In response to Mark Salzberg's recent post regarding NGC Stats

[AScirpo-migration]

Recently, Mark Salzberg, Chairman and CEO of NGC responded to an inquiry, which was posted on "ASK NGC." I seldom visit this part of NGC's web site, but recently did; and I would like to respectfully comment and hopefully contribute. My particular status with NGC is a professional one and I am a professional purveyor of top quality, NGC certified rare coins. My background is legal/professional and I have enjoyed a lifetime love affair with coins going back to 1963. I've been at my profession since 1986 and have served on the Board of Directors of ICTA and I'm also one of the former Commissioners of the Coin & Bullion Dealers Accreditation Program. In addition I'm a lifetime ANA member and a regular PNG member. There's more, but this is not really about me; it's about NGC and the NGC program and hopefully, once again, some very serious issues, implied or otherwise, can

be dealt with.

 

The first matter concerns what I call, "The Problem With PCGS." A long time ago, I had to make a decision...did I want to affiliate with NGC? PCGS? Or both? After due and considered inquiry, I chose NGC and NGC exclusively. Why? Well, one of the blessings of a legal education is the study of ethics, something that a lot more of us should be focused on and understand. Actually, there are ethics in every relationship, personal and professional and "standards of ethics" are what most of us either judge or are judged by from any vantage. I have always been bothered by the fact that PCGS executive management and others at the ownership level had concurrently operating rare coin businesses. Coins sold by these individuals were all, not unexpected, graded, {certified is my preference}, by PCGS. What's wrong with this picture? Anything? Indeed, everything is wrong. In fact, it's more than wrong; it's outright unethical.

 

Certification services are entrusted with a staggering responsibility, whenever rare coin is submitted to them for evaluation. This responsibility directly breeds the moral and ethical obligation, to perform a single function and that function is to objectively evaluate and determine the numismatic grade of all coins submitted to it that meet the service's grading standards. In short, it is manifestly unacceptable for any certification service to undertake this task if there is present, {or was in the past}, any conflict of interest. Conflict of interest arises whenever one undertakes a task in which he or they have an interest in the outcome of the task, {grading/certification}, to be performed. John Albanese, the founder of NGC knew this and possibly witnessed matters that didn't agree with him; hence NGC was subsequently founded in August of 1987 after PCGS's February, 1986 debut.

 

PCGS does not survive the "Arm's Length" conflict of interest test. In fact, they fail it badly. While I'm accusing no one of anything, the PCGS grading operation falls under "the aura and shroud of potential wrongdoing." Human nature being what it is, who's to say that coins were given the grades that they should have, but instead got a higher grade because the coins being evaluated belonged to a PCGS owner? I don't know, but the opportunity, certainly a very tempting one, was present in 1986 and it's present today. Overall, we can't afford to have a fox or foxes guarding a hen-house; the result can be a disaster; and even if absolutely nothing improper was done by PCGS owners, there is the unquestioned conflict of interest still present as is the potential for wrongdoing. As a longtime investor/collector, the decision to go with NGC...for me, personally, and the several hundred of my clients, was an easy one. There's nothing too much worse than an MS-65 sitting in an MS-66 or higher grade holder, which has been much more likely at PCGS. I don't want to take that chance and it would seem that no one else would either. Mistakes can occur, true, but I'm not talking about mistakes...deliberate acts are not mistakes and we need go no farther. PCGS can either continue on as they are or do the right thing, which NGC has always done.

 

PCGS has seemingly always dealt in "numbers" campaigns and their rumored efforts to block NGC coins from the Certified Coin Exchange, years back, can't go unnoticed. Why? What does this say for management at PCGS? Not much in my view. Afraid of the competition? I think so and over the last 15+ years, I've watched NGC not only overtake PCGS, but slowly and surely institute some innovative programs that give them the unqualified "heads up" ranking over them, {PCGS}. PHOTO PROOF was one of those programs and we have Mark Salzberg to thank for that. NCS, {Numismatic Conservation Service}, is another and all long, NGC, slowly but surely, gained market share. They deserve it.

