practices include
extensive disclosures, encouraging consumers to carefully
consider their purchases.
First, Goldline's advertising relies on consumers calling
the company to get additional information. Typically, customers
call with initial questions and call back several times over a
period of days before making a purchase. Thus, consumers have
both time and the opportunity to check out competing sellers
and other sources of information. The fact that a sale
typically takes several calls suggests that consumers are
exercising the kind of due consideration that should be given
to a purchase that is typically in the range of $15,000 to
$20,000 for first-time buyers.
Goldline provides potential customers with a clear, well-
written disclosure document, Coin Facts, explaining the market
and the company's practices in detail. In my experience,
Goldline's pamphlet is a vast improvement over the disclosure
documents that typically accompany other investment
opportunities. In addition, all first-time buyers of Goldline's
higher-margin products have an unconditional cancellation
period of at least seven days, providing significant time for
any consumer to consider their potential purchase, compare
prices and offerings, and access relevant information from
readily available sources. Of course, even sophisticated
consumers can be misled. Goldline, however, is very different
from the type of company typically found engaging in deceptive
investment promotions. A substantial fraction of its sales are
repeat purchases, which only occurs when customers are
satisfied with what they receive. Goldline also has an A+
rating from the Better Business Bureau.
Second, Goldline's advertising and sales material do not
guarantee or promise a profit or a specific return. In contract
to the quick profit claims that are the hallmark of past cases,
Goldline advises consumers that rare coins and currency should
be held for at least 3 to 5 years but preferably 5 to 10 years.
Goldline makes no representation that it is selling at
wholesale or at the lowest price. Instead, Goldline provides
straightforward disclosures of its spreads. It also provides a
very clear example of how this differential would affect a
consumer's purchase of a coin from Goldline and how much that
coin would have to increase in value for the consumer to earn a
profit. Rather than illustrating a best-case scenario, the
example is based on Goldline's maximum spread where the
necessary appreciation is greatest.
Third, Goldline's advertising and sales practices are
filled with sound caution. It advises consumers to balance
their portfolio and place no more than 5 to 20 percent in
precious metals. In short, Goldline is the antithesis of the
get rich quick seller making gross misrepresentations so common
in past FTC cases.
Under H.R. 6149, the bill would essentially require
disclosures to reveal the seller's markup on the product. In
other markets, we rely on competition to police seller markups.
In retailing, for example, it is not disclosures of the market
at full service department stores that keep markups slow; it is
the competition from other department stores and other
retailers such as Walmart. What matters to consumers is the
cost of the transaction, not the seller's markup. As long as
information about prices at competing sellers is readily
available to consumers who are interested and it certainly is
in the coin and precious metal market, there is no reason to
disclose the seller's markup.
Although providing consumers with more information almost
always sounds appealing, it can in fact create consumer
confusion. For example, the FTC's Bureau of Economics conducted
an experimental study of the effect of disclosing the yield
spread premium in mortgage transactions, which is essentially
part of a broker's compensation. When the disclosure was
included, consumers apparently focused on the disclosure rather
than the overall cost of the transaction. As a result, they
were less able to identify the low-cost mortgage.
The reasonable resale value disclosure may create similar
problems. Like the yield spread premium, it risks focusing
consumer attention on an aspect of the transaction that is not
relevant to the overall cost. Confusion seems particularly
likely when the resale value is disclosed along with the melt
value. The melt value is simply irrelevant because it will
always be reflected in the reasonable resale value of any
product whose value is tied to spot prices.
Moreover, in a market where prices change constantly,
consumers may misunderstand what the reasonable resale value
disclosure means. If consumers understand the disclosure as a
claim that they can actually expect to resell the item at the
disclosed price, they may be seriously misled. The risk of this
misinterpretation is increased because consumers will almost
inevitably assume that they are being provided with this
information because it should be important in their decision.
The Federal Trade Commission has an important role as a
referee in policing the market economy. Like other products and
services, the best protection remains the common law principles
that the Commission enforces. Goldline's practices are entirely
consistent with these principles. The proposed legislation is
at best unnecessary and it may in fact create consumer
confusion.
Thank you again for the opportunity to testify today and I
look forward to your questions.
[The prepared statement of Mr. Beales follows:]
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Mr. Rush. The Chair thanks the witnesses, and the Chair
recognizes himself now for 5 minutes for the purposes of
questioning the witnesses.
Ms. Greisman, the FTC has brought cases of these companies
that sold overpriced or misgraded historic coins for investment
purposes. Do you concur with that, that the FTC has brought
cases against companies that have sold overpriced or misgraded
historic coins for investment purposes? Is that a fact?
Ms. Greisman. That is correct. In fact, there have been 17
such cases dealing with what we allege to be fraud in
connection with coins.
Mr. Rush. Since 2005, the FTC has received approximately
850 complaints relating to coins and precious metals. In Mr.
Carter's testimony, he stated that there have been relatively
few complaints about Goldline submitted to the FTC or to the
Better Business Bureau. Do you believe that a number of
complaints received by FTC or the Better Business Bureau
accurately reflect the number of consumers who purchase coins
or precious metals for investments who are misled or feel as
though they were misled?
Ms. Greisman. No, sir, I do not. I mean, as Mr. Bell
pointed out, the percentage of consumers who complain, and we
know this from consumer research that we have done, is a small
percentage relative to those who may have suffered injury.
Mr. Rush. Do consumers who overpay for such investments
sometimes not learn that they have overpaid until they try
sometimes years later to sell their investments?
Ms. Greisman. We have seen that.
Mr. Rush. And even though, there are some who might not
realize that they have overpaid. Is that correct?
