By Charles Morgan and Hubert Walker for CoinWeek….
Last night I got an email from Mike Getlin, former Chief Executive Officer and Executive Vice President of Merit Gold and Silver. In the email, he apologized for not responding to CoinWeek’s previous inquiries concerning the firm’s legal troubles and asked if I would like to talk.
Getlin said that he was instructed–along with the owner of Merit Gold, Peter M. Epstein–by their legal team not to speak to the media. But now that the two Merit principals have hired a new firm, he has the go-ahead to answer any questions I might have.
The following is the conversation I had with Mr. Getlin. It touches upon Merit’s closing and the current status of the Santa Monica City Attorney’s Office prosecution. Getlin also offers his defense of Merit and the precious metals industry.
As you will see, Mr. Getlin has strong opinions about the actions taken against his company by the Santa Monica City Attorney’s Office. For Deputy Attorney Adam Radinsky’s take, please see our previous articles on the Merit case here, here and here.
Charles Morgan: Why did Merit Gold go out of business?
Mike Getlin: It’s a complex story. In short, I received notification out of the blue in July that Google was shutting down our online ad campaign. Google’s decision to do this was based on [Santa Monica’s] allegations about our marketing and sales program, and those were allegations that we had not had a chance to protest because we had not been to court.
That and the tough market was enough to drive the business into the ground. We made a difficult call to make an assignment for the benefit of creditors and liquidate the company, certain that all of our vendors, employees and creditors would be made whole.
CM: So what you’re saying is that Merit was sentenced–given the “death penalty”, essentially–without having the claims against the company adjudicated in court?
CM: How dependent was Merit on its advertising relationship with Google?
MG: Very. We had a complex setup with Google. We had the standard PPC and AdWords campaigns going as well as some experimental stuff focused on remarketing.
CM: You used to have a nationally-televised ad campaign as well.
MG: With Google, we built a diversified ad campaign, one that was not wholly dependent on TV.
CM: So when Google pulled the plug, how long did it take for you to realize that Merit was in trouble?
MG: It was blindingly fast how that got us into trouble. Upwards of half of our ad budget was going to Google. We got notification a month before we made the assignment. We had already experienced a decrease in sales because we had been fighting this public relations nightmare for months due to the Santa Monica court filing. All because the city had put a lot of their unfounded and false allegations online.
So, we were already under a tremendous amount of pressure.
CM: In August, Los Angeles Superior Court Judge Craig D. Karlan issued a temporary restraining order, freezing your and Mr. Epstein’s assets. Why did that happen and has that issue been cleared up?
MG: Large portions of the temporary restraining order have been cleared up. As to why? It was [due to] hyper-aggressive, overreaching tactics.
CM: At the core of Santa Monica’s argument is their claim that Merit engaged in a massive bait-and-switch scheme. The last time we talked, you defended Merit against that claim. But let me ask you a question. Say a customer calls in and wants to buy $100,000 in 1%-over-dealer-cost bullion products. What level of commission-based compensation would the sales representative expect to get?
MG: It depends. I’d say they’d get paid between $500 and $1,500 for that kind of transaction.
CM: And at one percent over your cost, minus overhead and the $500 to $1,500 commission, there isn’t a lot of money left for Merit to operate as a business, is there?
MG: We never said that bullion sales were the cornerstone of Merit’s profitability. That is why we offered a wide range of products.
CM: Well, then suppose that, instead of selling bullion products at 1% over dealer cost, the sales representative was able to convert that $100,000 transaction into products more profitable for Merit, like, let’s say, $20 Saint-Gaudens double eagle gold coins. What would the hypothetical level of compensation be for that transaction?
MG: Again, it would be dependent on the particulars of the transaction. But a ballpark might be $4,000.
CM: Doesn’t this get at the core of the problem, then? The sales representatives have a real and significant vested interest in the outcome of the transaction. They are incentivized to sell higher cost items in order to funnel thousands of customer dollars to themselves.
MG: But this is how sales commissions work. The same principle applies in other industries as well.
CM: Sure, but based on comments that I’ve read online from people claiming to be Merit customers, Merit’s sales approach was geared primarily to the upsell and not to bullion.
MG: That’s not the case. Never. There was not one time before the lawsuit that we had even one complaint, out of tens of thousands of transactions. Now based on the allegations of the city attorney, a small number of our customers are complaining. [Note: The Santa Monica City Attorney’s Office filed a consumer protection lawsuit against Seacoast Coin, Inc. (d/b/a Merit Gold and Silver) on February 13, 2014. According to the Better Business Bureau (direct link here), customers filed complaints alleging bait-and-switch as early as May 13, 2013–though the authors of the 2013 complaints acknowledged that their issues had been resolved after they involved the BBB.–Hubert]
[Santa Monica Deputy City Attorney] Adam Radinsky would have you believe that everyone who purchased a non-bullion coin from us was an idiot, but that’s not true. People collect these things. These coins have value to people and a vast majority of our customers did research–they did shop around–before calling us. They know what other companies were selling products for.
