Which of these coin dealer hypotheticals are acceptable/ok/ethical?

[MarkFeld]

I posted this across the street recently. Only the name of the grading service has been changed.

 

Dealer A sees a an unusually rare, easily identifiable and very cool NGC coin in dealer B's inventory at a major coin show and, while he doesn't have a particular client in mind for it, he would love to have the opportunity to try to sell the coin (and of course, make some money ). So, dealer A says to dealer B "I'd like to try to place that coin - may I have it on consignment at price X for 2 weeks?" Dealer B, rather than asking any of the specifics, says "Sure, good luck." Dealer A, with dollar signs dancing before him says "Thanks" and takes the coin with him.

 

1) Dealer A gets back to his office the next day and lists the coin at a 20% mark-up on his website, without having mentioned to dealer B that he was going to do that - is that ok? Should he have mentioned to dealer A, at the time he took the coin on consignment, that he planned to list the coin on his website, rather than offer it privately?

 

2) Dealer A thinks the coin has a shot at an upgrade so he cracks the coin out and submits it to NGC - is that ok?

 

3) Same as above but dealer A submits the coin to NGC for re-grade in the holder, rather than cracking the coin out - is that ok?

 

4) Dealer A shows and offers the coin to several other dealers, rather than his own clients - is that ok?

 

5) Dealer A has no luck upgrading or selling the coin but decides he'd be ok stocking it at 10% less than price X, the price he asked if he could have it on consignment at in the first place. So, he calls dealer B and offers 10% less than X - is that ok?

 

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

7) Same as above, but dealer B says, "No thanks and please send the coin back, I have it sold to a client of mine". Is dealer A obligated by ethics, contract law or anything else to send the coin back?

 

Ok, for those who care to reply, it's time to put on your thinking caps and hit me with your thoughts and brilliant analysis....

[gmarguli]

1) Dealer A gets back to his office the next day and lists the coin at a 20% mark-up on his website, without having mentioned to dealer B that he was going to do that - is that ok? Should he have mentioned to dealer A, at the time he took the coin on consignment, that he planned to list the coin on his website, rather than offer it privately?

 

It's OK. Dealer B should have asked how Dealer A was going to sell it if he cared. On more than one occasion I have seen the same coin in two different dealer inventories on the web at different prices. A while back there was a superb gem proof Morgan that managed to hit 3 dealer inventories at the same time - all at very different prices.

 

What's this PCG$ you're talking about. It's an NGC coin.

2) Dealer A thinks the coin has a shot at an upgrade so he cracks the coin out and submits it to PCGS - is that ok?

 

Sure it is OK, but Dealer A just purchased the coin by doing this.

 

 

3) Same as above but dealer A submits the coin to PCGS for re-grade in the holder, rather than cracking the coin out - is that ok?

 

That's a tough one. If the coin doesn't upgrade then it is returned with the same insert number, just a new slab and there is no harm. I would say this is OK. However, if the insert/slab were of an older variety, such as the "guaranteed 2-point upgrade rattler slabs" or the "guaranteed 1-point upgrade green insert slabs", then no, it would not be OK.

 

 

4) Dealer A shows and offers the coin to several other dealers, rather than his own clients - is that ok?

 

Again, Dealer B never inquired how Dealer A was going to place it so it shouldn't matter.

 

 

5) Dealer A has no luck upgrading or selling the coin but decides he'd be ok stocking it at 10% less than price X, the price he asked if he could have it on consignment at in the first place. So, he calls dealer B and offers 10% less than X - is that ok?

 

Sure. Dealer B doesn't have to accept the offer and he is out nothing if he says no. It's basic bargaining.

 

 

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

Sure, that's just good business. However, he opens himself to problems. He could get around this problem if he were smart.

 

 

7) Same as above, but dealer B says, "No thanks and please send the coin back, I have it sold to a client of mine". Is dealer A obligated by ethics, contract law or anything else to send the coin back?

 

Here is the problem. Dealer A basically indicates the coin hasn't sold yet and Dealer B wants it back. What should happen depends on how long has passed. Is the two weeks up? If yes, Dealer B gets the coin back and Dealer A is screwed. If no, then I feel that Dealer A has a right to the coin.

 

There is no ethics in the coin business, so that shouldn't even enter your mind.

 

Contract law? Wasn't it a verbal contract for 2 weeks? If so, Dealer A has a right to that coin for those full 2 weeks. Unless, there was a stipulation that Dealer B could demand the coin back at any time.