Ms. Greisman. That is correct, sir. There are lots of
reasons consumers may or may not choose to complain.
Mr. Rush. Can you think of any other reason that investors
in coins or precious metals might not complain to the FTC or
the Better Business Bureau?
Ms. Greisman. There can be any number of reasons, Chairman.
I mean, certainly consumers tend to complain most immediately
to the company from which they purchased whatever good or
service it was, and whether or not they seek out the Better
Business Bureau or the Federal Trade Commission or a State
attorney general's office depends on many factors.
Mr. Rush. Mr. Carter, when a customer complains directly to
Goldline alleging that the company made a misrepresentation
about the products it sold, what are your steps that you take
to resolve the matter? What are your guidelines?
Mr. Carter. Mr. Chairman, we take every complaint
seriously, as it was stated. Forty percent of our business is
reorders so it is very important for us to have a quality
customer service process. The initial step we take is to assign
the client that has a complaint to a special manager, a liaison
whose sole role is to take care of the client and resolve the
issue. We review the account. We ensure that our processes with
regard to disclosures and account agreements being signed and
information has been taken care of and all applicable processes
have been done correctly by the company. In addition to that,
we many times are working with the client to come to a solution
that is amenable to them so that we can resolve the issue and
we do that with great care, and I am proud to say that most of
our complaints are resolved and most of our issues with regard
to customers are handled effectively by the company.
Mr. Rush. And the 40 percent that you mentioned, is that 40
percent of the total value or 40 percent of the customers?
Mr. Carter. No. What I am saying is that our transactions,
when you look at our number of repeat transactions in our
customers, 40 percent of our current customers represent
reorder sales. So not only have they bought the first time as
an initial sale but they actually reorder with the company. So
it is very important for us to ensure that they are happy, that
they understand their product, because they will buy multiple
times over multiple years.
Mr. Rush. My time is about up, but I have one final
question. Do any of Goldline's sales staff hold or have they
ever held, to your knowledge, a license to offer investment
advice?
Mr. Carter. Congressman, our sales staff are not investment
advisors. They may or may not have licenses in the past. We are
not aware of that. It is not a requirement for the role that
they play. They are not providing financial advice. And in our
disclosures, we encourage the customer to seek out their
financial advisor to get that information.
Mr. Rush. My time is concluded. The Chair recognizes now
Mr. Whitfield for 5 minutes.
Mr. Whitfield. Thank you.
Ms. Greisman, how many consumer complaints were filed with
the FTC against Goldline last year?
Ms. Greisman. I don't have the precise number. It is not a
large number, and as the chairman indicated, in total since
2005 the FTC has received roughly 850 complaints regarding
precious metals and gold coins.
Mr. Whitfield. And do you know out of that how many relate
to Goldline?
Ms. Greisman. I don't know the precise number.
Mr. Whitfield. How many complaints were filed with the FTC
totally last year?
Ms. Greisman. As indicated in the testimony, the short
answer is well over a million, I think 1.3 million. The
percentage of complaints in this precise area is less than 1
percent of the total number of complaints received.
Mr. Whitfield. Okay. Now, with the authority that the FTC
has today under the telemarketing sales rule or some other
rule, have you all issued any judgment against Goldline or any
enforcement mechanism or any other action against them?
Ms. Greisman. Congressman, I am not at liberty to disclose
whether or not the FTC is or is not investigating any
particular company.
Mr. Whitfield. Well, I am not asking if you are
investigating. I am asking have you rendered any decision
against them or made any enforcement action against them?
Ms. Greisman. The agency has not taken any action against
Goldline.
Mr. Whitfield. Thank you. Thank you.
Mr. Bell, can you tell us how many complaints the Consumers
Union has received concerning Goldline as a company?
Mr. Bell. We are not a complaint handling organization so
our organization has not specifically received any to my
knowledge. We do have a customer relations staff but I don't
believe that we have gotten any across the transom. But we are
aware that there are enforcement actions that have been brought
by the district attorney in Santa Monica against Goldline and
another company, Superior Gold Group, and so for us, I think we
are more broadly concerned about what is happening across the
entire marketplace, and for us, the 850 complaints received by
the FTC about a number of companies is a relevant number.
Mr. Whitfield. How does the volume of complaints for this
industry compare to that of, let us say, the diamond industry,
fine arts or antiques industries?
Mr. Bell. You know, I couldn't give you that information. I
haven't researched the other industries. I would just say based
on my experience of working in consumer advocacy for 20 years,
I see a number of danger signals here just in the nature of the
complaints that are being filed with authorities in part
because they echo concerns we have seen with many other types
of sales practices over the telephone where unsophisticated
customers enter into transactions that they are later
disappointed in, and in this case they could be losing
thousands or tens of thousands of dollars.
Mr. Whitfield. Dr. Beales, you state that the
advertisements and disclosures that Goldline makes that you
have reviewed all appear to provide the consumer with the
requisite information they need to comply with the law. Is
there anything you would have them change or additional
disclosures that you think they should make?
Mr. Beales. I think the disclosures in their advertising do
a good job. What I think does an even better job is the Coin
Facts pamphlet that, as I said in my statement, is I think one
of the clearest pieces of disclosure about the risks associated
with investments that I have seen.
Mr. Whitfield. Mr. Carter, in my opening statement I
referred to a number of newspaper articles that indicate that
some people think this hearing is being held because you
advertise with conservative TV personalities, radio
personalities like Glenn Beck and others, Huckabee, Fred
Thompson and others. Do you advertise with all sorts of
networks or do you just focus in on these conservative talk
show hosts?
