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Tuesday, November 19, 2013

Ex-auditor's lawsuit alleges Brinks' coin-culling deal was fraud

The Columbus Dispatch Monday November 18, 2013 6:25 AM 

A penny-meltdown moneymaking plan is at the heart of a federal lawsuit that pits the Brinks Co. against its former internal auditor.

Brian D. Holbrook, the auditor, charges in his whistleblower lawsuit that Brinks defrauded the United States by allowing a Jackson County metallurgist to sort through pennies that Brinks kept for the Federal Reserve, take the coins that contained more copper, and replace them with those that had less.

The lawsuit, filed two years ago in New Jersey against Brinks, Jackson Metals and metallurgist Walter Luhrman, was moved recently to U.S. District Court in Columbus at the request of the defendants.

Although most of those involved in the lawsuit would not discuss the case on the record, court documents give details.

Holbrook’s complaint says that Luhrman, of Jackson, had an agreement with Brinks that allowed him to cull pennies minted in 1982 and earlier from coin piles that Brinks kept for the Federal Reserve in 2006 and 2007. Luhrman melted the pre-1983 pennies, which were minted with 95 percent copper and 5 percent zinc, to extract the copper, the complaint says. He replaced those pennies with newer ones, which are 2.5 percent copper and 97.5 percent zinc.

In the lawsuit, Holbrook, of Parma Heights in Cuyahoga County, estimated that Luhrman received $44,892 for each tractor-trailer of pennies he obtained from Brinks. A total was not listed in the documents.

Luhrman profited, the complaint says, because the copper in each penny was worth about 2 cents. Brinks saved money because Luhrman’s company, Jackson Metals, moved the pennies from Brinks’ customers with an excess of the coins to places with a shortage, cutting transportation costs for Brinks, according to the complaint.

In its answer to the court, Brinks does not say whether the allegation of penny-switching is true.

The company argues that Holbrook’s claims don’t hold up because the Federal Reserve doesn’t determine the metallurgical value of pennies delivered to Brinks, there is no law against culling and hoarding pennies, and Brinks was not paid to store the Federal Reserve pennies. Brinks and Jackson Metals have asked the court to dismiss the lawsuit.

Stephen Fitch, the attorney for Luhrman and Jackson Metals, said Luhrman developed a process for sorting pennies based on their metal content so that he could melt down copper-filled pennies. He started using the process in 2006. 

But by the end of that year, the U.S. Mint had banned penny and nickel melting, so Luhrman stopped, Fitch said.

Although Luhrman sought legislative support in trying to reverse the ban, he was unsuccessful, Fitch said. Luhrman closed his business a few years later.
No conspiracy or fraud took place, Fitch said, adding: “There was nothing illegal about it.”

Steve Roach, the editor of Coin World, said the idea of melting down copper-filled pennies “makes a lot of sense” — in theory. “It’s a seemingly easy get-rich-quick scheme,” he said.

But melting coins is distasteful to collectors, Roach said, and perhaps to the public. Withdrawing the penny from U.S. currency has been discussed for years but discarded each time, Roach said. “People have a romantic attachment to the cent,” he said. “It’s something people are used to.”

Roach said 64.4 percent of the total shipments from the Mint last year were pennies.

“That’s a lot of effort to make these cents that nobody wants but nobody wants to get rid of,” he said.

A Mint spokesman said the agency could not comment on pending legal matters.

Related article on the developing fraud: Ohio Dem: Repeal ban on melting coins