Baseball card collecting world rocked by fraud scandal

The FBI has launched a criminal investigation into the world of baseball card collecting — one that involves an industry-leading appraisal firm, a well-known memorabilia dealer, and an auction house, WashPost reports.

Details: This scandal began after two online collectors tracked hundreds of cards as they were (1) graded by an appraisal firm, (2) obtained by a "card doctor," (3) altered and resubmitted for a higher grade, and then (4) sold through an auction house.

• Collectors rely on appraisal firms to determine the condition and market price of cards. The higher the grade, the higher the cards' market value.
• For his part, the alleged "card doctor" told WashPost that he doesn't alter cards, but rather seeks out cards that he believes were "undergraded" and resubmits them in hopes of better value.

The backdrop: Modern baseball card collecting erupted in the 1990s when appraisal firms began grading cards' conditions on a 1 to 10 scale.

• This offered collectors an objective measurement of a card's condition for the first time and gave hobbyists an easy way to upgrade their collections: simply purchase a higher-graded card.
• "That encouraged friendly competition ... and some card connoisseurs began treating their collections as financial assets, similar to stocks, bonds or works of fine art," notes WashPost's Jacob Bogage.

The big picture: Forbes will tell you that, if a decade ago you had put your money in trading cards instead of the stock market, your payoff would be more than twice as big.

• Yes, but: That fact is based on data generated by the auction house at the heart of the FBI's investigation.

• And the cards they sold were graded by an appraisal firm that charges customers based on the grades they give their cards rather than a flat-fee, thus incentivizing them to give higher, possibly inaccurate grades.

The bottom line: Card collecting is a hobby — and a billion-dollar industry — built entirely on trust, and this scandal threatens to erode that on the eve of the National Sports Collectors Convention in Chicago.

"This is a crisis. There's just too much upside to being unethical in this industry. ... This is bad. This is really bad."