Mr. Carter. Well, Congressman, we advertise on a broad
range of networks. At the present time we advertise on 14
different TV networks including CNN, CNBC, History
International. One of our largest channels for leads is the
Internet. We also advertise on radio. So we are a broad-based
marketer and we have broad-based advertising.
Mr. Whitfield. Someone earlier today referred to three of
your current employees that had been either convicted or had
been involved in some sort of fraudulent activity. What were
they talking about?
Mr. Carter. We were made aware of that earlier this week by
the press. These individuals, what I would say is that Goldline
conducts background checks in accordance with California's
hiring practices law. These employees are in good standing at
the company. The event that was referred to is over a decade
old, was prior to Goldline, but as of right now these employees
are in good standing and they comply with our compliance
policies and they went through our background check at point of
hire.
Mr. Whitfield. And other question. Ms. Greisman, has the
FTC taken any formal position on this particular legislation?
Ms. Greisman. Yes, sir. The Commission's testimony supports
the legislation.
Mr. Whitfield. So you have endorsed the legislation except
for the reasonable resale issue and the exemption issue, those
two?
Ms. Greisman. That is correct.
Mr. Whitfield. Thank you, Mr. Chairman.
Mr. Rush. The Chair now recognizes the gentleman from New
York, Mr. Weiner, for 5 minutes.
Mr. Weiner. Thank you, Mr. Chairman.
Mr. Carter, welcome. Do you recognize this document,
executive order of the President, all persons required to
deliver on or before May 1, 1933, all gold coin, gold bullion
and gold certificates? Do you recognize this?
Mr. Carter. Yes.
Mr. Weiner. Is this included in your packet of information
that you send to your customers?
Mr. Carter. Yes, it is.
Mr. Weiner. Can you tell us why?
Mr. Carter. Because customers when determining what
products they want to buy consider many features and benefits,
and one of those features and benefits that they consider is
the prospect of confiscation, and this was an order, as we all
know, that was completed in 1933, and in the marketplace today,
these are uncertain economic times. The prospect of discussions
in the marketplace of the gold standard are----
Mr. Weiner. If I can interrupt, so there is a fear that
this may happen again?
Mr. Carter. There is one component that in uncertain
economic times----
Mr. Weiner. There is a fear that this might get--you might
have this type of thing happen again?
Mr. Carter. Yes.
Mr. Weiner. Now, can I ask you, do you include anywhere in
the material that this was overturned the following year?
Mr. Carter. Congressman, I don't know.
Mr. Weiner. The answer is, you don't. Do you include
anywhere in the material that the reason that that seizure took
place had to do with the fact that then our currency was backed
by dollars and it was an effort to stabilize our currency?
Mr. Carter. Yes, I understand that.
Mr. Weiner. No, no, I'm saying do you let your--you have
already said that you agree that this is because some of your
customers have a fear and that you reflect that fear in this
document but in a way that I think you will agree is incomplete
because it doesn't say it was repealed, it doesn't put it in
any kind of context. But let me ask you this. You then use this
document in the pitching that your staff makes and you freely
stipulate in your documents here that your sales people get a
higher commission rate for selling numismatic coins than they
do for bullion. Is that right? You freely say that in this
document. Do you somehow make this argument because you believe
in your heart--and I know that you are the host of a show
called ``The American Advisor''--do you believe there is any
chance today that gold bullion would be seized by the
government? Do you think it is a reasonable fear?
Mr. Carter. Yes, I do, Congressman.
Mr. Weiner. Okay. Do you believe then, why would it not be
a reasonable fear that they seize coins?
Mr. Carter. Well, the executive order as it was----
Mr. Weiner. So this is 1934. I am talking about 2010.
Mr. Carter. In 2010, Congressman, our commission
salespeople and our training is that if the executive order
were reenacted as it was in 1933, that coins with collector
value were excluded from confiscation because their value----
Mr. Weiner. I understand. Just to summarize, Mr. Carter,
you take something that was in 1933 that was repealed in 1934
and then you extrapolate what would happen, fear, the fear that
it could happen in 2010. You use language in your testimony and
in Coin Facts, language like duration of investment, that you
should diversify your portfolio. You took explanations about
the collector value of coins. You even say and I think in your
testimony recommend--I know you said it publicly--recommend
that people hold on to their things for 5 to 10 years. It
sounds an awful lot like you are giving financial advice. Do
you believe that you are?
Mr. Carter. No, we don't. In fact, we instruct the clients
that we are not financial advisors, that we point them to our
disclosures and ask them to seek out financial advice.
Mr. Weiner. But Mr. Carter, when you say you recommend that
someone holds on to an investment for a certain duration time,
how is that not investment advice?
Mr. Carter. It is disclosure advice, Congressman. It is to
say that you should be prudent in the decisions you are making,
that this should be a diversification strategy, that if you are
buying a physical asset, something that you are buying today,
and if your plan is to sell it tomorrow----
Mr. Weiner. I understand, but Dr. Beales----
Mr. Carter. But my point, Congressman, the reason why when
you buy a physical asset, whether you are buying a piece of
property or anything, there are expenses and fees.
Mr. Weiner. I understand, but Mr. Carter, let me interrupt
because I have a limited amount of time. But Mr. Beales asked a
question. He is a former consultant to your company, isn't he?
Mr. Carter. Yes.
Mr. Weiner. Mr. Beales asked the question, why is it
different than any other commodity. You shop around for the
best picture. You shop around for the best piece of furniture.
The marketplace will decide. Here is the difference. Those
things are not sold to people as investments. As in the
language that you used the other day on Fox Business News, you
referred to the government debt, the large deficits, inflation,
the fear of confiscation. You referred to this again. It is
quite a different thing than purchasing a television or piece
of furniture. These are the investments of middle-class
Americans like that witness that you saw sitting in that very
same seat. That is why you have additional protections for
these type of people. These are people that when you say in
fleeting reference that you have a float, a spread of 35
percent, that means that a citizen would have to make a 54
percent markup in order to get back to zero.