 

[MarkFeld]

Thanks Greg - I have edited my post. I'll dissect your replies (and mabye you, too,if you misbehave) at a future date.

[DonHeath]

Mark,

 

If I owned the coin and was asked by another dealer to allow him to show the coin, I would assume it was a favor, and he/she might have a customer for it. I would also assume his/her intention was to show it to his clientele, and not to act as my advertising agent or to pollute my future market, or to treat the coin as his own. If he did otherwise, it would be only once. JMO

[jtryka]

I'll give my opinion, but it's based mostly on general business ethics, rather than the idiosyncracies of the coin dealer world, so here goes nothing:

 

1) Dealer A gets back to his office the next day and lists the coin at a 20% mark-up on his website, without having mentioned to dealer B that he was going to do that - is that ok? Should he have mentioned to dealer A, at the time he took the coin on consignment, that he planned to list the coin on his website, rather than offer it privately?

 

I really see no problem with this. Dealer A took it on consignment to market to customers, and putting it on the site is part of that marketing. Dealer B basically made a contingent sale at price X, and if he had actually sold it outright, Dealer A could have done the same thing.

 

2) Dealer A thinks the coin has a shot at an upgrade so he cracks the coin out and submits it to NGC - is that ok?

 

This would only be ok if dealer A realizes that once he cracks it he bought it. No more contingent sale, he now owns it. In general though, I think it's wrong for a person to do this sort of thing on a contingent purchase, without including it in the terms of the deal.

 

3) Same as above but dealer A submits the coin to NGC for re-grade in the holder, rather than cracking the coin out - is that ok?

 

I see this as the same as #2.

 

4) Dealer A shows and offers the coin to several other dealers, rather than his own clients - is that ok?

 

I see no problem with this, it's the same as #1, he took it on consignment, and can market it any way he wants in an effort to sell it and generate X for Dealer B and a profit for himself. In this example as well as #1, it almost appears as an agency transaction, whereby Dealer A is acting as agent for Dealer B.

 

5) Dealer A has no luck upgrading or selling the coin but decides he'd be ok stocking it at 10% less than price X, the price he asked if he could have it on consignment at in the first place. So, he calls dealer B and offers 10% less than X - is that ok?

 

This one is entirely up to Dealer B. Basically, Dealer B granted Dealer A a purchase option at $X with a 2 week expiration (where the value of the option is embedded in the strike price most likely). At expiration, Dealer A can exercise or let it expire worthless. The case above describes the expiration of the worthless $X call option, and the subsequent effort by Dealer A to obtain a new call option with a lower strike price, or alternatively, trying to buy the underlying asset at the current lower value. This is certainly a valid action by A, and is entirely up to B if he wants to sell it at the lower price.

 

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

This one in my mind is unethical. A made the agreement, and basically exercised the call option, but now wants to renegotiate the strike price. That is just a slimy maneuver in my eyes.

 

7) Same as above, but dealer B says, "No thanks and please send the coin back, I have it sold to a client of mine". Is dealer A obligated by ethics, contract law or anything else to send the coin back?

 

This is a tough one. By engaging in the attempted option repricing in #6, Dealer A is implying that he has not sold the coin (as in #5), and in this case, Dealer B can request the return of the coin. If this is within the 2 week time frame, then A can just buy it for the agreed upon price. If not, then B can request the return of the coin. Now, there are two ways of looking at this, normal contract law, or as an option agreement (which is a very specialized subset of contract law).

 

Under a normal contract (and you lawyers can correct me if I'm wrong, it's been more than a decade since I took Business Law) there is an offer and acceptance process. B basically offered to sell the coin to A at $X, open for 2 weeks (though I can't remember if that part is binding). When asking for the lower price, A in effect rejected the initial offer and made a counter offer (hence B is no longer bound by the first offer). Now B can either accept or reject A's offer. As for B selling it to another customer, he could withdraw his iniitial offer to A, which I think might be legal but in my view is unethical.

 

Looking at this as an option, B sold a call option (a right to buy) to A with a strike of $X. At this point, A has the right to buy it at $X from B, and B is obligated to sell it to A for $X within the next 2 weeks. If B sells the underlying asset to someone else during the life of the option, then he is naked short, and is obligated to both parties (ouch!). Under this thinking, A would still be able to exercise the option at $X even after the counter offer at 0.90X.

 

Bottom line here is that I believe A is wrong for selling and trying to get out of his obligation to buy it at $X, and B is wrong for letting A sell the coin, while he was selling it as well. B should have either immediately told A that he sold it to prevent it from being sold twice, or more appropriately told his customer that it was pending sale to A and if that falls through then he could buy the coin.

