Newport Beach Coin Dealer Under Investigation

Hannes Tulving Rare Coin Investments, one of the nation’s largest coin dealers, said Wednesday that it is being investigated by the Federal Trade Commission and the California Department of Corporations.

Both agencies are looking into the Newport Beach firm’s pricing practices as well as its guaranty and warranty programs, said Hannes Tulving, the company’s owner. No charges have been filed against the company, which had sales of $30 million to more than 4,600 clients in 1989.

“The investigations don’t bother me,” Tulving said in an interview. “We’ve run a clean ship, a clean house.”

A spokeswoman for the FTC would neither confirm nor deny the investigation. California Department of Corporations officials could not be reached for comment.

Tulving said the FTC has been inquiring about the company’s operations for several months. He said state investigators had made inquiries along the same lines as federal officials.

In addition to the investigations, the Tulving firm was suspended in late April by the Coin and Bullion Dealers Accreditation Program, a trade association that issues the coin industry’s seal of approval.

Barry Stuppler, chairman of the trade group, said it took the action after receiving 30 to 40 complaints about Tulving allegedly overpricing coins and reneging on a buyback policy. Tulving is the only firm ever to be suspended by the trade group, Stuppler said.

Since the end of March, numerous Tulving clients have seen their investments go bad. For instance, the value of coins held by a Newport Beach company’s pension plan fell from $254,670 on March 1 to just $110,035 on May 25, according to financial statements from Tulving.

“There are a lot of people who are real nervous,” said the company’s owner, who asked not to be identified.

Tulving, 35, blamed the price drops on an industrywide slump in the rare coin market. He and others say the slump began March 26, when several market makers on a national computerized coin trading exchange suddenly stopping bidding, causing coins to slip 15% in value.

Among issues that investigators are examining are complaints that Tulving had overpriced coins, causing the market drop to be magnified.

“There was something seriously wrong because the value of the coins published by Mr. Tulving did not correspond at all with the value of the coins on the market,” said L. J. Chris Martiniak, an attorney representing several trust funds that recently sued Tulving. The case, which alleged fraud and misrepresentation, was settled out of court this week.

Some people in the coin industry contend that Tulving unilaterally set higher bid and ask prices, thereby keeping customers happy and insulated from market fluctuations--as long as they traded within his system. But with the market drop in late March, a rush of sellers short-circuited the system, the critics’ theory goes.

Tulving denies the allegation and says his firm may actually have underpriced coins. Tulving said he studied 676 randomly selected coins and said they were sold for $141,834 but were actually worth $192,045 using a relatively new national standard for “grading,” or assessing a coin’s condition.

Besides pricing, investigators are looking at the company’s decision to rescind a 10-year promise to buy back coins. Customers were notified of the policy change in a letter dated four days after the rare coin market fell into a rut. Tulving’s policy was that it would repurchase any coin for a price consistent with its grade. The company also decided to drop a 60-day return privilege as well as a one-year guarantee of satisfaction.

Now, in a number of lawsuits against the company, buyers charge that they were misled.

“None of this was disclosed to investors,” said Martiniak.

Tulving said the decision to change the buyback policy was made well before the market drop, even though customers did not find out about it until afterward.

“We felt it would be better to change the policy beforehand, rather than be forced by some agency to do that,” said Tulving. “We were never told by anyone we shouldn’t be making that kind of guarantee.”

He said the coin market has changed dramatically in the last year, including a new emphasis on a grading standard and the introduction of a computerized trading system. To survive, Tulving said, his firm decided that it had to change the way it did business.

“I cannot dominate and control the coin business,” he said.