Modern Texas Redback Gold Notes are being produced and sold by the Texas Bullion Depository. A lawsuit in federal court in Austin argues the state is moving to produce its own illegal currency. The original “edbacks” were promissory notes issued by the Republic of Texas between 1839 and 1840, so-called because of the red star on their reverse.
Comptroller of the State of Texas
Since launching its gold coin and note program in December, the state-run Texas Bullion Depository has been not just competing but beating private businesses, according to expert testimony in a federal court hearing on whether to halt the program.
Donald House, an economist with RRC Inc. in Bryan, evaluated the market for Texas Precious Metals, which is suing the state over its program, finding the depository is commanding a premium usually associated only with mature businesses.
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He found the state’s program was outperforming Texas Precious Metals — which has been selling gold and silver coins for more than a decade — and all other evaluated sellers. In one example, he said a Texas Bullion Depository product commanded nearly double the markup of the Texas Precious Metals product, which has been selling gold and silver “rounds” for more than a decade.
RELATED: New Texas gold law could complicate defense of state’s coin program
Lawsuit challenges state program’s marketing and authority
“Why would a new entrant be able to charge higher prices than all competitors?” House said.
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To answer his own question, he pointed to the depository’s use of trademarks similar to those used by Texas Precious Metals, confusion about the status of its coins as “official” or legal tender — and one more reason.
“There has to be something in play,” House said, “One of them is obvious: ‘One is a coin. The other one is a ‘round.’ “
A round is the industry term for a privately minted, disc-shaped piece of precious metal that looks similar to a coin but holds no face value or legal tender status. House and Texas Precious Metals say the state depository markets its product as an official “coin,” allowing it to sell for more. Beyond that, House said, its notes also are seen as official.
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A key basis of Texas Precious Metals’ suit is that the state’s depository is falsely marketing its products as official. The Shiner company also says the depository is exceeding the authority it was given by the Legislature and infringing on its trademark, causing consumer confusion.
It is asking Judge David Alan Ezra to stop the program before its status as market leader is destroyed.
House testified to finding many instances of consumers being confused. On third-party websites, he found consumers saying they believed the coins and notes from the state are official, and one YouTuber argued the coins and notes are legal tender. House evaluated Texas Precious Metals call logs from consumers seeking “official” products then choosing not to purchase from the company.
“What that confusion was doing was injuring at times pretty significantly the reputation of Texas Precious Metals,” he said.
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State disputes claims, defends authority and branding
The Texas Bullion Depository and the Texas Comptroller, which runs it, are represented by the Texas Attorney General’s office. Its attorney Ali Thornburn argued that the comptroller is authorized to produce the “commemorative” coins, that there isn’t confusion and that the state is not using the Shiner company’s trademark. She said the images used by the state on its products are more than an outline of the state, which the company uses.
The trademark issue has spawned a separate lawsuit. The state is suing Texas Precious Metals in another federal court to vacate its trademark, saying the company is trying to monopolize Texas imagery and icons.
“TPM claims it has the right to bar the State of Texas … from using the shape of the State of Texas,” the state’s suit says.
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Thornburn also questioned House’s methods in collecting data, repeatedly asking if it came from Texas Precious Metals, how he did his research and narrowing his testimony to the sector it encompassed: His research wasn’t on the term “official.” He did not conduct analysis on trademarks.
She also questioned House’s assertion that the state was a new market entrant, noting the state has been around for more than 150 years.
“Do you think the state of Texas has built some credibility and reputation over that time?” she asked.
Depository sales, growth tied to program launch
She also argued that the commemorative coins and notes are used to market the depository. So far it has sold 28,000 of the 45,000 silver coins it planned to mint, and 575 of the 700 gold coins.
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Matthew Ferris, CEO of Lone Star Tangible Assets, which operates the Texas Bullion Depository for the state, testified it used the sales of the coins to push storage of customers’ precious metals at the depository in Leander.
“Customers who are interested in those products … are more likely to want to use depository services and we would go to extra care to offer depository services,” he said.
A significant uptick in people opening accounts at the depository came with the launch of the program Ferris said, but a Texas Precious Metals attorney pointed out that 85% of the notes it produces would not be deposited in the state’s vaults.
He testified his personnel are clear with customers that the products are not legal tender and that the coins and notes bear no references to value.
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Texas Precious Metals countered that the contract between the state and Lone Star Tangible Assets is for production of notes with monetary value from $1 to $500.
The hearing resumed Wednesday morning, with testimony from David Cruz, deputy administrator of the Texas Bullion Depository. Based on filings with the court, he was expected to testify about depository account openings since the note and coin program began, which have grown nearly 300% in average monthly applications to 265.