July 20, 2010 -- An executive with Goldline, one of two gold companies now under investigation for their sales practices, told ABC News Tuesday morning that his company does not intentionally steer customers toward overpriced gold coins – but he also touted the coins as a safe harbor because "no one knows" whether the U.S. government will seize gold from private citizens.
In an interview on Good Morning America, Goldline executive vice president Scott Carter responded to allegations that his company has made a fortune by persuading gold investors that collectable coins are worth buying, despite a hefty mark-up. He said the firm, which weaves its sales pitches into broadcasts by popular conservative political personalities – including two former presidential candidates and Fox News host Glenn Beck – is simply offering its customers sound advice.
"You should hold this three to five years," said Carter, "preferably 10." He said that some of the price of the gold coins his company sells can be traced to "upfront costs." He noted that his firm had been in business more than 50 years, and earned half a billion dollars, and enjoyed an A plus rating from the Better Business Bureau.
Carter also restated a central point of Goldline's sales pitch – that the federal government took gold bullion from private citizens during the Depression, and could always do so again. That's why the company encourages customers to buy collectable coins instead. "It's hard to determine what the government will do," said Carter. "I don't know whether it's a possibility. But [it] has been done before and people are concerned. Many people are paralleling 1933 to today."
In 1933, the federal government paid market value for private stocks of gold.
Carter's interview comes after the announcment Monday that authorities in California had opened an investigation into Santa Monica-based Goldline and a second gold company based in the same city, Superior Gold Group.
"There are two main types of complaints we're seeing," said Adam Radinsky of the Santa Monica City Attorney's office, which has launched what it described as a joint investigation with the Los Angeles County District Attorney's office.
"One is that customers say that they were lied to and misled in entering into their purchases of gold coins," he said. "And the other group is saying that they received something different from what they had ordered."
In an interview broadcast on Good Morning America, Radinsky said the probe is in its early stages and involves more than 100 consumer complaints about Goldline and Superior.
A lawyer for Superior said the company does not comment on investigations. Goldline officials said customer complaints are infrequent and it responds immediately address them. In a letter to ABC News, Scott Carter said, "When we learn that customers have not received the experience they deserve, we investigate and take action."
In launching the probe into gold sales, investigators in L.A. and Santa Monica are opening a new front in a long-running and very public dispute over the way Goldline has turned the sale of gold into a massive retail operation that capitalizes on popular conservative figures – most notably Glenn Beck.
The marriage of conservative talk and gold sales appears to make sense – both have traditionally targeted an audience that is skeptical of the government, concerned about the nation's economic future, and uneasy about inflation and the stability of American currency.
The promotional strategy appears to have been beneficial both to Goldline, which boasts $500 million in sales, and to such conservative figures as Beck and former presidential hopefuls Fred Thompson and Mike Huckabee, all of whose broadcasts are peppered with Goldline advertisements.
The symbiotic relationship is on full display during broadcasts of Beck's daily television show, and on a promotional video Beck shot for Goldline where he said, "The people that I trust are the people at Goldline. And you can talk to the people on the phone. They're not going to pressure you. If it's the right thing for you and your family and you want some insurance, trust the people at Goldline." And on Goldline's website, where visitors can hear Beck's testimonials. And in the direct pitch from Goldline sales associates over the phone, where one recently told a caller, "Now just so you know, Glenn Beck is a client here. He's been with us several years."
But the potent blend of conservative talk and gold sales has brought scrutiny, initially from the political left. U.S. Rep. Anthony Weiner, a New York Democrat, called the relationship between Goldline and the conservative talk shows an "unholy alliance."
"There is an unholy alliance, I call it, between the commentators on Fox News and Fox News' advertising policies to sell ads to these guys," Weiner said. "If you're going to advocate for buying gold, it's certainly your right to do that. But you should tell your viewers there's a dumb way and a smart way to buy gold And very often those advertisements are for a very dumb way to buy gold."
Weiner's congressional office conducted its own investigation into the firm's sales practices and said his complaints about Goldline are not just a matter of politics. Weiner told ABC News that neither the sale of gold nor the promotion on conservative broadcasts is the real problem. The rip off, as he called it, was in Goldline's push to get consumers to buy gold coins instead of pure gold.
"Once they get people on the phone, they basically steer them into these so-called collectible coins and that's where the rip off becomes really profound," Weiner told ABC News Chief Investigative Correspondent Brian Ross.
"So there's no other value that these coins have because they're unusual or because there's a mistake in them?" Ross asked.
"There's no doubt about it, that there's a whole universe of rare collectible coins and I know nothing about that field," Weiner replied. "Except to say this: Goldline doesn't sell those coins."
Goldline disputes this, saying the company sells "a variety of products ranging from the most common bullion coins to exceptionally rare certified coins."
ABC News interviewed a number of Goldline customers who said they were concerned they had been persuaded to buy gold coins that did not hold the same financial promise of buying pure gold.
One of the customers was 63-year old Joe Kismartin of suburban Detroit. He says what he heard from Beck and elsewhere on TV about gold and the Goldline company made a lot of sense.