And let me give you an example from today. Anyone in this
room, anyone watching at home can look this up. This isn't me.
It is not Mr. Carter saying it. One of Goldline's popular
products is the one-quarter ounce proof American eagle. They
sell it today for $685, Mr. Chairman. You can get it from the
Mint for $403, available to the public with a bulk discount of
more than 100 coins. Another competitor, Apmex, sells it for
$425. You can get it on eBay today for $445 because it is true,
Mr. Carter, that there is not a lot of scarcity to a lot of
these products. So this is a 38 percent spread, a 61 percent
markup over your competitor, which means the moment that the
gold arrives, someone has to make up 35 percent of the market.
Let me explain what that means to Mr. Scalise. That would
mean that gold would have to go from $1,293 today to $2,081 for
that person to break even. When you are selling something as an
investment, as a hedge against inflation, as a way to protect
yourself from the future, what you are doing is like you did to
that gentleman who came right before you. You are buying them
into the whole the minute they walk home. It simply is
inexcusable. That is why Mr. Beales is incorrect to say that,
oh, this is like any other consumer product. No, for middle-
class Americans, those struggling to make it who call up that
number, who order these products, it is their savings, and as
you know, you didn't limit it to a small percentage of that
previous witness's savings; it was almost his entire savings.
And that is why this legislation is needed.
Thank you, Mr. Chairman. I ask for a second round if one is
available.
Mr. Rush. The Chair recognizes Mr. Scalise for 5 minutes.
Mr. Scalise. Thank you, Mr. Chairman.
Ms. Greisman, you had testified earlier that the definition
in the legislation before us of reasonable resale value could
mislead consumers. Can you be more specific on that?
Ms. Greisman. Yes, of course. Our concern is that it might
encourage unscrupulous marketers to collude and set prices, but
we would be more than happy to work with staff and we have had
discussions to find a different way to state the same goal.
Mr. Scalise. Thank you. So the bill as it is currently
written could actually lead to collusion, which would actually
be very detrimental to consumers as opposed to what we have
now.
Mr. Carter, how many competitors do you have in the
marketplace? What is a rough estimate of people that sell gold?
Mr. Carter. It is estimated that there are 5,000
competitors in our marketplace.
Mr. Scalise. Five thousand competitors? Okay. Obviously if
you had the ability to have collusion by having language like
in the bill presented before us, according to the FTC, then
that number may shrink dramatically and consumers would be much
more limited and possibly would be exposed to really bad deals.
Let us equate, when we talk about savings and investments,
let us say someone is buying stocks. They are not buying gold
but they are purchasing a stock. Clearly you are going to have
some people who are going to buy a stock and it is going to do
well. You are going to have some people who buy a stock and it
is going to lose money, and maybe if they hold it a little bit
longer then it would gain money. How many of your customers
make money? How many lose money? I guess according to people we
have been listening to, everybody loses money, but if you can
kind of expand on that?
Mr. Carter. It is important that the whole period is
maintained by a client. That is why we disclose it. I will give
an example, Congressman. Our most popular coin, the Swiss 20
franc, which has our highest threat, if you bought that product
from us 5 years ago, you would have so far achieved a 90
percent return. If you bought that product from us 10 years
ago, you have achieved a 240 percent return, both of those
numbers after our fees. So that has been a very positive return
on that product as compared over the last decade with any
stocks. The S&P is down. The Dow is down. We all know what has
happened with real estate. And yet our product and our
customers have seen a reasonable, some would say a very
attractive return.
Mr. Scalise. So what you are saying is, your most popular
product that you sell has actually experienced a large rate of
return including if you back out the fees and the spread?
Mr. Carter. That is correct.
Mr. Scalise. Let me ask Dr. Beales, you know, when we
really talk about what the focus of this hearing is and, you
know, again, I have expressed what I think about that, but when
you talk about the Moody's warning, and Moody's is a very
respected rating agency, this isn't somebody on talk radio or a
TV show. Moody's is a very respected rating agency. They have
warned that the United States' triple A bond rating under the
current spending of this Congress is in jeopardy. Are you
familiar with that? Are you familiar with what Moody's has
warned about the actual credit worthiness of the United States
of America?
Mr. Beales. Not in any detail, no. I am sort of generally
aware that it is there but I am not familiar with its details.
Mr. Scalise. There are a lot of very respected agencies
that have written about what that threat is, and that threat is
not, it is surely not anything that any gold company has laid
out there. It is not from somebody on a television show running
around trying to scare people. It is from a rating agency which
I haven't heard anybody discredit who actually analyzes the
borrowing and spending practices of the United States of
America, and the fact that you have got Moody's out there
warning of a possible downgrade in the United States' debt
rating, that is serious business, and it is real. It is not
somebody running around talking about the sky falling. It is a
rating agency saying if this country doesn't stop borrowing
money we don't have and if we don't stop spending money at the
rapid pace that this Congress has been spending that we are
going to be in real trouble. Our children and our grandchildren
are in jeopardy of losing the opportunities that we have all
enjoyed.
Our country has had a history of passing on a better
opportunity to the next generation than the one before it. That
has been the history of our country going back to George
Washington, and that is in jeopardy right now, not because you
are selling gold, because the people running this Congress are
spending too much money. They are spending money we don't have.
