1944 Gold Coin Treasury Memorandum (& other cool stuff)

The memo mentions that the Treasury has consulted with expert numismatists. It doesn't say whom or where - surely experts may have differing opinions. Moreover, the question of law would not be a matter for numismatists alone to decide. How laws would be applied would involve an interplay between numismatic experts and the courts. We see more uncertainty in the wording:

The fact that a coin is sold at a price well in excess of its bullion value would appear to be some evidence of its special value as a collector's item. ​

[...] a court would quite possibly give weight to such a factor [...]
​

What the memo shows us is that the government was somewhat benevolent to coin dealers, giving them the benefit of the doubt. Legal certainty as to what constitutes a numismatic coin did not come about precisely because the Treasury did not wantonly confiscate the gold coins as the Secret Service requested. Had the Treasury given a directive to the Secret Service to confiscate the gold coins mentioned in the memo, perhaps then, through the courts, given that a legal challenge would have been likely, could the precise definition of what constitutes a numismatic coin been ascertained. This is not something that the bureaucrats at the Treasury alone decide.

 

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There are what appear to be some contradictions. I'm not a lawyer, and the ability to determine what is "controlling" and what is "dicta" is key.

Section 20 cited above focuses on "recognized special (numismatic) value" with the exception of Quarter Eagles ($2.50 gold coins).

Section 20 is then said to NOT authorize any holdings which were not considered "rare" under the key Gold Reserve Dates of April 5th, August 28th, and December 28th 1933. The coin had to be "rare" at that time.

But.....the ending of the memorandum states a bunch of conditions for determining "rare" or "special value" as examined by collectors/numismatists....and ultimately... these coins are expected to sell at a premium to gold @ $35/oz.

It then sums up everything with: the Courts are going to want to see an INTENTION to violate the GRA....and if you have someone paying a premium you're going to have difficulty with intent. It cites a 1937 case "U.S. vs. 98 $20 United States Gold Coins" which I believe is the Israel Switt case where his briefcase full of $2,000 in double eagles was seized. The case said the government had to prove an INTENTION -- burden of proof on the feds.

Ergo....if someone paid a premium....the govt has an uphill battle and Treasury higher-ups are saying it's not worth it to go for forfeitures in this case.

Ergo....stay away from coin collectors, dealers, and numismatists transacting in premium-priced coins.

 

I've come full circle with the memo. At first I was dismissive ("it's just a government memo, folks"), then I was impressed as I read into it ("everyone is excited by this, I'm an idiot who of course was missing some important things, as is often the case"), and now I'm back to where I started ("I was right to be skeptical of a decades old bureaucratic memo"). I see this is a bureaucratic memo.

I think the subtext and context are important to understand the memo. Actually, much of the conversation in this thread gives us that context (people were scared of keeping their gold coins, and after the ban did not care to hoard gold and become potential martyrs to a gold cause, with some notable exceptions). There was a numismatic carve-out early on with the help of the Treasury Secretary Woodin. So the government gave coin dealers the kid glove treatment. Whether it was benevolence or simply a pragmatic focus, the government chose not to pick a fight with numismatists. So what coins could qualify as numismatic was never fully resolved. The Treasury chose a broad definition, as I see it, to avoid picking a fight with the courts. Had the Treasury prosecuted the coin dealers as the Secret Service seemingly wanted, they would not have had the final say in determining what constitutes a numismatic coin. However, they would have had endless resources to prosecute the case. But it's clear there were either good people in the Treasury or maybe they decided to just pick their battles more intelligently - using the lawyers on their staff with more precision in cases they knew were the strongest.

It sounds to me like the Treasury had some brains within their bureaucracy.

 

I can imagine what went down that led to this memo. The Secret Service perhaps got a tip that dealers were making money off of gold coins in New York City. I can imagine there was a beef between someone and one or a few of the dealers. Maybe it was a relative or in-law, or a disgruntled customer or former business partner. This is speculation, but I doubt the Secret Service proactively just targeted New York City coin dealers in an investigation. They then surveilled them, perhaps with some secret buys, and the Chief of the New York District office, perhaps a nerd who was shoved into a locker in high school, decided to show his male dominance years later and exact revenge against these coin dealers. The Secret Service had to get approval from the Treasury to take down these dealers and failed to get that approval. The late Treasury Secretary Woodin and the person who authored the memo, I believe an Ansel Luxford, deserve credit for preventing unnecessary pain and hardship to these coin dealers. I sense some malevolence in this take-down attempt that failed.

 

Maybe I am naive by thinking the Treasury was being benevolent to coin dealers. This memo was written during World War II, when government agencies were focused on the war and because of that there may have been shortages of staff or resources among agencies. Furthermore, the U.S. had just come out of the Great Depression, so the type of funding government agencies have come to be known for may not have yet kicked in. It may have been a matter of "we are spread too thin for this."

 

You make some good points, the note is pretty clear.

