As a matter of course, the U.S. Department of Treasury is in the business of redeeming mutilated (damaged) U.S. coins for their melt value. Depending on the composition of the coins (whether they are pennies, nickels, or the higher denominations), the Treasury will reimburse you at a set price for each pound of metal.
This redemption program has been suspended for the moment, however, due to the ongoing investigation into potential fraud involving mutilated coins from China.
Alerting the Feds
It was revealed back in the spring that federal prosecutors were seeking a forfeiture of more than $5 million that the Treasury Department had paid to firms sending large quantities of mutilated coins for redemption. The investigation was prompted not only by the unusually high volume of these shipments over the last several years, but the discovery of anomalous results in metallurgical tests. According to the civil complaint filed by the feds, "not only was the percentage of copper and nickel off from genuine U.S. coins, the composition also included aluminum and silicon, neither of which has been used in a circulating U.S. coin."
In other words, the supposedly mutilated currency was full of fakes.
More comically, it appears that more half dollar coins have been submitted through the redemption program from China alone in the last 10 years than the U.S. Mint has ever produced.
By definition, mutilated coins are not merely worn away, but must be "bent, broken, corroded, not whole, [or] melted together" and cannot be machine countable. These guidelines distinguish a mutilated coin from one that is merely "uncurrent." The second requirement is the crux of the program: if a machine would count the coin without incident, then there's no reason to accept melt value—less than face value for a copper-nickel clad coin—for it.
Saw It Coming?
Although hindsight is 20/20, it does seem that there were already concerns among U.S. Mint officials about the possibility of fraud in the Mutilated Coin Redemption Program in 2008, as it was organized at the time. Although the Treasury Department and the mint summarily adopted changes that were supposed to address these potential weak spots, including the possibility of money laundering, the shipments that tested as counterfeit were from 2010 and 2011.
At least one of the three companies named in the federal complaint, Wealthy Max Ltd., is attempting to clear its name in connection with the fraud. The company has responded through its legal defense team and is supporting the mint's decision to suspend the Mutilated Coin Redemption Program until the mess can be sorted out. Through its counsel, the company claims to be just as outraged about the potential scam as everyone else, claiming its reputation has been unduly harmed by the case.
You can read more about how Wealthy Max is responding to the case here.
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