They are taking over car companies and banks and they are
taking over health care. And in the meantime, the public out
there is getting scared to death about all of this because they
are saying where this is going to end, so they are going out
and they are doing things like they are buying gold. You are
not driving up the price of gold. It is going up on its own
because people are concerned about the value of the dollar not
based on a talk show host but based on real agencies like
Moody's. Other countries are telling the United States of
America to stop borrowing and spending money at this rapid pace
because there are dire consequences to it.
So I would hope that rather than Congress sitting up and
beating up on people that are selling gold, they should
actually go and look at why people are buying gold and why the
United States' debt rating is in jeopardy according to Moody's.
We have got to control the spending. We have to actually stop
borrowing money from countries like China and other places and
create some jobs in this country, and if we do that, that will
solve these problems. But right now instead of focusing on
those problems, Congress is beating up on the people selling
gold. Clearly, they are not listening.
I yield back.
Mr. Rush. The Chair recognizes the gentleman from Maryland,
Mr. Sarbanes, for 5 minutes.
Mr. Sarbanes. Thank you, Mr. Chairman.
Mr. Carter, I had a question about the spread disclosure.
So in the Coin Facts, I guess you describe this spread issue
and talk about like it can be as high as 30 to 35 percent,
right?
Mr. Carter. Yes.
Mr. Sarbanes. If in a particular case a salesperson knows
that it could be more than that, does the salesperson have any
responsibility to make that clear to the potential purchaser or
do they just leave the customer thinking that--and most
customers are going to assume that that is sort of the top, the
ceiling. Do they lead them to believe that that is what the
spread might be, assuming even--well, actually let me back up.
Does the salesperson affirmatively bring the spread issue
to the attention of the customer beyond handing them this
disclosure form? Is that part of the training or compliance or
other directives that the salespeople operate under?
Mr. Carter. There are multiple points in time when the
disclosures of spread are covered, Congressman, and a point I
want to make is that our maximum spread, the difference between
our ask price and our bid price, is 35 percent. There is no
higher spread. That is variable. So point one is that the
customer in our sales process has to contact us and their first
request to us is information that covers the Coin Facts that is
mailed to them. That is the first point, easy font, easy to
understand with an example of what the spread means. The second
point, if the customer choose to purchase a product, our
account agreement, which we have examples of these if anybody
would like a copy of it, this account agreement covers the risk
disclosures again. The customer has to sign this verifying that
they understand have read the disclosures including what we
were just discussing before any sale is final.
And the last point I will make, Congressman, is that we
provide a 7-day full refund, no questions asked, buyer's
remorse, talk to your spouse. We will give you 100 percent of
your money back if you change your mind. We feel like we have
the best processes for disclosures and sales process in the
industry to make sure our customers are informed.
Mr. Sarbanes. Let me go back to my first question then. It
sounds as though it is not necessarily the case that the
salesperson affirmatively describes to the customer what the
spread is. They give them the materials and you have got a
spread of 30 to 35 percent in there, which you claim is the
most it can be, and then there are opportunities for them to
sign saying they have read something, but in the sales pitch,
in the discussion, the oral discussion that has had with the
customer, it is not necessarily the case that they are made
aware of the spread issue from what I am understanding.
The second question I had is, if the spread is going to
be--well, whatever the spread is going to be in a particular
case, is that information provided to the customer? I guess
following on the first point, the answer to that must be no. So
30 to 35 percent is sort of the range that they can get off the
paper but they are not going to know specifically what the
spread is going to be in their particular case, right?
Mr. Carter. No, sir. We cover in the sales process in the
time of the sale the spread between the commission salesperson
and the customer, and in addition there is a sales confirmation
process that is separate from the sales process where we have a
client service representative that covers the products that
have been purchased, the total amount that you are paying, the
fees associated with it to confirm that----
Mr. Sarbanes. So if there was a hard sell going on by one
of your salespeople where that information wasn't being
provided, that would be noncompliant with the policies that you
claim you have in place, it sounds like.
Mr. Carter. Congressman, there are multiple places where we
disclose the spread, as I said. It is not only the initial
information that is mailed out to the customer where they take
a period of 7 to 10 days to read, there is also a confirmation
of that at the sales process.
Mr. Sarbanes. All right. I have run out of time. So real
quick let me just ask you this. You say 35 percent is the
highest spread. We have information that it is higher, but just
based on the first witness, who I think if I recall, the
investment was $143,000. At the sale point, which was 6 months
later, at a point when it didn't appear that the value of gold
had changed much at all, at the sale point he got $80,000 back.
The implication of that was that you had a loss of value. Now,
you would attribute that to the numismatic markup in the spread
but that is--I mean, I did the math and that is 43 percent
right there. So just in that particular case, it doesn't appear
that the claim that the spread is limited to 30 to 35 percent
applied and that suggests there may be other situations that
are similar to that.
Mr. Carter. If I could respond, Congressman, Dr. Bazan's
testimony, the spread was 35 percent on the products that he
purchased, the difference between our ask and our bid price. As
it has been pointed out before, that is a markup of 54 percent.
So we buy the product back. What was not provided in the
testimony is that when we bought the proof American gold coins
back from Dr. Bazan, we paid a price of over $2,080 an ounce.
So when gold was trading at $1,110, Dr. Bazan received from
Goldline double what the melt value of the coin was. And the
reason why that is, is because these are coins that have a
scarcity and a demand and a collector value. So it is not in
this case the melt value of the coin that drives the price, it
is the market price. We paid twice the melt value to Dr. Bazan
when he liquidated. So the difference between what he
originally paid in his ask and the bid price is really our
spread, and he held it much shorter despite our disclosures, he
held it for a much shorter period of time and was not able to
overcome that spread to earn a profit like other customers have
held our other products and actually earned a profit. We don't
like to see any client disappointed, certainly not Dr. Bazan
either, but he went directly against the disclosures. By the
way, the disclosures----
Mr. Sarbanes. Oh, I understand he sold it faster than you
recommend. I understand that point. But I am just talking about
the markup appears, if that's equivalent to the spread, appears
to be beyond what you indicated is the ceiling on that. I have
run out of time. Thank you.