 

Recently, Rick Montgomery, who was formerly the president of PCGS, joined NGC, adding to a very highly commendable grading staff. I would guess that Rick's future was secure at PCGS, but his departure speaks volumes. Personally, I always wondered why Rick was where he was; I had heard nothing but good things about him.

 

Overall, I look for perspective and positive contributions made by the certification services, but when I reflect on this topic, only one legitimately makes the grade...NGC and NGC alone. And, if I could go back in time and be confronted with the same situation that I found myself back in 1988, I would do it all over again, associate myself with NGC.

 

For anyone out there thinking that some consideration was given to me or would be given to me for my remarks, {which obviously favor NGC}, think no further...not one cent, not one special privilege and absolutely no consideration or discussion of any kind period. I am my own person and what you see here are my experiences and beliefs. My firm won't make NGC wealthy and I'm hardly any kind of a "big gun," but my sixth decade and fourth with rare coins have taught me a lot. I indeed appreciate NGC for their forbearance, exactitude and ethical edication to the true task at hand. They did it well "back then" and are now justifiably reaping the rewards for the best certification service with the best stewardship record in the industry. Discernment is an elusive butterfly, but their success is a

classic response to the adversity that others would have and perhaps attempted to heap upon them.

 

Anthony M. Scirpo, President

Farmington Valley Rare Coin & Investment Company

New Hartford, CT

 

 

[gmarguli]

Very well said. Whether or not any conflicts actually come into play isn't the problem, it's the fact that there is the appearance of these conflicts.

 

Wasn't this why the FTC went after PCGS years ago?

 

 

Hey EVP, want to repost this over on the PCGS site?

[Hoot]

Mr. Scirpo,

 

An excellently written and well-thought presentation of many of the aspects that have people taking long, hard, and scrutable looks at PCGS, the coins they have graded, and their services. Their services have only a partial benefit to collectors, the other is to a public that owns them, and the other is to rare coin dealers who run them. It is with such discernment that anyone who uses their services (and I do), and anyone who buys coins in their holders (and I also do that) should approach their certified coins. One of the reasons I have never bought from David Hall is the very direct conflict of interest. I could no more trust that direct relationship than I could a coin that passed through his shop. ALL PCGS certified coins should be looked at with the consideration that they were "made" by one of the officers of the company.

 

A few remarks on the gems that you passed on:

 

PCGS does not survive the "Arm's Length" conflict of interest test. In fact, they fail it badly. While I'm accusing no one of anything, the PCGS grading operation falls under "the aura and shroud of potential wrongdoing." Human nature being what it is, who's to say that coins were given the grades that they should have, but instead got a higher grade because the coins being evaluated belonged to a PCGS owner?

 

Absolutely - what I said above.

 

PCGS has seemingly always dealt in "numbers" campaigns and their rumored efforts to block NGC coins from the Certified Coin Exchange, years back, can't go unnoticed. Why? What does this say for management at PCGS?

 

This is a very damning remark. Cut-throat business is in some minds what business is all about. However, there is nothing honest about it. Such an approach is that of a frightened animal or worse, a totalitarian personality; we should be above such relations.

 

Overall, I look for perspective and positive contributions made by the certification services

 

This is why I still seek some of the services of PCGS: not all of what they do or have done is bad, indeed, much is good.

 

For anyone out there thinking that some consideration was given to me or would be given to me for my remarks, {which obviously favor NGC}, think no further...not one cent, not one special privilege and absolutely no consideration or discussion of any kind period.

 

This has to be true! No matter how you slice it, there seems to have been a greater potential for profit in dealing with PCGS graded coins. This is not ubiquitously true, but it is on average.

 

 

 

John Albanese and his crew deserve a great deal of recognition. What they have done and succeeded at is monumental when one considers the viscous ways that they have been dealt with in this business. My thanks to all of them.

