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Minnesota Attorney General Lori Swanson filed suit Friday against a defunct Twin Cities coin dealer and two of its officers alleging that they had cheated consumers around the country out of hundreds of thousands of dollars. She also announced legislation intended to regulate an industry that is rife with ex-cons and consumer fraud complaints.
The lawsuit against Guardian Gold & Silver Exchange of Plymouth, owner Ray Hanisco, and vice president and chief operating officer Schaun Waste, alleges that they accepted coins from consumers for which they failed to pay, and that they failed to fulfill orders after being paid.
Telemarketers working for Guardian targeted elderly consumers around the country.
Merlin Habegger of Niceville, Fla., said the salesman who called him "after hours" in June made "a tremendous sales pitch." He said he spent $6,000, but never got any coins, and company officials did not return his phone calls. When he finally connected with Hanisco, said Habegger, he just got excuses.
"I've heard more lies from him than anyone in the rest of my life. I'm 75 years old," Habegger said. "I didn't think there were people like this."
Ernest Gremillion, 62, of Alexandria, La., got a court judgment against Guardian for about $100,000. The semi-retired coin dealer said Hanisco spent a week in Louisiana going through his collection in search of coins to exchange.
"He did deliver to me some coins but they were very overpriced," Gremillion said. "I lost all of my money and got a worthless promissory note I'd gladly sell anybody who wants to buy it."
Hanisco could not be reached for comment. He filed for bankruptcy in October, listing assets of about $45,000 and debts exceeding $1.7 million.
At a hearing last month, Hanisco said the company spent some of its customers' money on operating expenses and a gold ore processing operation that failed. He said the venture was supposed to use enzymes to extract ore from mine tailings and reap enough profit to stabilize Guardian.
Hanisco admitted he hadn't hired any professionals to evaluate the process. "It seemed like something that should work, because of the research I did on the Internet," he said.
A bankruptcy trustee ordered Hanisco to preserve the company's financial records.
"I have nothing to hide," he responded.
Swanson has filed a number of lawsuits against Twin Cities coin dealers alleging consumer fraud, including Reputable Rare Coins of Roseville and its owner, Tory Hughes, and Crescent Equities of Minneapolis and its owner, Robert Gundy. Both were barred from the business. A suit against the Stella Group of St. Paul and its owner, Tiffany Grady, is pending.
A Star Tribune investigation in 2011 found that a number of Twin Cities telemarketing operations that deal in precious metals are staffed with ex-cons and salesmen with substance-abuse problems, including the now-bankrupt International Rarities Corp. of Minneapolis.
Owner David Marion was indicted in November on federal conspiracy, securities fraud and money laundering charges. His case is pending.
Swanson and Commerce Commissioner Mike Rothman announced legislation Friday they said would provide greater protections to people who buy gold, silver and coins. State Rep. Debra Hilstrom, chair of the House Judiciary Committee, and Sen. Katie Sieben, assistant majority leader-elect, said they expect to introduce the bill promptly.
"This is the only investment area that is not yet regulated," Hilstrom said. "When folks are saying that they're selling an investment, the public expects that they're going to get what they're sold."
Sieben agreed. "When I looked into it more, it seemed like a huge loophole in Minnesota law that needed to be closed," she said.
The bill would:
• Ban from the industry coin dealers who've been convicted of a felony or financial crime.
• Require coin dealers and their sales agents to post a bond and register with the Minnesota Department of Commerce, which will create a background check process.
• Prohibit coin dealers from misrepresenting their qualifications, the value of coins or the delivery dates.
Gary Adkins, an industry spokesman in the Twin Cities, said although most coin dealers are honest some crooks give the industry a bad name.
"We applaud Attorney General Swanson's efforts to reduce these crimes and thwart these criminals," Adkins said. But he said the bill needs work.
"The legislation has some flaws and missing requirements that could have been averted if input from respected dealers in the precious metals industry had been contacted for their suggestions," he said.
Sieben and Hilstrom say they welcome input when the Legislature takes up the bill.
Dan Browning • 612-673-4493