 

Those are only my opinions, and I am not a lawyer or coin dealer, so there may very well be other legal and or interpersonal considerations as well (i.e. you might lose a friend or make someone angry over this).

[gmarguli]

Under a normal contract (and you lawyers can correct me if I'm wrong, it's been more than a decade since I took Business Law) there is an offer and acceptance process. B basically offered to sell the coin to A at $X, open for 2 weeks (though I can't remember if that part is binding). When asking for the lower price, A in effect rejected the initial offer and made a counter offer (hence B is no longer bound by the first offer). Now B can either accept or reject A's offer. As for B selling it to another customer, he could withdraw his iniitial offer to A, which I think might be legal but in my view is unethical.

 

Who says that he rejected the initial offer by asking for a lower price? In my mind, that offer is still on the table and he is just asking if a lower offer could be made. He isn't saying no to the original offer, just asking the dealer if a better price is available.

 

Ever ask a dealer "is that the best you can do"? Were you outright rejecting the original offer or were you maybe willing to pay it, but you'd be happier at a lower price. When I ask that question, in my mind the original price quoted is still available. The dealer never snatches that offer off the table. He either is willing to work on the price or he is not and I can buy it at the previously quoted price.

[jtryka]

Greg,

 

I think that the counteroffer being a rejection of an offer is the fundamental definition in contract law. Note, asking if that's the best price is saying something very different than, "I'll give you $Y." A counter offer by it's definition is a rejection of the original offer. Now the seller can stick by that original offer, but he is not legally obligated once you make the counteroffer. There is an offer, then there is either acceptance or rejection of the offer. In legal terms, a counteroffer constitutes rejection of the original offer.

[spy88]

Here is the way I see the situations given (and without reading anyone elses post).

 

1)No---dealer B knows that dealer A will do whatever he can to sell the coin. No specifics are required nor were they asked for.

 

2)NEVER!!!

 

3)No---if it came back +/- a point, dealer A would have to purchase the coin at dealer Bs $X price. Depending on the coin and the grade, a -1 could amount to many, many dollars below the $X price. Why force the issue and put yourself in such a position? What if dealer B sells it while it is being submitted, and wants it back? Plus, he has only two weeks. Is he sure it will come back inside the time frame?

 

4)Absolutely. See 1) above.

 

5)Yes---an offer is just that, an offer. Dealer A can take it or leave it.

 

6)I'm a firm believer in the old saying..."It never hurts to ask." However, in this case, it is after the fact of selling it. Therefore,I think that the correct and ethical thing to do would be to purchase the coin for the X price first given. Trying to make an extra 10% profit from dealer A on top of the 20% profit from the sale is too "shysterish". Then again, dealer B can always say no.

 

7)Yes---he must send it back. Period. No offer from dealer A to purchase at a price higher then dealer B has already sold it for should be even considered.

 

JMHOs. David

[TomB]

I haven't read any of the replies yet because I wanted to keep straight all of these Dealer A and Dealer B scenarios. It's like taking a math test! Based only upon what you have written as their interaction, here is my take.

 

1) Dealer A gets back to his office the next day and lists the coin at a 20% mark-up on his website, without having mentioned to dealer B that he was going to do that - is that ok? Should he have mentioned to dealer A, at the time he took the coin on consignment, that he planned to list the coin on his website, rather than offer it privately?

 

To me, this is technically okay, however, if I were to take the coin from someone else I think I would have the courtesy to mention to them, in detail, what I planned on doing with it. Of course, having Dealer A tell Dealer B that

"I'd like to try to place that coin

 

infers, to me, that Dealer A has some specific person or group in mind for this transaction at the time of the conversation. This part leaves me uneasy.

 

2) Dealer A thinks the coin has a shot at an upgrade so he cracks the coin out and submits it to NGC - is that ok?

 

Absolutely not. At the point that the slab is cracked, Dealer A owns the coin.

 

3) Same as above but dealer A submits the coin to NGC for re-grade in the holder, rather than cracking the coin out - is that ok?

 

Same comment as above. Absolutely not. At the point that the slab is cracked, Dealer A owns the coin.

 

4) Dealer A shows and offers the coin to several other dealers, rather than his own clients - is that ok?

 

While this is technically okay with me, it isn't ethically okay with me. After all, the coin will appear to lose "freshness" by having someone walk around with it. This might hurt its resale potential for Dealer B should the coin come back to Dealer B. Also, the price level that Dealer A is offering the coin at might affect the transaction potential for Dealer B should Dealer B attempt to move the coin in this manner.