 

Hoot

[EVillageProwler]

Greg,

 

I am not afraid to post this across the street, but I now have an ethical obligation to leave this one untouched. The reason will become apparent in the near future.

 

Perhaps someone else can drag this across the street?

 

EVP

 

[BankNote1]

Very well written!

[braddick]

EVP- If it isn't already posted there, I'll take care of it.

 

Excellent read.

[Tradedollarnut]

Please take my following comments in light of the fact that I think it is important for the hobby to have TWO strong certification services. Why? For many reasons, not the least of which are competition is good for the consumer and the two services effectively split the huge value differences between grades quite nicely.

 

With that said, I'm having a little trouble seeing the conflict of interest that is the foremost point of your post. Personally, I don't like the fact that DHRC competes in the rare coin industry, but I don't believe that that competition is necessarily a telltale sign of a conflict of interest. DH stated that coin dealers, including Heritage owners Halperin and Ivy, are significant shareholders in NGC. By your definition of a conflict of interest, isn't NGC just as guilty?

 

I don't think so, because I don't think the shareholders of NGC influence the grading. Neither do I think the shareholders at CLCT influence the grading at PCGS. In fact, as a public company, it would seem to me that the firewall between such an influence might be stronger at PCGS.

 

CLCT has a lot of problems that need to be addressed in order to return the company to solid ground. But I don't see how this is the primary problem deserving of being the basis for such a post.

 

As a legal professional, what would your opinion be of a client that came onto a public chatboard and illustrated an example of unethical behaviors and then stated such items as "possibly witnessed matters that didn't agree with him" and "deliberate acts are not mistakes" and "while I'm accusing no one of anything..."? I think you would politely call him an insufficiently_thoughtful_person.

 

NGC is a great company. Their customer service is excellent, their grading is consistent and they are a pleasure to deal with in every facet of the business. They shine on their own, without posts having no real basis in fact attempting to diminish their competition.

[gmarguli]

Ya linked it ya wuss!!

 

 

And now you edited it to remove all reference to it. You should have kept it. What's the worst that can happen? David Hall sees it and in a fit of rage after learning yet again that PCG$ is #2 he screams thru his bucked teeth to Carol to ban you and you are forced to stay over here where the talk is all about coins?

 

If that does happen, I'll make you co-webmaster to www.PCGSsucks.com

[cladking]

I'm relatively new to taking a good look at third party grading. It would seem that once one can be confident of the authenticity of the coin and the slab and price is factored in that the only relevant consideration is consistency. It is this last that I'm still learning and would be most impacted by any real conflict of interest. Certainly any grading business would sacrifice it's long term viability if it were willing to take short term gains at the expense of it's customers. It also seems any endeavor in this direction not on the smallest scale would be immediately detected.

[gmarguli]

I don't think so, because I don't think the shareholders of NGC influence the grading. Neither do I think the shareholders at CLCT influence the grading at PCGS. In fact, as a public company, it would seem to me that the firewall between such an influence might be stronger at PCGS.

 

One thing I had a LOT of trouble with is when David Hall took a dealers box of coins back to the grading room and said "I selected these, see what you can do with them" or something like that. To me that is shocking. If my boss said something like that to me I know I would give them special treatment. You'd be an insufficiently_thoughtful_person not to.

 

DH claims that they don't submit to PCGS. However, I find this is a little more like playing word games than the truth. Haven't we had members that stated that B&M submits coins consigned to auctions to PCGS. If so, there is a conflict of interest there. No BS about it not being a coin owned by the company. It's word games!

 

I have also been told (yet I don't know if it is true) that DHRC makes deals with some submitting dealers. For example, DHRC and a dealer will contract to buy all the PR69s or higher that are made of a certain coin. The dealer finds and submits all the coins using the bulk service at a good submission rate and they are graded by PCGS. All the ones that meet the grade are sold to DHRC at the set price and all the ones that don't meet the grade are returned raw. Again, I say this is what I was told and I don't know if it is true. I'm still trying to get info on if this is true or not (so anyone who knows, feel free to post it or email/PM me if you want it anonymous). If it is true, then I have an EXTREME problem with this happening.

