Glenn Beck's Gold Gurus Charged With Fraud

BECK OFTEN SAYS that when he buys gold, he sticks with collectors' coins instead of bullion because the government is less likely to confiscate them. Like many Americans, you are probably unaware that the Obama administration is plotting to raid your safe-deposit box and melt down your bullion. But Beck insists that we must be on guard against such a scenario, citing a Depression-era executive order that made all gold federal property.

In his Goldline promo video, Beck explains, "Back in 1933, FDR said, 'Okay, we're going to take all your gold, and [slipping into a Muppet voice] gee, it's worth—$8 an ounce.'" Beck suggests that some folks "got smart" and claimed their antique coins couldn't be melted down because they were, well, antiques, and presto! They got to keep their gold. It's a message Beck has hammered home in other Goldline spots—that in the face of an "out of control" government, collector coins are a safer deal than other kinds of gold.

Of course, this is revisionist history. With Congressional authorization, Roosevelt did indeed sign a 1933 executive order that made most private gold ownership illegal, but G-men didn't go door to door seizing bullion. Instead, the government offered gold owners almost $21 an ounce—the market rate (and not $8, as Beck claims) to turn in their gold voluntarily. Antique and foreign coins were exempt. The move was intended to combat deflation by getting people to stop hoarding wealth that could instead circulate in the economy. The government also temporarily suspended the gold standard so it could adjust the value of the dollar, stabilizing prices, helping debtors, and encouraging more production. Georgetown University history professor Michael Kazin says FDR's gold policy, which was championed by populists, boosted the economy and in turn contributed to his landslide reelection in 1936.

Goldline has not let the facts get in the way of using the confiscation myth for marketing. As early as 2002, its website (which then featured an endorsement from Charlton Heston) trumpeted how "the events of the 1930s...prove how important owning scarce and desirable gold coins really is!" Its current website and "investor kit" both provide a copy of FDR's 1933 order, noting that in its wake, gold's value increased nearly 75 percent—all the more reason to buy coins and hope for the worst. The pitch seems to be working: Its website reports that European gold coins are "the most popular choice among Goldline clients."

What Goldline doesn't say in its promotional materials is that for its own bottom line, collector coins are a lot more lucrative than mere bullion. Profits in the coin business are based on "spread," the difference between the price at which a coin is sold and the price at which the dealer will buy it back. Most coin dealers, including Goldline, will sell a one-ounce bullion coin for about 5 percent more than they'll buy it back for, a figure that closely tracks the price of an ounce of gold on the commodities markets. That 5 percent spread doesn't leave a lot of room for profits, much less running dozens of ads a week on national radio and cable programs, with endorsements by everyone from Beck to Mike Huckabee, Fred Thompson, and Dennis Miller. So, Goldline rewards its salespeople for persuading would-be bullion buyers to purchase something with a bigger markup.

Twenty-franc Swiss coins are a little smaller than a nickel and contain a little less than two-tenths of an ounce of gold. The coins are about 60 to 110 years old and not especially hard to find (though Goldline describes them as "rare"). They are not fully considered collectors' items or commodities, making their value more subjective than bullion's. Goldline sets a 30 to 35 percent "spread" on the coins, meaning that it will pay $375 to buy back coins it's currently selling for $500. At that rate, gold prices would have to jump by a third just for customers to recoup their investment, never mind making a profit. Investing in Goldline's 20-franc coins would be like buying a blue-chip stock that lost a third of its value the minute it was purchased. It's difficult to think of any other investment that loses so much value almost instantly. So what persuades people to buy anyway?

Beck has assured fans that Goldline's sales reps are "not going to pressure you." I called to find out. I dialed the company's toll-free number from my office to request one of its free "investor kits." When I mentioned that I'd heard about Goldline from Glenn Beck, the salesman informed me right away that Beck was one of the company's best clients. "We're the only company he buys from," he told me. After learning that I had never invested in gold before, he plugged "investment grade" coins by assuring me, "That's what Glenn buys."

He also cited FDR's gold order. It "all has to do with the devaluation of the dollar," he said, warning, "It's very similar to 1933 today." He quickly ran through some disclaimers, like the spread and how the company recommends holding on to the coins for at least three to five years—preferably ten. But in the end, he told me, gold is just a great investment. "Are you ready to get started today?" he asked. "Nobody can take it away from you. You can't print more of it. There is a finite amount of gold."

About two weeks later, after I'd received my investor kit, the same sales rep called me at work, even though I'd never given him my phone number. Just to double check that Goldline was indeed using caller ID to track potential customers, I called one of its 800 numbers on my cell phone and asked about putting gold into an IRA. I didn't offer my name or number, but the same sales rep called me back not five minutes after I hung up.