Mr. Rush. The Chair recognizes the gentleman from Nebraska,
Mr. Terry, for 5 minutes.
Mr. Terry. Thank you, Mr. Chairman.
I am just trying to get my mind around the issue here, if
the FTC is here, there is inherently an accusation, and Mr.
Weiner has been very clear with his accusation of fraud and
deceptive practices and deceptive advertising. So I kind of
want to get into that aspect of whether there is a real basis
for this. And so typically if you are providing accurate,
truthful information to the consumer, you don't have fraud. It
is when you are providing, as Mr. Weiner has said, lies, fear
and lies is what he says. If you are going to use that as the
basis for turning someone in or designing legislation, you
should probably add in the DCCC and some of their advertising.
But we won't go there today.
But I want to ask, this seems to be--I have got the book,
account and storage agreement. So Mr. Carter, is this what you
provide your customers like the doctor--what was his name--
Bazan, Dr. Bazan? Is this what he received? Let me take a step
back. You don't do outbound to him. You didn't call him and try
to sell him or pitch to buy gold? He contacted you or a
consumer contacts you?
Mr. Carter. Correct.
Mr. Terry. And then you send them the information, correct?
Mr. Carter. Yes.
Mr. Terry. What information do you send them?
Mr. Carter. We send them an investor investment kit. Dr.
Bazan contacted us via the Internet first. You are absolutely
correct. We do not make outbound calls so he actually was
searching for a product and originally contacted us by one of
our Internet advertisements. The time between he initially
contacted us and actually made a purchase was 60 days. In that
period of time, he was mailed the disclosure----
Mr. Terry. Again, I'm going to interrupt you because I just
have a little bit of time. What did he receive then after he
called and requested the information, or generically, what does
every consumer receive?
Mr. Carter. Every consumer receives the Coin Facts risk
disclosures, which is a complete coverage of our pricing,
diversification, risk factors. This is for him to be prepared
and to seek and understand what he is considering. He receives
the account and storage agreement that he can read at his
leisure and must be signed before a sale is final if he chooses
to purchase.
Mr. Terry. Well, and I have just seen these documents today
but when we heard testimony earlier regarding the spread, I was
handed this, and within about 3 minutes found the information
on page 11 and it seems to be fairly clearly, unlike some of
the bills we write here, clearly set forth and pretty easy to
figure out that if you are going to sell it back, you are going
to take a 35 percent loss on selling it back, or however you
want to phrase it. Do you agree that that is clear?
Mr. Carter. Yes, I do. I think it is very clear in two
forms, easily understandable with examples.
Mr. Terry. And in that regard, with the bill that Mr.
Weiner has proposed and the disclosure requirements, with what
you provide the consumers today, do you feel that your
disclosures are below what he is asking for, exceed or would
already meet the requirements that were proposed in his hill?
Mr. Carter. As it is presently written, I believe the
disclosures that we require exceed what the Congressman is
proposing. He is proposing different disclosures, but what we
provide to the client, prospective client from a disclosure
standpoint, is much more comprehensive than what the bill
states, with the exception of the resale value that as I said
in my testimony will be very difficult to determine with a
competitor base of 5,000.
Mr. Terry. I am out of time. Thank you.
Mr. Rush. We will conduct a second round of questioning for
2 minutes, and we will allow each member an additional 2
minutes to question the witnesses, and the Chair recognizes
himself for 2 minutes.
Mr. Carter, you were present during Dr. Bazan's testimony.
Is that correct?
Mr. Carter. Yes.
Mr. Rush. And he presently sits right behind you now. So
are you suggesting to him that he did something wrong in his
transaction with Goldline?
Mr. Carter. Mr. Chairman, I am suggesting that having known
the disclosures that we gave him and him acknowledging them
through his signoff, that if he were to need this money very
quickly as he did, he decided that he wanted to, according to
our account notes, invest in a different stock, which is 100
percent his choice, but having regarded the disclosures of hold
period and diversification put him in a position where because
it was such a short period of time that he would not recover
the fees associated with the original purchase, and so in that
regard, and when he called for liquidation, the person he spoke
to informed him of that, that this is well short of our 3- to
5-year disclosure period and advised him of that but yet in his
quote he had a hot stock he wanted to pursue. Perfectly fine.
We all understand that. But it is directly and contrary to what
we encouraged him to read and disclose and do, and as a
result----
Mr. Rush. Dr. Bazan seems to be a man of some wherewithal.
I mean, he seems to be a man of sound mind and a competent
individual. Are you telling me that a member of your
organization advised him that if he divested of his purchase
that he would lose approximately $60,000 at that moment and
then in spite of that he went on and divested of his purchase?
Mr. Carter. We didn't advise him. What we said is that this
is in contrast to a 3- to 5-year hold period before he
liquidated to make sure that that was a decision----
Mr. Rush. And that he would stand to lose $60,000 if he did
not accept your scenario, and you won't call it advice but----
Mr. Carter. Yes, Mr. Chairman, the liquidation process
would tell him the amount of money that he was going to
receive. That is why they call the amount of money he would
receive if he were to liquidate.
Mr. Rush. So are you suggesting now, are you telling the
subcommittee that Dr. Bazan is totally at fault in this
situation? He is totally at fault for losing $60,000 of his own
money?
