IN THE BAG: The company says it receives 15,000 to 20,000 packages each week and has 3 million pieces of jewelry on its processing floor. [Photo: Newscom/Palm Beach Post]

Jeff Aronson’s Cash4Gold has filled the airwaves over the past two years with TV commercials exhorting people to mail their jewelry to his company in Pompano Beach and receive “cold hard cash.” In the ads, excited customers — or, in recent ads, actors hired to stand in for customers — offered testimonials, while graphics proclaimed “Get TOP DOLLAR for your gold!”

“My customer is there for convenience, for service, for a confidential transaction and to be able to do it from the comfort of their home. There’s a massive segment of society that doesn’t have time to be running around.” — Jeff Aronson, CEO, Cash4Gold [Photo: Newscom/Palm Beach Post]

The crowning moment came in this year’s Super Bowl broadcast, with a $3-million Cash4Gold ad starring two financially strapped pitchmen, rapper MC Hammer and former “Tonight Show” sidekick Ed McMahon. In the ad, Hammer shows off bling; McMahon talks of selling his gold toilet to Cash4Gold. The spot generated buzz everywhere from the Wall Street Journal to “Live with Regis and Kelly.”

All the ads have paid off in the volume of business that Cash4Gold needs to justify the millions it has spent on promotion in the two years since Aronson founded it. Jewelry continues to pour in. And the company melts between 3,000 to 4,000 fine ounces of gold and 800 pounds of silver a week, Aronson says. At 2008’s average prices, that works out — he won’t disclose revenue or say whether the privately held company is profitable — to $7.5 million in silver and between $136 million and $181 million in gold in a year. The company bills itself today as the nation’s largest buyer of gold from the public.

As it has grown, however, Cash4Gold also has generated a different kind of volume: More than 300 complaints from consumers to the Better Business Bureau and dozens to the state Attorney General and Department of Agriculture and Consumer Services, alleging problems with Cash4Gold’s service or complaining of low payouts. Along with the formal complaints, internet postings devoted to disparaging the company have sprung up as well.

VIDEO Championship Ring Saved Days after Cash4Gold's Super Bowl TV ad, a 1995 AFC Championship ring was pulled out of a volume of gold.

Complaints about Cash4Gold to the Better Business Bureau Complaints Response 9 Making a full refund,as the consumerrequested 2 Making a partial refund 310 Agreeing to performaccording to theircontract 4 Refusing to make anadjustment 1 Refuse to adjust,relying on termsof agreement 6 Unassigned 332 Total

Advice to consumers: “The prudent thing to do is get more than one opinion on the value of your property,” says Better Business Bureau President Brodie White. [Photo: Scott Wiseman]

Aronson says his company has satisfactorily resolved all but a handful of the service complaints. He makes no apologies for his payouts: He keeps from 80% to 20% of the spot price of the gold that his customers mail in — those margins, he says, are dictated by his business model and the high costs of advertising, mailers and processing. Aronson acknowledges his customers may get more elsewhere if they go to the trouble of shopping.

AS SEEN ON TV: The company bills itself today as the nation’s largest buyer of gold from the public. Recent ads with less emphasis on “top dollar” represent an evolution of marketing strategy, the company says.

“My customer is there for convenience, for service, for a confidential transaction and to be able to do it from the comfort of their own home,” he says. “There’s a massive segment of society that doesn’t have time to be running around.”

Whether Aronson’s expensive model continues to thrive in a commodity business could depend on how it faces up to several challenges, including how the evolution of the recession impacts the price of gold and consumers’ need to part with their jewelry for cash. The company believes its business model “will endure in a strong or weak economy.”

In addition, the company and the state have to resolve how it fits into the state’s regulatory scheme for “secondhand dealers” in precious metals; the company could face additional regulation. There’s also the question of how additional competition — Aronson’s proud of having “spawned an industry” — will affect the company.

‘American lexicon’

Aronson, 36, grew up in Brooklyn, earned a bachelor’s in communications in 1993 from Staten Island University and moved to Chicago, where he learned the metals business at Mar-Cor Environmental Services, a company that reclaimed silver from film processing. In 2001, he launched his own company, Albar Precious Metals Refining, which melted scrap from pawnbrokers, dental labs and others. He relocated it to Pompano Beach in 2005 and grew fast. Albar made the Inc. 500 list in 2006 and again in 2007, the same year it made Entrepreneur magazine’s Hot 500. Aronson said the economy changed, crimping his margins so that it “was impossible to run business at that rate.” As he tells it, one night in bed, poked awake by one of his children’s purple crayons, a new idea came to him: Cash for the masses, cash for gold. He started Cash4Gold in March 2007.