 

[Wihlborg]

Great post!

 

You bring to light the main thing that always bothered me about PCGS, How can a company that is grading coins also be involved in selling coins? As you have said, even if no one at PCGS has ever done anything wrong; past, present, or future, (and I am not saying that anyone at PCGS has ever done anything wrong) how can anyone be expected put their full faith in a company with such a conflict of interest without at least the thought of what could go on?

 

Don't get me wrong, there are a lot of very nice, correctly graded coins in PCGS holders. I have bought coins in PCGS holders in the past and will continue to do so if it is a coin that I have been looking to acquire for some time and I happened to find a nice one in a PCGS holder and I agree with the grade, but overall I would say that 95% + of the coins I buy now are in NGC holders.

 

I have to agree that NGC has taken the high road ethically from the start.

 

John

 

[Android]

Go figure. The thread has been killed on the PCGS boards. Braddick posted the link here, and then pulled it himself (?)

 

Andy

[keithdagen]

With that said, I'm having a little trouble seeing the conflict of interest that is the foremost point of your post.

 

TDN,

 

When PCGS announced the Full Torch Roosevelt designation, HRH posted that he reviewed the Roosevelt Dime inventory of DHRC. While nothing untoward may have happened, it would appear that DHRC benefitted by a free review for the designation, or quite possibly, could have influenced the final standards set for the coins.

[braddick]

Andy- I was "gently" pressured to do so. I hate it when Thread authors kill a thread as the posts after it then don't make sense.

I dislike it even more when I'm a contributor to that behavior.

 

Please accept my apology.

[gmarguli]

Who applied this gentle pressure?

 

Was it someone that works at CU or just a user that made a strong suggestion?

 

I wonder how long the killed post stays around?

[Tradedollarnut]

I think one should evaluate the price and quality of the coin, irregardless of the holder, and decide if it makes sense.

 

Anything else is just political BS that kills my enjoyment of the hobby.....

[EVillageProwler]

TDN,

 

In general, the thread originator wrote of the *potential* of conflict of interest. People being what they are, this potential should be regarded as a serious matter -- no matter how ethical the principles have been in the past.

 

Also keep in mind that in a different thread, you argued that a holder rightfully imparts value to the product. Thus, this matter becomes even more of concern to me.

 

EVP

 

[Tradedollarnut]

While I'm accusing no one of anything,

 

Oh? Then what's the point of the original post?

 

the PCGS grading operation falls under "the aura and shroud of potential wrongdoing." Human nature being what it is, who's to say that coins were given the grades that they should have, but instead got a higher grade because the coins being evaluated belonged to a PCGS owner? I don't know, but the opportunity, certainly a very tempting one, was present in 1986 and it's present today. Overall, we can't afford to have a fox or foxes guarding a hen-house; the result can be a disaster; and even if absolutely nothing improper was done by PCGS owners, there is the unquestioned conflict of interest still present as is the potential for wrongdoing.

 

Please substantiate this accusation and please enlighten me on how it's different than NGC's ownership structure.

 

 

As a longtime investor/collector, the decision to go with NGC...for me, personally, and the several hundred of my clients, was an easy one.

 

So there IS something in it for you - a validation of your selling NGC coins...

 

 

There's nothing too much worse than an MS-65 sitting in an MS-66 or higher grade holder, which has been much more likely at PCGS. I don't want to take that chance and it would seem that no one else would either.

 

Doesn't make much sense for an insider to get his 66 in a 65 holder, now does it?

 

 

Mistakes can occur, true, but I'm not talking about mistakes...deliberate acts are not mistakes and we need go no farther. PCGS can either continue on as they are or do the right thing, which NGC has always done.

 

I'd expect more smarts out of a legal professional than to make a statement like this one in a public forum!