A simple paying of a premium is enough for Treasury to tell Secret Service to not waste their time. Not only are the courts likely to use any premium payment as de facto evidence of numismatic and special value....but you may have the force of a fact-finding by a court, backed up by professional numismatists, that these coins are of "special value" and that you can't prove intent based on the U.S. vs. 98 Double Eagles case.

The government may have won the battle (against Israel Switt) but lost the war (against legitimately licensed coin dealers and numismatists).

I doubt the government tries anything like the 1930's again because the numerical advantage it had then with minimal financial asset ownership, including gold, is today 10-20x as large. It would be like banning private home ownership.

 

You would think so....but in fact, the Secret Service was tracking down 1933 Double Eagles at the same time !

There was a war going on -- albeit I think we knew we'd win by this time -- but it's interesting that the Secret Service and elements of Treasury and the Mint were looking to stick it to folks who obtained 1933 DEs simply because they were now worth $500-$1,500 or so and they apparently resented political opponents of FDR reaping such a windfall. Most of these guys probably made salaries of $3,000 or so.

 

In my view, the only thing the note is clear about is that the Treasury does not want to pick a fight with New York City coin dealers. Why? We can only speculate as to the motive, but to my mind it is not because the case would have been a slam dunk for the coin dealers. More than likely, the courts would have found a middle ground between the two sides, giving the Treasury at least a partial victory (although it is possible the coin dealers would have essentially scored a win). The memo specifically states that a premium "well in excess" of a coin's bullion value "would appear to be some evidence" of it being a collectible. It then expresses uncertainty as to the legal outcome. It does not state that a court would necessarily conclude it falls under the numismatic exception. Moreover, "well in excess" is not the same as simply having any premium, no matter how small. The sentence before the last does not follow logically from the rest of the memo; it is simply stating "leave them alone." In my view, the memo should not be construed as establishing a precise definition of what constitutes a numismatic coin.

 

Here's a possibility as to why the Treasury did not want to prosecute New York City coin dealers. At the time, the general public was fearful of the potential consequences of holding gold. Wealthy investors also were likely wary, since potential confiscation is unappealing to conservative investors who wish to preserve and grow their wealth. One thing wealthy investors like is certainty, so by lacking a precise definition as to what constituted a numismatic coin, they were deterred from investing in such coins. So the Treasury may have calculated that such uncertainty worked in their favor to enforce the Gold Reserve Act.

Let's say a precise definition were to be established via the courts. Wealthy investors might now deploy significant capital at the very margin of that definition to game the system, thus creating a moving target and effectively undermining the law. So if, say, a premium of 25 percent would constitute a numismatic coin, such investors might just be willing to pay that extra amount to accumulate vast sums of gold. The numismatic premium might thus become, in practice, a mere tax on bullion.

 

Anything is possible, but consider this:

• The law and Treasury/Mint acknowledge that any premium payment by itself indicates "special numismatic value."

• The courts, Treasury, SS, Mint...all say they are NOT experts in coins or numismatics. They said the folks who deal with them on an everyday basis are the experts. And those experts will testify that said coin purchased at a premium has numismatic value and is EXEMPT. This was what got Louis Eliasberg into gold coins.

• Treasury may have thought that if the courts gave a split decision, that was no different than a complete loss. The Treasury was like a contender for the heavyweight championship fight: they needed a knockout to win. Split decisions wouldn't lead to blanket prohibitions above the 5-coin limit (which itself may have been repealed directly or indirectly after 1933). Fear of a court loss led the Treasury to accept a split on the 1933 Double Eagle sale in the late 1990's.

I think we can sometimes parse things too much, Jolumoga. Forget the legal interpretations and court decisions and their fears or hopes in court. Treasury told the Secret Service: back off. We're not on solid ground here.

If the price for 99% of the population turning in their gold was to let the 1% keep playing with it....let them play.

 

Footnote: I believe that the goverment spiked the football on Israel Switt's "intent to evade" the 1934 GRA assuming that was him in the U.S. vs. 98 U.S. Gold Coins case.

Having accepted a standard when it helped them WIN some cases (including the Chase $5,000 case)...the government couldn't now say it shouldn't apply to the coin dealers and collector community.

He was dead...but what if some of Treasury Secretary William Woodin's family or friends testified that he himself assumed he had an unlimited quantity of gold coins acquired at premiums to the gold price beause that was a coin that inherently had "special numismatic value."

 

Actually, it was probably 99.9% vs. 0.1%. Maybe even 99.99% vs. 0.01%.

Assuming 75 million adults, that would mean either 750,000 people buying coins (doubtful) or 75,000.

Heck, it could have been 0.001% or 7,500 folks or even 750 repeat offenders/addicts at 0.0001%

The point being that it was a very narrow group that Woodin wanted to protect and Treasury said wasn't worth going after, whatever the number.

And Treasury noted in Section 20 that there was a 4-coin year/mint limit on the $2.50 Quarter Eagles, the coin that most of the "masses" would probably gravitate for affordability reasons if they were looking to buy/hoard.