"They got the commercials on TV and the way the economy's going I was figuring well, maybe I'll just do it for a little bit, save it for inflation, you know, in case something happens to the economy, it bottoms out and I've got something to fall back on, gold, rather than money," he said.
But Kismartin says he ended up losing almost half of the $5,000 he spent, because, he says, the Goldline salesman pressured him to buy overpriced gold coins, not the gold bullion he had seen in the commercials.
"I wanted to go bullion, I didn't want coins," he said. "I told the gentleman I don't want coins. He said I got the deal here, the special deal, I got Swiss coins. He more or less talked me into buying the coins."
When Kismartin took the coins to a local coin shop, he was told the $5,000 worth of gold coins he bought from Goldline five months earlier was worth just over $2,900, a loss of $2,100. "You know, I'm living month to month, that's a big loss."
Zoanne Martz of Sacramento says the same thing happened to her with Goldline when she was persuaded to buy $13,000 of overpriced Swiss gold coins. Each one priced at $250 dollars.
"I was recently laid off so I was looking for getting back some of my money and I found that the most I could get back for one of those was $207 now," she said.
And that's despite the fact the price of gold has almost doubled since she bought the coins three years ago. "I just really felt like, I kind of, that I was suckered. I really was. And I really felt that this was a reputable company that I could feel pretty safe with."
Goldline said it looked into each case Monday, and found that while both customers had initially complained, the company believed they wound up satisfied. And one of them – Goldline did not identify which one – was provided "a number of written disclosures at the time of purchase that went even further than Goldline's ordinary written disclosures," and yet went ahead with the purchase anyway.
Some angry customers say Goldline invokes Glenn Beck as a way to steer them to their collectable gold coins, citing his frequent warnings that only gold coins are safe from government seizure." You see, back in 1933, FDR said, 'Okay, we're going to take all your gold and gee, it's worth $8 an ounce.' But some people got smart and they said, 'Well, wait a minute. I've got antique coins, you can't melt these down.'"
That's what Martz says she was told by Goldline – "that would make your investment more secure because the government couldn't come in and take your gold basically," she said.
And that's what a Goldline salesman told a researcher for a liberal media watchdog group, Media Matters, who set out to buy gold from Goldline to see what would happen. Media Matters provided ABC News with a copy of the sales call it recorded.
"When it comes to holding physical gold, there's a couple concerns our clients have. Are you concerned with what happened in 1933? Glenn Beck talks about this very often," the Goldline sales associate says.
"Yeah, I wanted to ask you about that," the Media Matters researcher says on the recording, which was conducted with the permission of the salesman.
The salesman replies: "So Glenn Beck just says, 'Look, they've confiscated bullion before. I want to have what they exempted from confiscation, cause I don't want them messing with my gold. So they exempted any coins that had a recognized, special value to collectors."
Weiner told ABC News that the entire claim is built on a fiction. "It is absolutely not true that the government has any power to confiscate your gold or confiscate your currency," he said. "But that fear is profound … and very often the very same commentators that are stoking that fear are also selling these coins."
Beck and Fox News declined to be interviewed by ABC News, but a spokesman for Beck noted that Goldline has an A plus rating from the Better Business Bureau and the consumer fraud investigation in California is more about politics than anything else.
"We expect our advertisers to treat our audience well. With its A+ rating from the Better Business Bureau, Goldline has met that standard before and we expect any issues that our listeners have to be addressed swiftly and appropriately, even if complaints only represent a small percentage of overall orders," said Josh Raffel, a spokesman for Beck.
A Fox News spokeswoman said the network has not received a single complaint from a viewer about Goldline. ABC News was unsuccessful in obtaining responses from Huckabee and Thompson.
Goldline officials said its customers decide to buy coins only after they have all the information about the purchase in front of them. In his letter to ABC News, Goldline's Scott Carter said the company's "pricing is transparent" and "fees and commissions are disclosed in writing."
"Further, for many of its products, Goldline offers a price guarantee program, payment by credit card, and a seven day (or longer) refund period. Within our very competitive market, we believe these benefits are among the reasons customers choose Goldline," Carter said.
In interviews with two former Goldline employees, ABC News was told the company pays close attention to legal requirements – training its sales force to avoid offering investment advice or triggering any legal tripwires during sales calls. But that does not mean they do not try to persuade customers to buy coins. In fact, one former sales associate, who spoke only on the condition he not be identified, said the entire sales approach is built around coins.
That effort was at the root of Kismartin's complaint – and not politics. He said he remains one of Glenn Beck's loyal viewers.
Radinsky, of the Santa Monica City Attorney's office, said the same is true of the investigation into the two gold firms.
"Glenn Beck has nothing to do with our investigation. Our investigation is about transactions with individual customers and the complaints that they've raised. And politics really has nothing to do with it. It's all about consumer protection for us," he said.
Radinsky said his office is continuing to gather complaints. Customers of Goldline and Superior who have complaints can contact his office through a special website, www.gold.smconsumer.org.