 

I have no issues with NGC. I like them as a company. Some of my most expensive coins reside in NGC holders. But the original post is no more than unsubstantiated claptrap that fails to even approach the bottom limit of the burden of proof. And I still fail to see how it is so abhorrant to some for CLCT to be owned in part by coin dealers and yet be perfectly ok for the same at NGC. It seems to me that both companies have taken steps to insulate the grading process from this fact and therefore one should not be pointing fingers at one and not the other without PROOF. To do so is in my opinion unjust, and is the basis of my attention on this matter.

 

[jtryka]

With that said, I'm having a little trouble seeing the conflict of interest that is the foremost point of your post. Personally, I don't like the fact that DHRC competes in the rare coin industry, but I don't believe that that competition is necessarily a telltale sign of a conflict of interest. DH stated that coin dealers, including Heritage owners Halperin and Ivy, are significant shareholders in NGC. By your definition of a conflict of interest, isn't NGC just as guilty?

 

TDN, with all due respect, I see your point, and I certainly agree that any ownership position by a dealer in a private enterprise like NGC would be a concern, but let me raise a few points. I recall the Heritage ownership debate a while ago, and I thought that it had been determined that the Heritage folks sold their positions in NGC. If that is not true, then it's certainly an area of concern.

 

Second, I see a large difference between an ownership position in a company and the current situation with PCGS. If it was just an ownership stake (especially in a public company) I would have less concern. Unfortunately, CU owns PCGS, DHRC and B&M outright. It would be the same situation as if NGC owned Heritage or one of the other large dealers. To be fair, I think that B&M does get its share of "head scratchers" back from PCGS, just by looking at the comments they raise in their catalogs. So I have no reason to believe that anything untoward is happening. But I started my career as an auditor, and one of the primary things we look for is call the segregation of duties, which means that you don't let the same person writing the checks reconcile the bank statement. Why? Because if that person wrote a check to themselves, it would never be caught during the reconciliation. Did we always think that the person in such a role was a crook? Actually we usually went out of our way to say that we didn't think that, and that our separation of these functions was merely a safeguard for everyone involved. Unfortunately, in its current state, the CU umbrella violates the fundamental segregation of duties that I believe are necessary in this business.

[Android]

And I still fail to see how it is so abhorrant to some for CLCT to be owned in part by coin dealers and yet be perfectly ok for the same at NGC.

 

How exactly is NGC ownership structured? Is it really the same as PCGS's? Although I've heard charges leveled at PCGS on numerous occasions about potential conflicts, I've never heard one leveled at NGC. Perhaps someone can enlighten me?

 

Thanks,

 

Andy

[Tradedollarnut]

How exactly is NGC ownership structured? Is it really the same as PCGS's? Although I've heard charges leveled at PCGS on numerous occasions about potential conflicts, I've never heard one leveled at NGC. Perhaps someone can enlighten me?

 

 

 

In a thread on the CLCT chatroom, David Hall stated that the owners of Heritage own NGC stock. NGC did not deny this and I personally don't see anything wrong with this fact. But nor do I condemn PCGS for the same situation. Those that do, should do so equally. Fair is fair.

[keithdagen]

TDN,

 

I don't have a problem with dealers owning stock in a grading service. I have a problem with PCGS having day-to-day operations run by David Hall, who is also a principal at David Hall Rare Coins. PCGS has, as part of the day-to-day operations, a highly publicized price guide for PCGS coins. DHRC also sells exclusively PCGS coins.

 

Whether there is any trouble or not, there are too many instances of everything being too close for comfort, and there is a market-wide perception that something COULD be rotten in Newport Beach.

[gmarguli]

In a thread on the CLCT chatroom, David Hall stated that the owners of Heritage own NGC stock. NGC did not deny this and I personally don't see anything wrong with this fact. But nor do I condemn PCGS for the same situation. Those that do, should do so equally. Fair is fair.

