FTC Seizes L.A. ‘Boiler Room’ Selling Coins : Telemarketing Firm Allegedly Greatly Inflated Its Prices

The Federal Trade Commission said Thursday that it has seized control of a Los Angeles-based “boiler room” operation accused of using fraudulent telephone pitches to sell rare coins at greatly inflated values.

The action stems from an FTC civil suit charging the National Alliance of Coin Brokers and three of the company’s officers with misrepresenting the value of coins in a nationwide telemarketing campaign. The firm generated revenue of about $2 million during the past 12 months by selling coins at three times their appraised value, said Marcy J. K. Tiffany, director of the FTC’s Los Angeles office.

U.S. District Judge Manuel Real in Los Angeles issued a temporary restraining order Wednesday halting the operation and freezing the company’s assets. So far, only about $25,000 in assets have been identified, Tiffany said.

On Monday, the FTC will ask the court for a permanent restraining order seeking a shutdown of the operation and restitution of funds to thousands of customers allegedly defrauded. The suit named as defendants company President Kenneth Vilkin of Marina del Rey, General Manager Lou Donnelly of Los Angeles and Ronald Cunningham of Manhattan Beach, who was identified as a former president of the company.

Inherited Operations

Donnelly and Vilkin could not be reached for comment. Cunningham, reached by telephone, acknowledged being named as a defendant in the case but said he is not a former president of the National Alliance of Coin Brokers. He declined to make any further comment.

The suit said the company began its telemarketing operation in March, 1988, shortly after Omnivest--a coin brokerage also controlled by Vilkin--declared bankruptcy. The National Alliance of Coin Brokers inherited the retail operations of Omnivest, a firm that had operated since 1985, Tiffany said.

FTC officials said the defendants managed a boiler room at which 15 to 20 telephone salespeople followed scripted sales pitches designed to counter such customer responses as “not interested” and “call me back.”

Rare pennies and silver dollars minted in the late 1800s and early 1900s were among the types of coins offered, FTC officials said. The company did not deliver the coins in some cases, Tiffany said.

FTC lawyers said the salespeople first sought an investment of $25,000 to $50,000 from individual potential customers but worked their way down to a “minimum” purchase of $5,000. The company claimed that buyers could reap significant profits by reselling the coins three to five years later, according to the suit.

Tiffany said the company sold pennies appraised at $600 for as much as $2,400 to investors. “With that kind of mark-up, it’s clear that consumers were not going to make any kind of profit,” Tiffany said.

The FTC began to investigate the company when it received complaints from disgruntled customers, Tiffany said.

“The message to the consumer is: Be careful when you make investments over the phone,” she said. “You don’t buy a refrigerator over the phone, and you don’t buy a car over the phone. . . . Be careful when you buy coins over the phone.”