 

5) Dealer A has no luck upgrading or selling the coin but decides he'd be ok stocking it at 10% less than price X, the price he asked if he could have it on consignment at in the first place. So, he calls dealer B and offers 10% less than X - is that ok?

 

I see nothing wrong with asking to buy the coin outright for 10% back of the agreed upon consignment price. However, should Dealer B refuse, then Dealer A owns the coin should he have already cracked it out.

 

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

While this might work, it would likely come back to bite Dealer A in the behind. It really isn't worth a business reputation to make money this way, although I feel confident that this goes on to a certain extent.

 

7) Same as above, but dealer B says, "No thanks and please send the coin back, I have it sold to a client of mine". Is dealer A obligated by ethics, contract law or anything else to send the coin back?

 

Dealer A better purchase that coin back and get it to Dealer B if he doesn't want some serious professional trouble. As for the legalities of it, I have no clue. You do, however, have a degree in law don't you Mark? What is your take.

 

Okay, now it's time to read what others wrote!

[Leothelion]

The nerve of that guy A! Otherwise, there's way too much to consider in all the scenario's. Depends on what relationship and terms they were on! Consigning coins to someone who you can trust but someone you don't know? I can't imagine it doesn't happen, most likely, quite often!

 

Leo

[davefperry]

Dealer B should be more careful. All dealer A said was that he'd like to place the coin. He should be able to sell it for 2 weeks in any fashion. If he cracks it out and alters it he should own it at agreed upon price immediately. If he makes a counteroffer he has in effect voided the original contract and the coin belongs once again to dealer B and dealer A might have a world of headaches.

[michael]

i guess for me both dealers are at fault if they did nmot have some sort of agreement/understanding in the first placve and made their thoughts known to one another before the coin was taken on consignment

 

1 i would call the dealerb and tell him i am going to list this coin on the website and ask his permission and then clarify what can and cant be done with the coin in terms of offering it for resale and regrade etc. etc.

 

2 no no no no unless he calls dealer b and asks for his permission and then if so what are the paramaters of such a thing in other words who takes the "loss" if the coin bodybags and/or downgrades etc.

 

 

3 for me i do not see a problem with this but i would still call dealer b and ask him if this is acceptable

 

4 no problem

 

5 i would just return the coin to the dealer

 

6 no no no

 

7 i do not know

[MarkFeld]

Here is my take on the situations presented below, keeping in mind that dealer A said the following to dealer B :

" I'd like to try to place that coin - may I have it on consignment at price X for 2 weeks?" and that Dealer B, rather than asking any of the specifics, said "Sure, good luck."

 

1) Dealer A gets back to his office the next day and lists the coin at a 20% mark-up on his website, without having mentioned to dealer B that he was going to do that - is that ok? Should he have mentioned to dealer A, at the time he took the coin on consignment, that he planned to list the coin on his website, rather than offer it privately?

 

Since there was no mention by dealer A or question by dealer B, regarding how dealer A planned to try to "place the coin", I think dealer A is within his rights to list the coin on his website. However, I still think he should have addressed that issue at the time he took the coin on consignment.

 

When I take a coin on consignment from another dealer, if I will want to list it on our website, I ask for permission at that time. You'd be surprised at how many people think that "placing a coin" is a more private means of selling, such as in making a few discrete phone calls to clients.

 

Remember, the coin in question was described as "an unusually rare, easily identifiable and very cool PCGS coin." I think that can make a difference too - the more easily identifiable and special the coin is, usually, the less likely the owner will be ok having it shopped around in a very public fashion.

 

Another consideration in this, as well as the other situations presented, is the relationship and history between the dealers involved. Things might be understood between them or not, depending upon the particulars.

 

One of my main points to this thread, is to encourage dealers, as well as non-dealers to communicate clearly. That can solve a lot of problems BEFORE they arise.

 

Now, moving on and I promise, my other answers will be MUCH shorter!

 

2) Dealer A thinks the coin has a shot at an upgrade so he cracks the coin out and submits it to PCGS - is that ok?

 

NOT ok - that was not the arrangement when he took the coin on consignment. If he wants to do that, he needs to get permission before the fact.

 

3) Same as above but dealer A submits the coin to PCGS for re-grade in the holder, rather than cracking the coin out - is that ok?

 

NOT ok - same as #2 above.

 

4) Dealer A shows and offers the coin to several other dealers, rather than his own clients - is that ok?

 

That is NOT ok in my book. The term "placing a coin" is generally understood to mean putting it in the hands of a collector client. If dealer A wants to shop the coin around to other dealers, he needs to get permission from dealer B.

