I've heard the same, but without the pennies. The explanation I received is that the flies see their relection in the water, enlarged, and are scared away. Not sure if I believe it.
I don't know any free solutions that work, but this list of other solutions might be of interest: Best 10 Solutions for Horse Flies
Actually, I haven't even had a lot of luck with the solutions I've tried. Bought fly collars for my horses --- useless. Tried natural fly repellant (garlic) --- useless and the horse stank. Currently rely mainly on fly sheets and fly hood, plus occassional fly spray (I've found Endure lasts the longest, but after moving to France can't use it as it is illegal here since they consider horses meat animals and the chemicals are too strong to use on meat animals).