From CoinWeek reported by Charles Morgan and Hubert Walker ………

On February 13, 2014, the Santa Monica City Attorney’s Office filed a consumer protection lawsuit against Santa Monica-based Seacoast Coin, Inc., which is better known as the precious metals dealer Merit Gold and Silver.

Merit is one of the most prominent precious metals dealers in the industry, advertising gold and silver investment instruments on national TV and radio outlets, as well as online. The company is headed by Peter M. Epstein and Michael J. Getlin.

The complaint, case number SC122066 filed with the Superior Court of the State of California for the County of Los Angeles, alleges that Merit engaged “in an aggressive, nationwide fraud scheme that has bilked consumers out of tens of millions of dollars.”

Attorneys for the city claim that Merit has, since at least September 26, 2009, operated a massive “bait and switch” scam, enticing customers–many of whom were senior citizens–to call to order gold and silver bullion at “1% over cost”, only to convince them to buy numismatic and semi-numismatic coins at a premium.

Some of the alleged sales methods are detailed in the filing; they include falsely stating that numismatic and semi-numismatic coins:

• are a better investment than bullion

• offer more privacy than bullion

• are not “reportable” on consumers’ taxes

• can’t be confiscated by the government, while bullion can be.

In addition, the complaint alleges that Merit intentionally confuses consumers “as to which products they are buying, so that many still believe they are paying only one percent over Merit’s cost when in fact they are paying more.”

Santa Monica city attorneys are seeking injunctive relief, fines, and restitution of all monies wrongfully obtained from customers. The case falls under California’s Unfair Competition Law, which protects consumers from false advertising, fraud, and other unlawful business practices.

The suit bears some resemblance to the 2011 lawsuit Santa Monica brought against another bullion dealer, Goldine International Inc., which settled in February 2012 and refunded up to $4.5 million back to customers. The city then went after a second gold dealer in 2012, Superior Gold Group, which was ultimately placed in receivership. Attorney Alan Radinsky, who is involved with the present litigation and was also involved in the two prior cases, spoke with us by telephone about the charges his office is making against Merit.

Radinsky said, “The biggest problems with the precious metals industry is that consumers do not know they are being tricked. The main consumer allegation against Merit is that the 1% is merely the bait. The business model is based on switching consumers from bullion to marked up numismatic and semi-numismatic coins. Merit’s business model is to aggressively disparage bullion in order to get the customer to buy their other coins instead.”

CoinWeek contacted Merit and spoke with Executive Vice President Mike Getlin about the allegations. Getlin defended Merit, saying that Radinsky and city attorneys have misrepresented the facts and acknowledged that the investigation into Merit’s business practices have been ongoing for more than a year. “We were open with them, “said Getlin, “we substantiated our marketing practices and cooperated fully.”

In separate remarks prepared by Getlin in response to the lawsuit, Merit claims that city attorneys Gary Rhoades and Adam Radinsky are representing as facts “several statements that they know to be false and or misleading.”

Getlin insists that Merit, contrary to claims cited in the complaint, does not and did not use dubious sales pitches (like the possibility of future gold seizures by the federal government) to sell its products. Getlin provided us with a company policy form that shows that Merit forbids the discussion of taxes, tax reporting, and the threat of government confiscation in order to sell its products and penalizes its sales advisors with forfeiture of commissions and possible termination for violating this policy. Members of their sales staff are required to sign and acknowledge this form.

Getlin also says that his firm did not use misleading tactics to upsell customers on non-bullion coins, pointing to an article Getlin wrote for the International Business Times, where he cautions precious metals buyers to be dubious of sales pitches that claim that government seizure of gold is likely or imminent. In the same piece, he argues that buying rare or semi-rare coins offers many advantages from “an investment standpoint.

Still, Getlin says that despite his personal feelings on the matter, Santa Monica’s charges are without merit, as the firm Merit has sold hundreds of millions of dollars in bullion at 1% over dealer cost.

CoinWeek will continue to follow the legal proceedings closely and provide updates when the situation warrants.