By Daniel Larios
Special to the Lookout

February 14, 2014 -- For the third time in three years, the City of Santa Monica is taking a national gold dealer to court for fraud.

The Santa Monica City Attorney’s Office filed a consumer protection lawsuit Thursday against the Santa Monica-based precious metals dealer Seacoast Coin, Inc., also known as Merit Financial and Merit Gold and Silver.

The lawsuit accuses Merit of allegedly perpetrating a massive, nationwide “bait and switch” scam.

“To bait and switch consumers is illegal, it's false advertising and it's unfair,” said Adam Radinsky, who heads the City Attorney's Consumer Protection Unit. “Consumers should be treated fairly.

“Since it's an unregulated industry, precious metals businesses should follow the law and deal honestly with their customers,” Radinsky said.

Merit is one of the nation's largest precious metals dealers, advertising gold and silver bullion on TV, online and in print ads at "1% over cost."

According to the official complaint filed with the Los Angeles County Superior Court, “Merit has engaged in an aggressive, nationwide fraud scheme that has bilked consumers out of tens of millions of dollars” since September 26, 2009.

The complaint claims that when customers call in to buy bullion, Merit's salespeople use false, deceptive and aggressive tactics to trick consumers into buying heavily marked up “collector coins” instead. 

Alleged tactics said to be used by Merit salespeople include making claims that the coins are a better investment than bullion; that the coins offer more privacy than bullion; that the coins are not "reportable" on consumers' taxes; and that the coins can't be confiscated by the government, while bullion can be, City officials said.

The complaint further alleges that the collector coins pushed by Merit have none of these advantages over gold or silver bullion.

Merit is also accused of gaining consumers' trust by falsely telling customers that the company's co-owner, Peter M. Epstein, is a police officer.

“Merit 's promotions have falsely stated, 'You will be buying gold and silver from a police officer,'” the lawsuit says.

The complaint names Merit co-owners Epstein and Michael J. Getlin as defendants for their role in training, controlling, and overseeing the alleged illicit operation.

The company will be fighting the suit and defending their business from the City's accusations.

“We are defending against it,” Epstein told The Lookout. “We believe it's not a fair and just lawsuit.

 “We are a longstanding company, 28 years in business in Santa Monica,” he added.

The City Attorney's Office declined to comment on any specifics regarding the case and ongoing investigation.

“The allegations of the complaint are very serious and we are prepared to back them up,” Radinsky said.  “It's not okay to fool people. It's not okay to trick them.  The consumers will get their day in court.”

The City brings the case under California's Unfair Competition Law, which protects consumers from false advertising, fraud, and other unlawful business practices. 

“We take consumer protection very seriously here in Santa Monica,” said Radinsky, “and when we hear about fraud, we will take actions against it,”.

If judgment is found against Merit, the company would have to face fines of up to $2.5 million per act of “unfair competition,” an injunction “to prevent future acts of unfair competition,” pay “restitution of all monies wrongfully obtained from customers” and court fees, according to court documents.

This case marks the third time in the past three years that the Santa Monica City Attorney has taken a national gold dealer to court for wrongdoing.

In 2012, Santa Monica obtained judgments against Goldline International and Superior Gold Group, both of whom were accused of using schemes similar to Merit's.

Goldline agreed to provide more than $5 million in refunds and to a sweeping injunction; its practices are still being scrutinized by a court-appointed Monitor.

Superior Gold was shut down, placed under receivership and ordered to pay $2 million in restitution to customers.

“The precious metals industry is unregulated,” Radinsky said. “There is no government agency to regulate them.  With that comes widespread fraud within the industry.

“We are alarmed that this is the third time in three years that we have had to step in to stop this kind of practice within the City.”

The Santa Monica City Attorney’s Office is continuing to investigate Merit. Anyone with information about its practices, including former customers and former employees of Merit, are encouraged to contact the City Attorney’s Consumer Protection Unit at 310-458-8336 or file a complaint online at gold.smconsumer.org.