BY SCOTT A. TRAVERS
COPYRIGHT © 2006, 2007 BY SCOTT A. TRAVERS
ALL RIGHTS RESERVED.
Safecracking can be highly lucrative for skilled professional burglars. A different kind of “cracking” can be equally as profitable for knowledgeable professional numismatists who understand the finer points of grading rare coins – and unlike the kind involving safes, this one is perfectly legal.
“Crack-out” is a term of art that refers to getting certified coins upgraded by either removing them from their plastic grading-service holders and resubmitting them as uncertified or sending them in while still in their holders under a variety of grading service tiers in anticipation of upgrades.
The “crack-out game” was spawned by the Grading Revolution of the late 1980s, when encapsulation – or “slabbing” – of rare coins first became a force for dealers and collectors to reckon with. We soon discovered that by removing certain coins from their grading-service holders and resubmitting them to the same service or a competitor, we could get them recertified at a higher grade level, increasing their resale value by hundreds, even thousands of dollars. There were – and are – risks, of course, to removing a coin from its holder. It could get a lower grade the second time around, resulting in serious loss instead of gain. Or, horror of horrors, it could get body-bagged and permanently “no graded” as a result of doctoring the grading service did not notice the first time around-and that we didn’t recognize before cracking the coin out for resubmission. But those of us who have mastered the game play it extremely well, and our miscalculations are more than compensated for by upgrades.
The most obvious type of crack-out – and the one that gave the crack-out game its name – is to pry open a grading-service holder, remove the coin inside and resubmit it as a “raw” coin, as if it had never been graded in the first place. My personal experience suggests that this is the best way to maximize many potential upgrades. It isn’t without significant risks, and it also isn’t the only way to play this game.
CROSSOVERS AND REGRADES AT NGC AND PCGS
Another approach is to leave a certified coin in its holder and take advantage of one of the “crossover” or “regrade” programs offered by the major grading services. The Professional Coin Grading Service (PCGS) and the Numismatic Guaranty Corporation of America (NGC) both provide such programs.
NGC and PCGS offer a “crossover” service that lets you send either entity an encapsulated coin graded by another grading service. (Other grading companies offer this as well.)
NGC writes: “Coins will be removed from their holder[s] only if they can be graded at the same or higher than your specified minimum grade[s]. You may not request a higher minimum grade than is on the current holder.”
According to PCGS: “We will grade the [coin] and put [it] in a PCGS holder only if the PCGS grade meets or exceeds the other grading company’s grade (unless specifically instructed differently by you). You cannot specify a higher minimum grade. If the PCGS grade is lower than the other grading company’s grade, we will return the coin to you in the original holder. You will be charged the full grading fee even if your coin does not cross.”
NGC and PCGS also offer a “regrade” service for coins graded by each respective entity that you would like to have regraded at a higher grade, but not risk having downgraded: You may submit NGC coins in their holders to NGC and PCGS coins in their holders to PCGS.
I have heard favorable comments about the crossover and regrade programs. Submitters using these programs report success in getting coins upgraded. It’s essential to choose coins that are candidates for upgrades – meaning either undergraded or premium-quality coins within the original grade level. A coin that ranks near the top of the spectrum for Mint State-64 might well come back as MS-65.
Certain series have idiosyncracies that make them hard to grade. The Indian Head Half Eagle and Quarter Eagle fall under this heading because their incuse (or recessed) designs require an entirely different approach to grading from normal raised designs. Those of us with expertise on grading these two series have a good chance to reap a windfall by taking advantage of inconsistencies by the grading services. After all, these coins pose a major challenge for their graders, too.
Despite the satisfaction some have expressed with crossovers and regrades, both of these programs provide less potential for achieving an upgrade – especially a significant one – than removing a coin from its holder and resubmitting it “raw.” They also entail virtually no risk, and the only downside is the grading fee – typically $100 when done on a walk-through basis at a coin show – and this would be recouped many times over if even one of the “right” coins were upgraded.
In theory, the graders at PCGS and NGC are supposed to disregard the number on a holder – even make an effort not to look at it at all. However, because they can’t see a coin completely through the plastic in the holder, people tend to be gunshy about raising the grade too much – maxing it out, so to speak. Either they’re just not confident about missing a hard-to-see flaw, perhaps on the rim, or they prefer to play it safe and err on the conservative side. Either way, the temptation is great to sneak a peek at the coin’s original grade.
Dealer Steve Contursi says he is “confidently certain” that grading services sneak a peek at the original grades of coins submitted in slabs. Contursi certainly must believe that because he recently returned to PCGS 13,535 of its inserts, representing hundreds of millions of dollars’ worth of high-end coins he cracked out of slabs since 1986. Among the inserts from PCGS coins that Contursi returned were: 42 certified 1879 and 1880 $4 “Stella” pattern Gold pieces with a combined estimated value of over $5 million; 130 Round and Octagonal 1915-S Panama-Pacific International Exposition $50 Gold Commemoratives valued at over $5 million; and 168 High Relief 1907 Saint-Gaudens Double Eagles valued at over $3 million.
