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New Jersey federal prosecutors say they've uncovered a plot to defraud the U.S. Mint out of more than $5.4 million by metal recyclers trying to redeem counterfeit coins.

(Getty Images File photo)

NEWARK — Federal investigators in New Jersey say they have uncovered a $5.4 million plot to defraud a U.S. Mint-run program that redeems unusable dimes, quarters and half dollars.

In court papers filed last week, federal prosecutors lay out a daring scheme led by several U.S.-based metal recyclers - one based in New Jersey -- to import counterfeit coins from China in an effort to take advantage of the U.S. Mint's century-old Mutilated Coin Program.

The program pays recyclers nearly $20 per pound for dimes, quarters and half dollars that have been bent, broken, corroded or no longer can be counted by machine.

The suspicions of investigators with U.S. Customs and Border Protection were raised in 2009 after they witnessed an uptick in shipments of mutilated coins coming through the Port of Los Angeles, prosecutors say. They reported their concerns to Homeland Security Investigations.

Most of the shipments were coming from China, with recyclers claiming the coins were discovered in cars exported to China as scrap metal, prosecutors say.

Among the tip-offs for investigators was the number of half dollars coming in from China for redemption outpaced the total the U.S. Mint has made, they say.

"Interestingly, United States Mint personnel also believe that more half dollars have been redeemed by China-sourced vendors in the last 10 years than the United States Mint has ever manufactured in its history," according to a forfeiture complaint filed in U.S. District Court on March 20 by Assistant U.S. Attorney Lakshmi Srinivasan Herman.

In late 2010, federal agents investigated three shipments of damaged coins in Los Angeles that were imported by Guang Han Trading of New Brunswick, court papers say.

A sampling of the coins, valued at nearly $400,000, showed that they contained aluminum and silicon, elements not present in coins manufactured by the U.S. Mint, they say.

And the coins were all "mutilated" in a similar fashion, prosecutors say. They were "mechanically cut or deformed and corroded by some type of unknown chemical before being washed," the court papers say.

Guang Han Trading is owned by Qianru "Amelie" Xu and imports mutilated coins from China into the U.S, according to court papers.

She could not immediately be reached for comment. No one has been arrested in the case, according to New Jersey federal prosecutors. And prosecutors declined to say whether they intend to bring criminal charges.

The court papers filed last week seek the forfeiture of some $5.4 million that the U.S. Mint was scheduled to pay three different companies for 2014 shipments of mutilated coins that have been found to be counterfeit, prosecutors say.

In June 2014, the coins were delivered to a foundry in Cedar Rapids, Iowa that melts coins for the U.S. Mint, they say. A sampling of the coins showed that they contained aluminum and silicon, prosecutors say.

The feds are also seeking a Dallas property that belongs to Kei Yi Loung, the owner of a company called American Naha that exports scrap metal to China and imports mutilated coins into the U.S., the court papers add.

Between 2012 and 2014, American Naha received approximately $6.4 million in reimbursements from the U.S. Mint for mutilated coins, the court papers say. Loung, who also goes by Kenny Loung, could not be reached for comment.

Prosecutors are trying to seize a 2014 Black Porsche Cayman Coupe that Loung paid $81,000 for in October 2013.

Prosecutors say Loung, along with other metal recyclers, have claimed that the coins they redeemed in the U.S. were found in cars exported to China for scrap metal.

But a 2009 analysis by Customs and the U.S. Treasury's Office of the Inspector General compared the numbers of cars exported to China against the number of damaged coins imported from China, court papers say.

"There would have to be approximately $900 in coins in every vehicle ever exported to China as scrap metal in order to account for the total amount of waste coins imported from China for redemption," Herman writes.

The second largest importer of scrap metal from the U.S. is India and, to date, the U.S. Mint has not received any mutilated coins from there, the complaint says.

Each year, according to the complaint, the U.S. Mint loses money with its mutilated coin program "because it only makes a profit on the metal it recovers, which is much less than the redeemed value."

The coins are melted and reused.

In 1999, the Mint began scheduling quarterly "melts" of mutilated coins at its foundries to keep up with an increased volume of "waste coins" coming in from China, the court papers say.

"Previously, the melts were scheduled much less frequently and the United States Mint was able to accept all mutilated coins at its facility in Philadelphia," the complaint adds.

Thomas Zambito may be reached at tzambito@njadvancemedia.com. Follow him on Twitter @TomZambito. Find NJ.com on Facebook.