Mr. Carter. I am saying yes, I am saying Dr. Bazan did not
adhere to the compliance and the disclosure requirements that
we provide.
Mr. Rush. The Chair recognizes the ranking member, Mr.
Whitfield, for 2 minutes.
Mr. Whitfield. Well, thank you again, and once again I want
to thank all the witnesses for being here and the members for
joining us as we explore this issue. Rather than a question, I
guess I will kind of summarize this in my mind, but the FTC as
far we know never initiated any enforcement action against
Goldline or tried to institute any fine or civil penalty
against Goldline. I know Mr. Weiner talked about you were
giving financial advice, and maybe it could be interpreted that
way but when you do read the account and storage agreement,
paragraph 7 says that client understands that Goldline believes
coins and bullion are appropriate for 5 to 20 percent of a
portfolio although certain individuals or organizations might
recommend a different percentage. Client will independently
determine what percentage is appropriate for him or her based
upon their individual circumstances.
Now, I would agree that buying gold is not like buying a
television or buying any normal consumer product but I would
say that gold is similar in some ways because they are trying
to determine value of land, futures, diamonds, silver, fine
art, rubies, emeralds, all of those things, and it would seem
to me that if this is a major problem, that maybe this
legislation should include other things, not just gold, but I
look forward to working with the chairman and Mr. Weiner, who
introduced the legislation, and others. I know that the FTC has
already said that they do have problems with the legislation
because of the definition of reasonable resale value as well as
some exemption issues, but I don't think you can--you have been
in business 50 years? Goldline has been in business 50 years?
Is that correct, Mr. Carter?
Mr. Carter. Yes, we have.
Mr. Whitfield. So this is a company that has been in
business for 50 years and 40 percent of its business is repeat
customers, so I cannot imagine that this is widespread, but I
may be wrong, but thank you all for your testimony and I look
forward to working with you.
Mr. Rush. The Chair recognizes Mr. Weiner for 2 minutes.
Mr. Weiner. Thank you very much, Mr. Chairman.
Mr. Bazan, the previous witness, he didn't lose all that
money because of what he did; he lost all that money because
you overcharged him. You took $140,000 investment and gave him
$85,000 when he tried to turn it back to you. That is it. That
is what happened. If he would have bought $140,000 and someone
else gave him $120,000 back, they got a better deal there,
didn't they? Of course. That is what happened here. The idea,
he didn't follow our prescription to wait 5 to 10 years, well,
I ask you, Mr. Chairman, what if the market went down in that
time? Does that then go to 15, then 20? The whole point is what
Mr. Scalise inadvertently said. He said the same thing happens
in the stock market. You buy stock, it goes up, it goes down.
Yes, we protect people and make sure there is transparency. We
make sure that everyone understands what they are buying. One
person buys a stock, another person buys the stock. It is the
same thing. You charge for a product much, much more for
someone else. You brag about how much the return was, and by
the way, you are very good at this. You brag about how much the
return was if you bought the Swiss franc. You didn't point out
that that 200 percent increase corresponds to a 319 percent
increase in that same period of time in the gold market. It is
a bad investment.
It is not whether or not you think gold goes up and down,
Mr. Scalise, and it will. But I tell you one thing for sure: if
you are holding a lot of Swiss francs when the market
collapses, good luck going and buying a loaf of bread with
that. Good luck. Maybe your neighborhood store will take your
Swiss franc. The only value it has at that point is whether or
not you can sell it for more dollars than you bought it. That
is the only measure. That is it. That is an investment. I know
you are an investment advisor. You might want to write this
down. This isn't well, it is my booklet that if you hold it 5
to 10 years maybe it will get better. No, 5 to 10 years in an
up market, right? If it goes down it is going to take more than
that, won't it, Mr. Carter? If gold goes down, it takes more
than that, won't it?
Mr. Carter. Certainly, like any----
Mr. Weiner. Of course, of course. So it could be 50. Then
are you going to have a witness who comes here who lost his
life savings, some middle-class guy, oh, it is his fault
because he didn't wait 30 years. This is not whether or not
consumers are idiots, it is whether or not they are being lied
to and exploited by your company, and I would say this, and I
would say this, Mr. Chairman, and I appreciate Mr. Whitfield's
offer, is that there is some responsibility that we have not to
exploit people in this moment of fear by making it worse. There
is some responsibility. There is some responsibility to be
honest with them. When you are dealing with their life savings,
50 years and complaints and non-disclosure agreements you make
people sign, the fundamental question is this, is should you be
doing this, should you be exploiting people this way, should
you be taking advantage of the fear and anxiety that they have?
Should you be implying to people that a confiscation order is
in place that hasn't been in place since my father was born?
That is just wrong. And what we should try to do, Mr. Chairman,
is we should endeavor to give people the tools to do it. And I
say to my good friend, yes, it is in here, we are going to rip
you off. That doesn't make it right. It doesn't make it right
when we know by comparing--you can go to my website and look at
the comparison.
There are places that aren't doing it or aren't doing it as
much, and this is in the seam, I would say by way of
conclusion, Mr. Whitfield, because this I think is where we can
try to find some common ground. This isn't a seam. It is kind
of an investment but it is kind of a commodity. I think we do
need to structure things a little bit differently. To a lot of
people, to the witness, to a lot of Americans that buy your
product, it is being treated as an investment. You go on the
business stations to talk about it. You use words like
divestment strategy. It is treating it like an investment. You
don't hedge inflation by buying a TV. And for that reason, I
say we need to find this way. And one thing is clear. If you
look at the district attorney of Santa Monica, the FTC, the
attorney general of Missouri, the Better Business Bureau, we
need to get this under control, and I appreciate you shedding
some light on and to all members of the panel and to you, Mr.
