Coin Dealer Ethics Follow-Up - Authentication Diagnostics

Last week, we looked at the question of whether the major coin grading services should share some of their anti-counterfeiting diagnostics with collectors. PCGS and NGC have both been the victims of counterfeit slabs that are believed to be originating in China. (ANACS slabs have also been counterfeited, and in the last 36 hours or so, counterfeit ICG holders have emerged on eBay as well.) NGC's response to the counterfeiting of their holders was to publish point-by-point diagnostics, including photos, that would enable anybody to detect the fakes. PCGS, on the other hand, will not disclose the diagnostics for fear of educating the counterfeiters and thereby helping them produce better fakes. (You can read the entire scenario on the original authentication diagnostics debate page.)

The discussion thread drew a heated conversation between several collectors who began debating the issue of whether or not the third party graders (called TPGs) can even solve the problem, and if so, how they would go about doing so. We ended up with more than 60 comments before a reader named Yankee posted the entire comment thread to the Coins Forum. I think this was a really smart thing to do, and I am very glad he did it, so if you'd like to chime in on the discussion, (or just see what everyone has to say,) come check it out. In the meantime, I'd like to highlight a few of the comments which were made about the slab counterfeiting problem.

First off, let's start with whether or not the grading services should share the diagnostic information:

I don’t blame PCGS for withholding information. As Susan has stated, they would be giving the counterfeiters how-to information. The only problem I see is that they are going to have to address their problem through other methods, such as criminal prosecution. Ebay and other auction sites will have to do their part as well. -- Ward Adams

Should PCGS tell us how to recognize counterfeit slabs? If it is a simple question of fonts, spelling errors, etc., I would say yes. If there are secret features like fluorescent or magnetic inks, then maybe not. In the long run, if they cannot make a slab that the consumer can be confident is genuine, they are out of business. -- gdnp

I would love to see the TPG’s tell us exactly how the fakes can be detected. I would also like to see the Secret Service tell us exactly how the can tell fake 100’s that come out of color copiers. While all of you are figuring out if that 1922 Saint is real, I’ll spend my time in the copy room with the door closed. And while we’re at it, Pfizer should tell us exactly how to determine if all their drugs are fake. You know, the ones that come from Canada that will kill us if we import them here.

Put an RFID chip in each slab embedded in the holographic label. Store a picture of each coin and do a cert lookup to validate the coin, and see the picture. The RFID could be verified by companies like Teletrade and Heritage, etc.

Stop buying off of Ebay. Just don’t buy there, period. -- dbtuner

One reader thought the jury might still be out on whether or not PCGS might eventually be more forthcoming:

You need to be a little fairer with PCGS and their announcement. Yes NGC gave much more detail in their January announcement, but the NGC fake slabs were first discovered back in August of 2007 and NGC took five months in which to examine them and come up with the list of diagnostic features before they made the announcement. In the case of the PCGS slabs they were first seen on March 25th and PCGS made their public warning just two days later. I’m sure if NGC’s warning had come just two days after their discovery it would not have been as detailed either. -- condor101

The same reader later noted that the emergence of fake PCGS slabs isn't recent at all:

But just this past December Heritage sold a peace dollar in one of their sales that was in a counterfeit PCGS slab from the first fake slab scare back in 1989. They did not recognize the fake slab. They also probably do not pay real close attention to the coins in slabs because if you read the terms of sale, slabbed coins are not returnable for any reason and if there is a problem you are to take it up with the slabbing service. -- condor101

What this all comes down to (and where the conversation soon drifted) was what the grading services could do to stop the counterfeit slab problem (if it was even possible to do so!) Suggestions included RFID chips, micro-printed serial numbers, photo authentications, and a database of coin photos, among other things.

The thing I like the most about [hidden] micro-sized serial numbers is that the list of [possible] numbers is endless. Secondly, no two serial numbers can be the same. So, if there's a problem, you know you [should] have only one serial number for any given coin, which is for that coin only. When a duplicate serial numbered slab turns up, then you know you have a problem. I think that would deter counterfeiters from trying the slab routine any more, once they learn about hidden serial numbers. A little extra spent to be able to read serial numbers shouldn’t be a big thing, checked against a data base for counterfeits. -- coinycom

RFID chips have been suggested, but they are easy to fake as well. All you have to do is record what the chip on the genuine slab broadcasts and program your chip to broadcast the same thing. I don’t have to know what it actually says, I just have to duplicate the broadcast.

Most other suggestions have their own problems. Features that only show up under UV, micro-printing, magnetic ink, etc., are all great if you have the equipment there and are able to see the slab in hand. But it does nothing for you if you are trying to buy the coin on-line or at a coin show. The best solution I have heard is for the services to have an on-line photo file of each coin with large clear images of the coin that is supposed to be in the slab so you can make a detailed comparison. Even better would be if it listed the identifying marks and their location for each coin. This is actually the technology ANACS was using back in 1972 with their photo certificates. Sharp photographs that you could magnify and compare to the coin to make sure they matched. This is the option that DLRC is going to be using with the newly resurrected PCI (Now called DGS) Every coin valued over $100 will have just such an on-line image. -- condor101

I like the photo verification idea because attention is brought back to the actual coin. No matter what TPGs do, I think there will always be several levels of complexity between a coin and a slab, so ultimately efforts to out-do the diagnostics of a coin will fail. Authenticate the coin–not the slab! -- KS

For those who might be curious about the evolution of slabs, a reader posted an interesting site that documents the slab changes the major (and lots of minor) TPGs have gone through over the years:

As far as PCGS slab designs changes being top secret, visit the following web site to see a full display of past PCGS holders. Of course future changes are not displayed.

http://www.sampleslabs.com/pcgs.html

-- BiddlesBank

The link BiddlesBank posted takes you to the PCGS page of the SampleSlabs.com Web site. You can use the navigation on the left margin to see the slabs of other services.

The debate about the counterfeit slabs problem and how to solve it is an important one that our hobby needs to keep abreast of. One of my biggest fears is that the TPGs will create a solution that requires everyone to get their coins re-holdered, and which the companies will make a hefty profit from. This would truly be a disgusting outcome, if the TPGs try to capitalize on a problem that many collectors feel they should have been more aggressive about preventing in the first place!

If collectors don't feel safe buying PCGS and NGC slabs any more, it could be disastrous to our marketplace. Perhaps an equitable possible solution would be for CAC (Collector's Assurance Corporation) to make a sticker that guarantees the authenticity of major TPG slabs. They're already doing a good business grading the graders, so why not step in and fill this authentication need in the marketplace, too. At least until someone counterfeits the CAC stickers!

Links Related to the Counterfeit Slabs

• Coin Dealer Ethics - Authentication Diagnostics (Original Post)



• NGC Warns About Counterfeit NGC Holders



• PCGS Warns About Counterfeit PCGS Holders