 

5) Dealer A has no luck upgrading or selling the coin but decides he'd be ok stocking it at 10% less than price X, the price he asked if he could have it on consignment at in the first place. So, he calls dealer B and offers 10% less than X - is that ok?

 

That IS ok (although as mentioned above, dealer A. had no right to try to upgrade the coin).

 

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

This is done by some dealers but is NOT ok in my book. I think it is unethical to have the coin sold and then ask for a discounted price, without disclosing the sale to the other dealer. For anyone who says that's business, not ethics, I'd say the two are, or at lest should be related.

 

7) Same as above, but dealer B says, "No thanks and please send the coin back, I have it sold to a client of mine". Is dealer A obligated by ethics, contract law or anything else to send the coin back?

 

My thought is that as long as the two weeks has not expired, dealer A was within his rights to try to try to sell the coin. Also, dealer B should not have offered or sold the coin during that two week period, at least not without checking with dealer A first.

 

On a general note, I don't think there is anything wrong with the concept of one person (dealer or non-dealer) consigning a coin to another. Sometimes a would-be buyer might not want to shell out big bucks for a coin he is not confident he can sell. Or, he might not feel comfortable stocking the coin at price X, but he might be ok taking it on consignment and working on a smaller mark-up than usual, as a result.

 

Consigning a coin to another, allows the coin's owner to have it offered to a potentially wider audience. But, as already noted, sometimes that audience ends up being a bit wider than he wanted/anticipated.

 

Before I go, one other thought on coins which dealers take on consignment - I have witnessed many occasions where someone has said and/or acted as if they owned consigned coins outright, when they did not. Some might think that practice is acceptable - I do not. But, I'll leave that for another day.

 

Thanks again for YOUR participation - that's what makes this such an enjoyable and informative place to visit.

[Oldtrader3]

I do not interpret verbal consignment as permission to resubmit the coin, unless this has been agreed to by Dealer B, up front. I would be mad as hxll if someone did this to me.

 

I feel that shopping the coin to other dealers could backfire on Dealer A, if B finds out. Dealer A sort of inferred having a retail customer in mind.

 

My final point is that, having sold the coin at 20% over consignment, Dealer A tries to buy it for 10% back of consignment. This is a pretty sleazy way to deal, IMHO.

[Dermott]

1. Edit: Yes, this is fine and probably normal. Dealer B wants X, Dealer A wants X+20%... business as usual. I read this one incorrectly I believe at first.

 

2 and 3. Definately not ethical. The coin was put on consignment with that grade/ID # in that holder. It would be expected to be returned in the same holder if it does not sell.

 

4. No problem here.

 

5. No, the agreement was price. Dealer A can always ask Dealer B for the discount, but don't expect it to be given.

 

6. Biggest no-no of the list. Selling it for 20% profit, then turning around and asking for a 10% discount is nothing more than ripping off the person it was consigned from.

 

7. Dealer A has every right to hold the coin for the two week period. Afterwards, Dealer B can then request payment or return of the coin. Once the agreement is made for two weeks, the coin is effectively Dealer A's for two weeks.

 

One of the biggest aspects of these hypotheticals is that both sides should create a written agreement that is signed and each person given a copy.

[Elcontador]

Mark, my response is general, is how I do business, and can apply to virtually any other type of business.

 

I am very straightforward with everyone with whom I do business, such that there are no questions that are not asked. I don't like surprises and I assume that others feel the same way.

 

The most valuable asset I have is my good name.

 

The easiest way for me to continue my business is with repeat business -- ie., deal with people that know me. It is in my best interest to be fair with them and give them the best work I am able. This is how a professional conducts business, and it often generates goodwill with existing clients, which leads to referrals to new clients.

 

To be candid, I think you feel similarly, which is one of the main reasons I like doing business with you and the company you represent.

[jom]

6) Dealer A sells the coin for a 20% profit, THEN calls dealer B and, without letting him know the coin has been sold, says "I'd like to buy the coin at 10% less than price X (the original consignment price)" Is that ok ?

 

Sure, that's just good business. However, he opens himself to problems. He could get around this problem if he were smart.

 

I pretty much agree with all of Greg's answers. I'd like to add to #6. If Dealer B says no to Dealer A's offer at 10% then Dealer A must buy at the 20% since he sold the coin. But there is nothing wrong with asking for the lower price....

 

jom

[MacCoin-migration]

well I always said you can tell when a coin dealer is lieing because his mouth moves.