GOLD STANDARD: Customers mail in their jewelry. Cash4Gold employees weigh it, photograph it, assay it and send the customer a check. Customers have 12 days to ask for their jewelry back if they’re not happy with the price. [Photo: Newscom/Palm Beach Post]

He timed it well. In his first year, the recession started and the spot price for gold jumped from $650 to $1,000 per troy ounce. Others flocked to the gold-buying business. Meanwhile, jewelry stores inverted their business models. “People aren’t visiting the stores so all the jewelers became buyers instead,” says Brian Fabrikant, a Boca Raton jewelry buyer whose family has been in the business for four generations.

Aronson’s strategy: Buy gold direct from the public. Customers mail in their jewelry in the company’s prepaid envelopes; Cash4Gold employees weigh it, photograph it, assay it and send the customer a check. Customers have 12 days to ask for their jewelry back if they’re not happy with the price. After buying and melting the gold, Aronson’s company sells the ingots.

Cash4Gold’s customers, Aronson says, are disproportionately from rural areas, female and college educated. Quantcast, an internet traffic monitoring group, reports his site is a top 10,000 site (ranking 5,213th nationally) and that 64% of its audience is female, disproportionately African-American, lower income and less likely to have a college education. The company says that profile doesn’t match its customer surveys.

Aronson says he’s proud to have opened people’s eyes to their ability to monetize their mismatched earrings and unused jewelry. “Look at all the copycat companies all over the place. I mean, we’ve spawned an industry,” he says. “The real story is this incredible entrepreneurial company that is now employing (about 300) people, doing a massive business, created an industry, is the first direct-response company ever to do a Super Bowl ad in history, has now become such a household name that at least once or twice a week, Jay Leno, David Letterman, Jon Stewart talk about Cash4Gold in their monologue. We have become part of the American lexicon.”

Along the way, Aronson picked up venture capital financing from General Catalyst Partners and Highland Capital Partners, according to PEHub, a private equity forum that reported the company got $40 million, a figure Cash4Gold says is inaccurate. Aronson says the company was “vetted by the bluest of the blue chip VCs in America.”

As traffic grew toward the nearly 800,000 transactions Cash4Gold has handled since its inception, consumer complaints surfaced. The Better Business Bureau of Southeast Florida, which had a total of 332 complaints as of March, describes a “pattern” of allegations by consumers: Valuables that they shipped but Cash4Gold never reported as arriving; checks arriving by mail too late for them to cancel a transaction; offers that consumers said weren’t as high as what they’d been led to expect from the company’s ads.

The BBB, which rates both non-members as well as companies that belong to the organization, eventually revoked Cash4Gold’s membership. The BBB placed an “F” rating on the company last year and gave it a “D” in March. The company says it has addressed the complaints against it; in April, it had an “NR” — no rating — ranking from the BBB and says it expects a better rating after the bureau finishes reviewing its record.

The company has also taken heat on the internet. The first 10 results of a Google search on the company on March 31 had the company as the first non-advertiser link. The next five links were to sites that disparaged the company, with the remaining four links positive for the firm. Aronson says the online criticism and other news reports documenting how Cash4Gold made lower offers for jewelry than its competitors have had no impact on his business.

Some mistakes are inevitable, Aronson says, at a company that receives 15,000 to 20,000 packages each week and has 3 million pieces of jewelry on its processing floor. The company has acted in good faith to resolve every complaint, he says, explaining that Cash4Gold has changed business practices that generated complaints — it extended, for example the original 10-day cancellation period to 12 days. “I think out of 800,000 transactions, 300 complaints is infinitesimal when you compare it against GE Appliance, when you compare it against some of the largest companies in the world. Our ratio is unbelievable. That’s less than 1/25th of 1%.”

Cash4Gold also ran afoul of the Agriculture Department’s Division of Standards. During an inspection in December, the division found that only two of 56 scales — one not working, one accurate but with a broken seal — met standards as “legal for trade.” Aronson says the company relied on a state-certified scale service and the scales, while not meeting the state’s specifications, were accurate. The company replaced all the scales with legal-for-trade scales immediately.

Going forward, the company and the state will have to resolve how it should be regulated. Law officers want Cash4Gold and similar mail-in companies to obey the law governing secondhand dealers in precious metals. The law — meant to deter thieves from liquidating stolen jewelry and aid police in recovering it — requires the dealers to get photo IDs from sellers, keep detailed descriptions of items they’re buying and make data accessible to law officers.

South Florida police detective Jack Gee says his group may ask Attorney General Bill McCollum for an opinion on whether internet gold buyers should have to comply with the law applying to pawnbrokers and other secondhand dealers in precious metals. [Photo: Jeffrey Camp]

Jack Gee, a south Florida police detective and the legislative chair of an association of property crimes investigators, the Florida Law Enforcement Property Recovery Unit, says Cash4Gold is the only mail-in, internet-based gold buyer that makes an effort to comply with the law — it now sends Florida consumers a peel-back ink strip so that they can provide a thumbprint. Even so, Gee believes that “every transaction they do is illegal” because the companies don’t verify sellers’ identities with photo IDs. Gee said his group is considering asking Attorney General Bill McCollum for his legal opinion pending the outcome of the legislative session on whether companies like Cash4Gold should have to comply with the law. Cash4Gold is a company the law didn’t contemplate when it was written, Aronson says.

