Federal Trade Commission Versus PCGS

FOR IMMEDIATE RELEASE: August 17, 1990
I got this from FTC's website and thought it would be something to pass on to everyone else to let them see whats going on with PCGS

FTC CHARGES COIN CERTIFICATION CO. MISREPRESENTS
OBJECTIVITY OF ITS COIN GRADING SERVICES;
COMPANY AGREES TO SETTLEMENT


The Federal Trade Commission has charged that Professional
Coin Grading Service, Inc. ("PCGS") misled consumers by falsely
claiming that it provides consistent, objective grading of coins
and that investment in PCGS-certified rare coins eliminates all
the risk associated with the grading of coins. Under a consent
decree filed August 16 in federal district court, PCGS is prohibit-
ed from making false representations about its objectivity, con-
sistency, or the liquidity of its coins, and from making deceptive
statements about the risks of investing in graded coins.

According to the FTC's Boston Regional Office, which handled
the investigation, PCGS was formed in August 1985 by seven promi-
nent rare coin dealers for the purpose of providing a consistent,
impartial, "certified" coin grading service upon which purchasers
and sellers of rare coins could depend. For a fee of approximately
$25 to $100 per coin, PCGS claimed that a coin would be impartially
and accurately graded by several of "the world's top grading
experts."

According to the complaint accompanying the consent decree,
PCGS falsely represented that its grading system is objective, con-
sistent, and unbiased; that an investment in PCGS coins eliminates
the risk associated with the grading of coins; that its coins can
be liquidated easily at reasonable, competitive prices; and that
it observes a "strict anti-self interest policy."

In fact, the complaint charges, PCGS has not provided object-
ive or consistent grading, and coin grading involves a certain
amount of subjectivity. Not all PCGS-certified coins can be li-
quidated easily at reasonable, competitive prices, according to
the complaint, and PCGS does not in all cases observe its "strict
anti-self interest policy." In addition, the complaint charges,
investment in PCGS-certified coins does not eliminate all the risk
associated with the grading of coins.

(More)

Under the terms of the consent decree, PCGS is subject to num-
erous prohibitions and requirements. PCGS is prohibited from mis-
representing that its grading is objective, consistent or unbiased,
or that an investment in PCGS-certified coins eliminates all risks
associated with the grading of coins. PCGS is also prohibited from
misrepresenting that PCGS-certified coins are liquid at reasonable,
competitive prices.

In addition, for a period of two years, PCGS must disclose in
all of its advertising and promotional material that "Certification
by PCGS does not guarantee protection against the normal risks
associated with potentially volatile markets." The decree further
requires that any claims about the safety or security of an invest-
ment in PCGS-certified coins be accompanied by a clear and conspic-
uous disclosure that the rare coin market is highly speculative and
subject to risk. PCGS must also clarify its liquidity claims with
a disclosure that the degree of liquidity, and the availability of
markets for certain coins, will vary from time to time.

The complaint and consent decree were filed in the U.S. Dis-
trict Court for the District of Columbia.

Professional Coin Grading Service, Inc. is based in Santa ANA,
Calif.

A consent decree is for settlement purposes only and does not
constitute admission of a law violation. Consent decrees have the
force of law.

Copies of the complaint and consent decree are available from
the FTC's Public Reference Branch, Room 130, 6th St. and Pennsyl-
vania Ave. N.W., Washington, D.C. 20580; 202-326-2222; TTY 202-
326-2502.

# # #

MEDIA CONTACT: Office of Public Affairs, 202-326-2180

STAFF CONTACT: Phoebe D. Morse, Boston Regional Office,
617-565-7240


(Civil Action No. 90-1982)