Every transaction that we processed followed the same uniform confirmation process, had the same disclosures about the risks associated with investing in precious metals. We told customers to see all of our policies.
So, the idea that the only reason that people would buy a non-bullion product from us is because they were duped into it, is wrong.
CM: In your email to me, you said that Mr. Epstein and you fired your attorneys. Why did you let them go?
MG: Our former attorneys completely failed to get the volumes of evidence to support the true facts of this case in front of the judge in a timely manner. It was that failure that led to the asset freeze. That failure has been damaging to the industry, and, quite frankly, I have had my hands tied. I was not allowed to speak about what happened.
CM: Who represents the two of you now?
MG: Greenberg Glusker out of Los Angeles.
CM: So when this issue goes to trial, what are people going to learn about Merit?
MG: People are going to find out that we were a company with over 100 employees that serviced tens of thousands of customer accounts per year. That we weren’t perfect, but that if and when mistakes were made, they were the exception and not the rule. If we don’t prevail, the city will be successful in their clear aim to destroy this industry.
CM: You feel that the Santa Monica attorney’s office wants to systematically destroy the precious metals industry?
MG: Yes. I think Adam Radinsky sincerely thinks that all operations that offer to sell gold coins are somehow fraudulent and his office has gone on the warpath, targeting precious metals dealers. The sad part, to be honest, and what keeps me up, is that we have been painted with the same brush as Goldline and Superior. [For more on Goldline and Superior, see here and here, respectively.–Hubert]
When we launched our 1% campaign, we did that to target the 55% markup on Swiss Francs that Goldline charged. We drove down the price of European Crown Series coins across the [United States].
And Superior… they failed to ship products. They literally stole money from hard-working people.
CM: Now that Merit’s gone, obviously you and Mr. Epstein still face a very serious legal issue. But what happens if–or, as you hope, when–the court finds in your favor?
MG: The sad part is even if we do prevail the damage is done. We laid off everybody. The city sank a 28-year-old company. Our names have been raked all over the internet with smears. We can’t undo any of that. The city has prosecutorial immunity, so we can’t touch them.
CM: It sounds like you believe that Merit’s due process rights were violated.
MG: I do. And you know, what really hurt us is that when a government agency makes public allegations against a company, the assumption is that these accusations are well-founded, thoroughly vetted, and accurate. The reality here is different. The city investigated us for two years, not for the purpose of determining the truth, but to gather ammunition in order to destroy the company.
This is evidenced by the fact that they made one phone call to a customer service representative, who messed up.
This representative flagrantly violated our sales policies. It was this phone call that forms the basis of their complaint. And now this former sales representative is their top witness. The entire case against us relies on witness testimony from disgruntled former employees.
CM: When did you find out that this sales representative was “flagrantly” violating your sales policies?
MG: We didn’t know for a year. The city withheld information concerning the actions of this sales agent for more than a year. We didn’t find out until just before we closed the company.
CM: If you knew, would you have terminated the sales rep? Did you terminate others for breaking Merit’s sales policies?
MG: Yes, we would have terminated him. We did terminate others for the same behavior–but these were infrequent breaches of policy. But in the event that someone did violate the policies we had a protocol.
CM: You said earlier that Santa Monica’s City Attorney’s Office wants to put the precious metals industry out of business. Have you or Mr. Epstein received support from other figures inside the industry? Or has Merit become sort of a pariah state now that these allegations have surfaced?
MG: I think that the hyper-aggressive and overreaching tactics [of the Santa Monica City Attorney’s Office] have spooked a lot of people. A lot of people are very scared of them, but maybe once the dust settles and we are able to make a clear statement, the simple fact will emerge that just because you sell gold coins, that does not make you a fraudster.
Were we perfect? No. Were we anything close to violating the law or conducting tortious transactions? Not in the least bit.
CM: And you feel that Radinsky thinks all bullion dealers are fraudsters duping people?
MG: My main complaint about Radinsky’s point of view is that, I feel, he thinks that the only people who buy bullion products are idiots. But coins have performed well in some market circumstances, and just because now gold and silver has gone to hell in a handbag doesn’t mean that all coins are sucker’s bets.
But frankly, Radinsky’s office thinks that the only way people buy coins is because they’ve been fooled into buying them. Merit’s clients were educated, sophisticated investors, many exceptionally wealthy, and they chose our products because they felt they were getting value.
CM: Some are suing you now.
MG: Yes, but even with a 40% market correction in the price of metals, it’s only a miniscule percentage of our customers who are coming forward. The overwhelming majority of our customers aren’t.
The problem with this is that we are being prosecuted for absolutely standard techniques–advertising good prices on competitive products–and in addition to selling these products, we were also selling more expensive and more profitable products for the company.
But the fact is that we never denied a bullion order.
Correction: In an earlier version of this story, we incorrectly stated that Mr. Getlin was the CFO of Merit. He was actually the CEO. Also, Merit was a 28-year old company, not a a 20-year old company.