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Saturday, May 29, 2010


There are always people that will try to cheat, rob and steal.  When times get tough, the number of people willing to break the law to make a couple of bucks naturally increases.

Counterfeiting is one of those niche markets.  And it's a very profitable "business" to be in.

Gold Jewelry  - Selling your extra or broken jewelry for cash has become all the rage.  Companies are popping up all over the place that do this.  It is so profitable that Walmart, Sears and Kmart are all getting into the business.

Lots of people attend "parties" at the homes of friends where they can get their jewelry tested, and walk away with cash-in-hand.  Many "Cash For Gold" party attendees get a rude awakening when they find out their 18 or 22 karat gold chain is actually 10k (or is fake).  "But the clasp says 18k!"  Yeah, about that.  Surprise!

Personal story:  I recently broke out my acid testing kit and my jewelers loup (a fancy term for a magnifying glass) to check out some of the jewelry we've got.  10 years or so ago, my wife bought me a very nice gold chain for a medallion I own.  It was sold to her at a mall kiosk as a "solid gold" chain. 

Using the loup, I checked the clasp and saw a marking of "USA 925".  Hmm.  Gold is generally identified in karats - 10k, 18k, 24k, etc.  24k is pure gold, 18k gold is 75% gold, etc.  Since 22k gold is 91.7% pure, this marking confused me.

It then dawned on me that Sterling SILVER is 92.5% pure.  Upon further inspection of the clasp, I saw the word, "Danecraft".  I Googled it and found the company.  They specialize in...... 24k gold over Sterling silver jewelry!

Now, unless you knew this company, and had a loup with you to read the clasp, you would think you were buying a solid gold chain.  It would even pass a scratch test!  You'd need to file the chain past the gold plating, which to do so, would ruin the chain.

Caveat emptor, baby...

Cashiers Checks - With all of the recent security upgrades to our paper money, it is becoming more and more difficult to forge US currency.  So.... forgers are turning to the next best thing:  Cashiers Checks.  Unlike paper money, there are no universal standards for verification.

One bank may use a watermark.  The next may actually use some sort of security thread similar to US currency.  Another bank may simply use a high-grade paper.  The bottom line is, you don't know what security features each bank uses.

The FDIC regularly publishes press releases about which banks are having their cashiers checks forged.  In the past few years, the numbers have skyrocketed - I see at least 2- or 3-times the reports as was common just a few years ago.

Caveat venditor (seller beware)

Precious Metals and Coins -  Prepare to pucker.  Before you proceed, read this article, "Inside a Chinese Coin Counterfeiting Ring".  Be sure you go through the picture gallery and read the detailed information under each caption.

Scary stuff.

These guys are smart.  They're (generally) not counterfeiting ulta-high end coins.  Most of these seem to be coins selling up to a few hundred dollars.  Coins where it would not make financial sense to have them professionally authenticated prior to purchase.

With older forgeries, you used to be able to run a magnet over them to pick out the fakes made from iron.  You could put them on a scale and see if they were heavy or light.  You could take calipers to them and check the coin's dimensions. 

Not so much any more.  The fakes are so good that many times, they will pass these tests. 

Even more disturbing, if you looked at the picture gallery (and the picture at the top of this page), you'd have seen that they are counterfeiting "slabbed" coins.  These are coins which have been professionally graded and certified.  Yep, they're forging the certifications as well.

The Internet is full of stories about counterfeit gold and silver bullion.  I recently saw a video from a gold foundry in Germany where they found at least one gold bar was made from titanium dipped in gold.  THAT was an expensive lesson.

Accept The Challenge

CYA.  Sadly, you need to assume someone is out to rip you off.  At best, your seller may have been duped and is simply passing along tainted goods.

So, what can you do to protect yourself?

Jewelry - test it yourself.  A acid testing kit will run you about $30 on eBay, and comes with the acid and scratch stones.  It really is very easy to do, and can generally be done in an area where the scratch cannot be seen (the underside of a heavy chain or the bottom of a ring, etc.).  In most instances, it can easily be buffed out.

Of course, the problem would be in returning the jewelry after you tested it.  The store would say that you swapped out their good stuff for the fakes.  You could always have them tape shut and initial the box (across the tape), then open it at home while filming the process so you had a sort of "chain of custody" thing going on.  Seems a bit much, though.

Personally, if the chain was a hundred bucks or so, I'd take the risk.  If it were more, I think I'd only do business with a long-time, reputable jeweler.  It would likely cost more, but the chances are, you'd be getting the real deal.

Cashiers checks -  Call the bank to verify it is a valid cashiers check.  Virtually all cashiers checks are linked to a central database in each bank.  If at all possible, call the specific branch that produced the check (if it is displayed on the check), as sometimes the centralized Customer Service reps in the service center have no idea how to verify the information.  As a last resort, actually visit a branch of the bank it's drawn on, and ask for cash BEFORE handing over your goods.

My advice:  If you can't verify the check is valid, don't accept it as payment, and walk away from the transaction.  A savvy crooked seller will want to transact business in the evening after the banks are closed or on the weekend.  If you insist on verifying, they might offer to pay a premium, in cash, right NOW!

Of course, you'll end up having sold the item for the amount of the cash premium alone, once the check is deemed to be a fraud.  Trust your gut...

Coins and bullion - It's getting more and more difficult to catch.  With silver bullion, at a minimum check that it is at least stamped .999 and one troy ounce (or whatever weight you're buying).

For both coins and bullion, buy from a reputable seller - be it a brick-and-mortar store, or online.  If using eBay, be sure the seller has TONS of positive feedback and some sort of money-back guarantee.  ANY reputable shop will accept the return of fakes.

With any coins I buy, I always do a weight and size test.  I've now taken to doing a weight and scratch tests on bullion bars and rounds, as the test area is virtually invisible.  I would NOT recommend doing scratch tests on numismatic coins, as you will definitely reduce their value.  Either get them professionally evaluated or accept the risk of a fake.

If you're into Morgan silver dollars, I'd be especially wary.  There are tons of the fakes on the market right now.  Here in the SF Bay Area, there is one shop in San Francisco that is selling these coins on Craigslist.  Anyone who follows coins knows to stay away from this shop, but tourists and the uninitiated are getting slammed.

Personally, this is one of the reasons I primarily buy gold and silver bullion or 90% silver, and not numismatic coins.  The risk involved with these coins is simply not worth it to me.

Photo courtesy of Jinghua Shei.
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Copyright 2010 Bison Risk Management Associates. All rights reserved. You are encouraged to repost this information so long as it is credited to Bison Risk Management Associates.

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