The returned inserts were part of a philanthropic promotion for the American Numismatic Association, and PCGS used the opportunity to improve the accuracy of its population reports in the process.
CRACKING COINS OUT OF SLABS
Most of the coins I know of that received substantial upgrades were physically cracked out of their holders before resubmission. In some cases, the same coins have been resubmitted both ways – in and out of their holders – and did much better as crack-outs than as crossovers and regrades. In one case, one of my clients had a truly magnificent 1881-S Morgan Dollar – a coin with beautiful toning – that had been graded MS-64 by NGC in 1987, when grading standards were very strict. The client didn’t want to crack it out and resubmitted it for an upgrade in the holder. It was upgraded to MS65.ÿSubsequently, I cracked it out of the “65” holder and resubmitted it again as a raw coin – and sure enough, it was then upgraded again to MS67.ÿThis helps explain why I favor playing the crack-out game the traditional way – by cracking the plastic.
Several years ago, I learned informally of a passive form of crack-out that also resulted in an upgrade. I had sent a group of coins to PCGS for reholdering because their “slabs” were damaged or scratched, and one of these coins, in a cracked holder, caught the eye of a grader who felt it was undergraded. Even though I never submitted that coin to be upgraded, it came back in a higher-grade holder.
The crack-out game has gotten tougher and it would be a serious mistake to think that you can get a coin upgraded with little or no trouble and make yourself a quick return of several thousand dollars. For one thing, coin “doctoring” is much more prevalent today, so doctored coins – those artificially enhanced to look better than they really are – turn up in coin holders more frequently than in the early days of certified grading. Then, when such coins are removed from their holders and examined more closely, the coins may be not only downgraded but no-graded.
The greatest downside of cracking out a coin today is that you might never be able to get it back into a holder. In the days before doctoring became so widespread, there was really only a one- or two-point downgrade risk. Today you may crack a coin out of a holder in hopes of getting it upgraded and end up never being able to get it graded again at all.
Jim Halperin is one of the most successful dealers in the nation at getting coins upgraded. He and Steve Ivy, his fellow co-chairman of the board at Heritage, together own 24.254% of non-voting NGC stock. (That number is current as of February 15, 2005.) This chart lists samples of Halperin’s favorite upgrade coins. Halperin says in cracking out a coin, he considers the downside as well as the upside.
Maurice Rosen, publisher of the Rosen Numismatic Advisory, agrees that the greatest upgrades come from actually cracking coins out of their holders – especially NGC and PCGS holders from the late 1980s, when standards were tight, resulting in many coins that were seriously undergraded by comparison to most coins graded later.
This spring, Rosen submitted a group of 88 common-date Saint-Gaudens Double Eagles to PCGS for regrading, and achieved remarkable success. More than half the coins were in PCGS holders, while the rest had been graded by NGC. All were cracked out of holders for certified coins graded in the late 1980s, so they not only were graded strictly but also weren’t subject to the same doctoring risk as coins that were graded more recently.
The coins, dated 1924 through 1928, received upgrades averaging 1.52 points. Here’s a brief summary:
Two MS-61 coins ($635) made MS-64 ($855) total increase in Bid: +$440
Two MS-62 coins ($685) made MS-63 ($740) +$110
Fourteen MS-62 coins ($685) made MS-64 ($855) +$2,380
Two MS-62 coins ($685) made MS-65 ($1,230) +$1,090
Two MS-63 coins ($740) remained MS-63 ($740) unchanged
Thirty-six MS-63 coins ($740) made MS-64 ($855) +$4,140
Twenty-six MS-63 coins ($740) made MS-65 ($1,230) +$12,740
Four MS-64 coins ($855) made MS-65 ($1,230) +$1,500
Nothing was downgraded +$22,400
HOW TO CRACK-OUT COINS FROM SLABS
When cracking a coin out of its grading-service holder, always use caution, and wear goggles to protect your eyes. Crack-out practitioners are careful to also protect their fingers. Remember, too, that you can always crack a coin out, but you cannot put it back into a holder once it has been cracked. So be absolutely certain in advance of cracking any coin out of its holder that this is what you want to do.
A heartbreaking mistake can result from cracking an older holder, when you assume the coin is undergraded, only to find that the services will no longer grade that coin because it was doctored in a manner that is recognizable today, but wasn’t back then. So you will have not only lost the advantage of the old holder premium, but you will have a coin that is now ungradable.
An NGC holder comes apart after a solid hit by a flat hammer on each edge. After no more than two twists, the holder should easily separate.
PCGS holders can be opened by using sheet metal nippers-a pliers-type tool with the cutting edge perpendicular to the handle. Cut the holder on the edge across from the coin, and the holder breaks in two. The insert ring with the coin will then slide out.
For removing coins from any type of slab, a bandsaw can be used. The coin is left sandwiched in the holder so you don’t have to handle it. Persons who use this method make a few straight cuts away from the coin. This leaves small squares of plastic on each side of the coin which lift off.
The crack-out game is no sure thing, and playing it requires a high degree of skill, savvy and guts. But while winning may be harder than it used to be, the fruits of victory can be very sweet indeed.
Remember, there’s more than one way to skin a cat or crack a coin!