The company didn’t comment on whether it has registered with the state as a secondhand dealer. It says it supports a bill that was making its way through the Senate at press time that would regulate companies like itself and still “protect victims of theft.” The bill was originally introduced by Rep. David Rivera, R-Miami, and Sen. Dan Gelber, D-Miami Beach, but was substantially amended in committee. Another bill, sponsored by Rep. Dave Murzin, R-Pensacola, and Sen. Victor Crist, R-Tampa, would regulate the companies as secondhand dealers but allow them to accept a notarized statement attesting to the seller’s identity rather than a picture ID. That requirement could diminish the convenience and confidentiality that Aronson describes as big attractions for his customers.

On the issue of how much Cash4Gold gives consumers for their jewelry, Aronson makes no bones about his payouts.

In general, the gold-buying industry is very competitive. Commonly in the industry, a buyer who calculated the value of the raw gold in a bracelet at $100 would pay the owner at least $90 for it — a 10% or less cut of the metal’s value going to the gold-buying company is typical, says Mike Riess of Connecticut-based Materials Management, a former refinery manager and a director of the Pensacola-based International Precious Metals Institute, of which Cash4Gold is a member.

Aronson’s margins are much higher. Aronson says Cash4Gold pays the seller between 20% to 80% of the metal’s spot price depending on its quality and quantity — meaning he might pay the bracelet’s owner as little as $20 for the $100 worth of gold. Aronson says his valuation depends on the volume. Send him a lightweight packet and he’ll keep 80% of the value. Send him 10 ounces, and he’ll keep only 20%.

“I make no apologies of it because I want people to understand that I can pay what I can pay,” he says. Aronson says competing jewelry buyers don’t have his costs of acquisition, processing, overhead and mailers. “Anybody has the opportunity to say, ‘I’m not happy with this offer,’ and I encourage everyone, if they’re not happy with the offer, to go somewhere else. ... Our (net margins) are not egregious at all. I’m sure the pawnshop with the same piece of jewelry is making more money than I am because of my cost of acquisition. My (net margins) I only wish were higher.”

How Much Is It Worth? Unless consumers know an item’s weight and grade, they rarely know what their jewelry is worth as scrap metal that will be melted for resale to industry or as a financial commodity. Some underestimate their jewelry’s value while others hold inflated views, not realizing that 14-karat gold is only about 58% gold, for example, or that an item’s original retail price — which reflects the piece’s labor and artistry and markups along the supply chain — is irrelevant, as is the insurance appraisal of replacement value. “Consumers have an unrealistic expectation of the amount of money they can get for gold,” says Cecilia Gardner, President and CEO of the Jewelers Vigiliance Committee, an industry compliance group of which Cash4Gold is a member. “The nature of the complaints (about Cash4Gold) we get is the prices they offer. If you don’t like what you’re being offered, don’t sell it to them.”

Indeed, a quick calculation by Florida Trend provides a sense of how expensive Aronson’s business model is: TNS Media Intelligence, an ad tracking firm, says Cash4Gold spent $124 million in marketing in 2007 and 2008. Divide that by the 800,000 transactions that Cash4Gold did over that period and the first three months of this year. That’s $155 per transaction — meaning Cash4Gold has to knock, on average, $155 from the metal value on which it pays per transaction to consumers just to cover its ad spending, before arriving at a payout that covers its costs for labor, mailing, environmental compliance and other corporate expenses.

MELTDOWN: The company melts between 3,000 to 4,000 fine ounces of gold and 800 pounds of silver a week. [Photo: Newscom/Palm Beach Post]

AD BUY: Cash4Gold’s has processed around 800,000 transactions since the company was founded in 2007. Customers mail in their gold using the company’s “refiners return pak.”

Cash4Gold won’t disclose its ad spending numbers and says TNS’ numbers are “remarkably inflated.” At one point in 2008, the company said in another news report it was spending $2 million to $3 million a month in ads. Aronson says his spending is “bigger” now. But according to Florida Trend’s calculation, even at the $2 million to $3 million a month rate, the ad spending works out to $60 to $90 per transaction.

Aronson says nearly 94% of consumers take Cash4Gold’s offer. In recent months, the company’s ads emphasize its own size rather than offering “top dollar.” Though the “top dollar’’ ads still appear, newer ads replace that graphic with the words “America’s #1 Gold Buyer.” The company says the change reflects an evolution of its marketing message. Aronson refers to a page on his site that tells consumers that selling their gold to Cash4Gold might not be their best option.

At the end of March, Aronson was looking forward to the completion of Cash4Gold’s new headquarters, a “mini Fort Knox,” in Pompano Beach. Business is good. “We’re on pace to outdo last year multifold,” Aronson says. He says he will expand into Europe this year.