By Charles Morgan and Hubert Walker for CoinWeek…
In CoinWeek’s initial report on Merit Gold and Silver, we wrote that the Santa Monica City’s Attorney’s Office had filed a complaint against the firm, alleging that Merit had “engaged in an aggressive, nationwide fraud scheme that… bilked customers out of tens of millions of dollars”, and that it did this by employing a “massive bait and switch”. The City Attorney’s Office alleged that consumers were hooked by a “multi-million dollar national television advertising campaign promising to sell gold and silver bullion at ‘1% over cost’”, only for the company to employ “deceptive and aggressive tactics to steer consumers away from buying bullion, persuading them instead to buy certain gold and silver coins.”
The Santa Monica City’s Attorney’s Office was previously successful against both Goldline International Inc., which settled a February 2012 lawsuit and refunded upwards of $4.5 million to customers, and Superior Gold Group. Bruce Sands, former owner of Superior Gold, was ordered to make $2 million in restitution to his victims and prohibited from owning or operating a gold or precious metals business.
In February of this year, Merit Gold CEO Mike Getlin claimed that the firm was being unfairly targeted and that there was no truth to the city’s allegations. Merit, Getlin said, “did not use dubious sales pitches to sell its products”. An undated corporate memo provided by Getlin seemed to back up his claims. However, it is unclear whether the guidelines discussed in the memo were in place during the period that Santa Monica claims Merit was perpetrating commercial fraud, or if the company ever enforced these policies.
Various consumer complaints posted to websites such as yelp and complaintslist.com point to the likelihood that Merit’s commissioned sales force did use high-pressure sales tactics to navigate customers away from bullion and towards collectible coins.
On August 5, 2014, Merit announced on its website that it was “no longer accepting bullion orders.” Customers were urged to call for details.
CoinWeek called the firm to inquire about the announcement and was told by a customer service representative that the firm was undergoing a transfer of ownership and that during this time they were prohibited from selling bullion. Instead, customers were offered silver Lunar Britannia coins, which were currently the only items in stock.
A week later, Adam Radinsky, Head of the Consumer Protection Unit of the Santa Monica City Attorney’s Office, told CoinWeek that Merit had entered into an alternative to bankruptcy called an Assignment for the Benefit of Creditors (ABC). A firm under assignment is still allowed to operate as a going concern.
Merit Sold to Credit Management Association: Issues Remain
After months of declining revenues (which sources tell us stemmed in part from the city’s litigation against the company), Merit became insolvent.
To remedy the situation, Merit principles Epstein and Getlin contacted Credit Management Association (CMA), a firm that specializes in alternative to bankruptcy liquidation of company assets.
Credit Management Association is a non-profit organization that provides credit and asset liquidation services to the business community. It has more than 2,000 members, with offices in California and Nevada.
After months of consultation, on August 5 Epstein and Getlin sold Merit to CMA for one dollar. Epstein and Getlin also were obligated to pay CMA an additional $1 million that the three parties agreed was the amount that Epstein and Getlin had overdrawn from the company. The $1 million was to be paid in two installments of $500,000; the first due at the time of the sale of the firm, the second due 30 days later.
At the time of the sale, Merit had an unspecified number of outstanding orders to fill to consumers, as well as debts outstanding to service providers and vendors.
CMA, in accordance with California law, intends to use Merit’s remaining assets and cash on hand to pay out the firm’s creditors based on legal priority. It is attempting to fill all outstanding orders based on its ability to purchase product, and has issued refunds to a number of customers.
However, CMA’s efforts to relieve the company of its financial obligations has been impeded by ongoing litigation surrounding the company’s sales practices.
On August 22, Los Angeles Superior Court Judge Craig D. Karlan issued a temporary restraining order, which not only froze Merit’s assets but also personal assets belonging to Epstein and Getlin. The court took issue with the agreed-upon $1 million payment, in light of accounting irregularities in the company’s books and a belief, based on the allegations of the Santa Monica City’s Attorney’s Office, that Merit had committed fraud.
This, according to CMA Adjustment Bureau Manager Michael L. Joncich, has slowed down vendor payment and order fulfillment. Joncich told CoinWeek that at the time of acquisition, Merit Gold had a significant backlog of orders and insufficient cash to fill those orders.
Joncich couldn’t speak to how many orders remain outstanding, as the process of filling them is ongoing, but he said he hoped that all of Merit’s customers would be taken care of by the end of August.
Joncich was unsure whether CMA would be able to generate enough money to pay all of Merit’s obligations. “The freezing of Epstein and Getlin’s assets hasn’t helped”, he said.
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