Chairman.
Mr. Rush. Mr. Terry is recognized for 2 minutes.
Mr. Terry. Unanimous consent for 4 minutes to have the same
amount of time as Mr. Weiner.
Mr. Rush. Mr. Terry is recognized for 2 minutes and
whatever amount of time he wants, he can have it.
Mr. Terry. I would agree with Mr. Weiner in part and
disagree. One is, it is not a good investment. It is not
something I would do. As a matter of fact, when I was in
college, a friend of mine thought that gold would be a great
investment. We went to a shop. They wanted 20 percent on top of
the sale. I said I am not going to do that. I made up my own
mind. But to call what is in here a lie is wrong. I mean, it is
clearly set forth in here. So the issue is in the
interpretation of the consumer they get to decide whether that
is a good investment or not.
So I would ask the gentlelady from the FTC, have you had a
finding on the advertising from this company that they have
lied to consumers? Because you get to decide that, because that
would be right under your jurisdiction. Have you found that?
Ms. Greisman. Congressman, as I mentioned earlier, there is
no FTC action against Goldline.
Mr. Terry. All right. So is there any actions pending about
whether or not they have lied?
Ms. Greisman. I cannot indicate whether or not the company
may or may not be under investigation.
Mr. Terry. I am switching gears on you here a little bit,
but how many complaints have there been against all of the, was
it 500, I am sorry, Mr. Carter, 500 or 5,000?
Mr. Carter. Five thousand.
Mr. Terry. Five thousand companies selling gold.
Ms. Greisman. Over the past 5 years, the FTC has received
roughly 850 complaints involving coins and precious metal
investments. It is a small number but again that is not
dispositive as to whether or not there may be----
Mr. Terry. True. I would agree with that statement. How
many against Goldline?
Ms. Greisman. I don't recall the specific number, sir.
Mr. Terry. Do you know how many against ITM? Have you heard
of them?
Ms. Greisman. I do not know the answer.
Mr. Terry. Okay. So all of the complaints totality is what
again?
Ms. Greisman. Over the past 5 years, roughly 850.
Mr. Terry. And out of the 850, have there been any actions
against those companies for fraudulent advertising?
Ms. Greisman. I can't answer that question because I
don't--I can't answer it directly. I can say as I said earlier
the FTC has not sued any company recently involving
misrepresentations in connection with precious metals or coins.
Mr. Terry. Okay. So the issue here before this committee is
whether it is a good investment or not, and I am not sure that
is wise for this committee to make that decision, but I do
think it is the obligation of the business to fully disclose
all of the costs in here in that transaction as well as if you
are going to buy it back from the consumer, and frankly, I
think that information is laid out in pretty plain language.
So at that point in time I will yield back.
Mr. Rush. The Chair now recognizes the gentleman from
Maryland, Mr. Sarbanes, for 2 minutes.
Mr. Sarbanes. Mr. Carter, you said that you feel that the
disclosure that you all provide to the customers is pretty good
disclosure, correct, in your view?
Mr. Carter. Yes.
Mr. Sarbanes. And in fact, I think you said to Congressman
Weiner or somebody that the disclosure you have even goes
beyond some of the requirements that are laid out in the
legislation as you read it. Is that correct?
Mr. Carter. We disclose more than is specifically
identified in the legislation although the legislation does
identify things that we currently don't disclose that we would
challenge and have issue with.
Mr. Sarbanes. Is your disclosure better or worse in your
judgment than most of the other companies that are in the
industry in which you operate?
Mr. Carter. Well, as I said, there are 5,000. We believe
that we have best practices in the industry and full disclosure
with our eye on the prospective client. I haven't done
exhaustive research on what our competitors are disclosing. I
want to make sure that our disclosures are fair and that the
prospective client is making----
Mr. Sarbanes. You don't have any sense of whether you think
you are sort of at the top of the class when it comes to the
disclosure you do, or middle?
Mr. Carter. Yes, I do, Congressman. I believe we are at the
top of the class.
Mr. Sarbanes. And I presume that you strive for disclosure
because you feel like that is a good thing for your customer?
Mr. Carter. Absolutely, yes.
Mr. Sarbanes. So one would hope that you would feel the
same way about the customers of these other companies that
operate these offerings, right?
Mr. Carter. Absolutely, Congressman, and what I said in my
testimony is that we are for disclosure. That is not our issue
with this bill. The issue with this bill is the definitions of
what is excluded and the type of disclosure about resale value
in aggregating 5,000 competitors is just not workable for any
competitors including ourselves. So we absolutely support
disclosure. It is just this current legislation, the type of
disclosure that it is requesting is not capable and would
ultimately harm the customer because of the information that is
provided.
Mr. Sarbanes. Well, I get the feeling that you are
generally supportive of what Congressman Weiner is trying to
do, and I expect there is going to be some further development
on this legislation. He has put the pieces together that I
think make a lot of sense, and you certainly are someone who
promotes good, strong disclosure, which is what is at the heart
of this bill, so I am sure he looks forward to having your
support going forward, and I yield back.
Mr. Rush. The Chair will declare to the subcommittee
members and to the witnesses that the record for this hearing
will remain open for 14 days so that any member of the
committee might want to ask questions of the witnesses in
writing and the witnesses will be asked to respond as quickly
as possible promptly to the questions in writing from members
of the committee. The record will remain open for an additional
14 days.
With that said, the committee now stands adjourned. I want
to again thank the witnesses for your investment of your time
in this particular matter. Thank you, and may you return home
with Godspeed. Thank you so much. The committee stands
adjourned.
[Whereupon, at 5:12 p.m., the Subcommittee was adjourned.]
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