 

In that same thread I asked about a "Heritage" that was listed as a large shareholder of CLCT and David Hall never addressed that question. I wonder why.

 

Why would NGC deny anything that was written on another forum? I'm sure that if you asked the question here, you would get an answer. John once stated that he would never comment on the other site, but he does read it. That is a fair thing to do.

 

I also believe that someone contacted Heritage and relayed to the forum that they no long own part of NGC, but I could be wrong.

 

It's one thing to be a financial backer and it is another to have some control in the company. Heritage (maybe) owning some of the NGC stock is one thing, the head of a coin grading firm having his name on a coin dealership and having some control over it and being a majority shareholder in the corporate umbrella is another.

[Tradedollarnut]

I have ABSOLUTELY no problem with any ownership structure in the industry. It's a small industry and ownerships are certain to be somewhat entangled.

 

And I agree that it is imperative that day to day protections be in place to ensure that firewalls exist between management and grading.

 

I don't disagree that it needs to be watched carefully. I only take issue with unsubstantiated accusations such as those made in the original post. All collectors should always be wary.

 

And the best way to protect oneself from what COULD happen is to:

 

BUY THE COIN AND NOT THE HOLDER!

[TomB]

I think this was a superbly written first post and would like to welcome Anthony M. Scripo to the Boards.

 

There have also been some extremely valid points made by several posters and I would address them at this time but am running late for a meeting. I will state, however, that I agree that there should be more than one strong third-party certification service in existance. The identities of the parties does not really matter as long as the product is pristine. I may post more later on this.

 

[lazeroo]

very well written, and explained.

 

thank you very much. mr. Scripo

 

I also figured this out a long time ago.

[Tradedollarnut]

Allow me to play devil's advocate, before the koolaid starts flowing on this side of the street as well. I beg to differ:

 

1) I defended NGC vigorously on the CLCT chatroom when HRH brought up the ownership issue because I felt it was immaterial. I still do. I think PCGS's ownership issue is immaterial as well.

 

2) Make up your mind. First you insinuate that the worst possible thing is insider grading - gift grades. Then you insinuate that the worst possible thing is a 66 in a 65 holder. Aren't the two mutually exclusive? Wouldn't the first be readily apparent and quickly ruin their reputation? Isn't the second completely a matter of opinion and respective standards?

 

3) I see very little evidence, just innuendos and empty opinions. I would vigorously defend NGC from the same.

[TomB]

I think the original post claimed a possibility of an MS65 in an MS66 holder, not the other way around.

[gmarguli]

1) I defended NGC vigorously on the CLCT chatroom when HRH brought up the ownership issue because I felt it was immaterial. I still do. I think PCGS's ownership issue is immaterial as well.

 

You don't see a potential conflict of interest? You don't think this is a bad thing?

 

You may be different than many. You buy coin. Many people buy slabs. To them they couldn't tell an MS66 from an MS67 if their life was on the line. These are the people that will get hurt if a conflict of interest actually does damage.

 

 

2) Make up your mind. First you insinuate that the worst possible thing is insider grading - gift grades. Then you insinuate that the worst possible thing is a 66 in a 65 holder. Aren't the two mutually exclusive? Wouldn't the first be readily apparent and quickly ruin their reputation? Isn't the second completely a matter of opinion and respective standards?

 

Both suck and cost people money. The only winner is the grading company. That is why the company with the highest consistency wins.

 

 

3) I see very little evidence, just innuendos and empty opinions. I would vigorously defend NGC from the same.

 

No one is saying it happens. All they are saying is that the appearance that it could happen is damaging.

 

[Tradedollarnut]

I think the original post claimed a possibility of an MS65 in an MS66 holder, not the other way around.

 

My bad, unless it was edited. I read it multiple times and each time understood it the same until this last time. The ability to edit without leaving a trace is annoying sometimes!

 

I've said my piece. I just urge all to look at all sides and not blindly follow - the same I'd urge on the other side of the street.