a 501(c)3 Non-Profit Education Organization 14 September 2017
The Equation of Gemstone Fraud
Lessons from the FBI and Secret Service agents
During my time with USAA insurance, the largest insurer of the United Stated Military and Department of Defense employees, I assisted with SIU (Special Investigations Unit) investigations of insurance fraud related to jewelry and gemstones. I worked with and received investigative training from former FBI and U.S. Secret Service Agents who worked with USAA after retiring from their positions with those government offices. One of the lessons I learned from these professionals was that most fraud follows certain steps, certain equations, and that if one understands the structure of fraud this creates an equation that an investigation can follow.
Having been involved in the investigations of gemstone fraud in this industry over many years, I find the above holds true with the fraud that takes place in the jewelry industry regarding gemstones. If we step back and look at uncovered gemstone fraud in the industry, we find a fairly simple and very productive equation that the fraudsters follow. Knowing this equation is why my office has been so successful in uncovering fraud in the industry, and I wanted to share this with you today.
The Equation of Gemstone Fraud: NT + ML + LGL + (G-E) + CM = $$$
NT = New Treatment. It is a proven fact that cookers in Thailand, China and other locations are working around the clock to develop new treatments for gemstones. On it's face this is not a bad thing as treatments are necessary to maintain enough gemstone product in the pipeline to sustain the gemstone market. However, a large portion of these treatments are so new and so difficult to detect, and sometimes achieved in ways that scientists are not willing to accept as possible, that these new treatments are undetectable in the market until a vast amount of money is spent on research. This is rarely done as no industry office has the authority or responsibility to do this research. The result is situations we have seen with Tibet andesine, copper-bearing Mozambique blue tourmaline and other gemstones where previously unknown treatments crafted along with carefully created stories about inaccessible mine locations which are used as cover-ups for the true source of the new gemstone. Which leads us to the next integer...
ML = Mine Location. One of the key elements of the equation is to create a story of an inaccessible mine location, or a deposit that was miraculously discovered as a one-time event, and that this mine location is now empty or inaccessible. In the case of Tibet andesine, the first claimed mine location was exposed as a hoax so the fraudsters invented a second location, in spite of claiming the first was the only known location. Eventually the fraudsters created 5 potential mine locations, in spite of video footage being revealed of these locations being "salted" by workers instructed where to drop andesine from their pants pockets. In the case of Mozambique copper-bearing tourmaline, visitors were taken to stream beds and shown rough tourmaline crystals among the native gravels of the stream. What was not told was the this material got into this stream bed when suitcases of the material were thrown into the stream prior to the arrival of the visitors. Perhaps the worst case is that of a French gemstone dealer and his claims of a copper-bearing andesine mine in the Congo. The entire claim entailed hearsay evidence of a mine in the Congo that was totally inaccessible to anyone but 2 people. Eventually, the Minister of Mines in the Congo reported that no mine of this type existed. This mine location story is the most crucial part of the equation as it is required in order to create a fraudulent natural source for the treated material that cannot easily be verified or debunked.
LL = Lackadaisical Gem Lab. The next step is to find a major gem lab with little or no concern for doing their job. Or perhaps a lab willing to issue a certificate leaving out key elements, or perhaps including key elements based on client request. The gem lab industry is full of these. Labs that will write certificates based on very little or sometimes no evidence. A prime example is the Tibet andesine fraud that was perpetrated by a myriad of labs who issued reports on the Tibet andesine as being "natural" in color, and all the while they had never seen this gemstone and did no actual research on the material to confirm their report of natural color. In some cases the lab simply leaves out any information on the source of color and simply calls it a "natural" gemstone, which leaves the door wide open for interpretation by the fraudulent sellers to claim lab certification of their material. The lack of proper and professional due-diligence by many of the world's major gem labs is one of the key integers in the equation of gemstone fraud.
(G-E) = Greed minus Ethics. The next step is to find a high profile seller with lots of greed and no ethics. The easiest place to find this is simply turn on your television. The jewelry television shopping channels are rife with unchecked deceptive trade practices since they are subject to absolutely no oversight and no enforceable standards of ethics. The television and internet sellers are the epitome of the concept of anarchy in the jewelry industry. No rules. Say whatever you want to pump up the audience, and make sure you have enough phone line support to take in the cash. During the litigation of Direct Shopping Network -v- Robert James, Colored Stone Magazine, et al. it was revealed that serious questions should have been raised about the validity of the claims by Andegem and the gemologists who perpetrated the hoax expedition reports regarding the fraudulent Tibet andesine, but the material was bringing in huge profits for DSN and no one was going to rock that money boat. As a result, the strong desire of greed overwhelmed any concept of ethics and the result was tens of thousands of consumers ripped-off in the process.
CM = Crucify the Messenger. Finally, anyone who dares expose the fraud, crucify them. Destroy them. Attack them, their family and their business until you force them into silence. I can speak from personal experience on this one. During my reports of the Tibet andesine fraud, I received all sorts of threats and attacks, as did the ISG and my family. In 2012, two weeks after I prevailed in the California Supreme Court in the DSN -v- Robert James litigation, the perpetrators of the fraudulent Tibet andesine expedition set up a revenge cyber-attack website for the purpose of destroying the ISG and myself personally. We prevailed in ICANN litigation against the site and shut it down for a while, but Richard W. Hughes simply moved it to another domain and located it on a server in Iceland where it is beyond US litigation. That website exists to this day and continues to damage the ISG business. Additionally, those involved sent threats to my family at my home, and have taken great steps to discredit this office, simply because we worked so hard to protect consumers from their fraud. A photo from one of the threats sent to my home is below. "We Are Watching You" was the letter sent to my family. Crucifying the messenger to stop investigations of gemstone fraud is a major integer in the equation.
This is what you get when you dare to stand up to fraud in the jewelry industry.
= $$$. The result of the equation is money......potentially big money. In the case of Tibet andesine, court documents revealed that just one of the jewelry television shopping channels listed over 135,000 customers of the bogus Tibet andesine. Total sales of this fraudulently sold gemstone is estimated at over $100 million dollars. And yet, the main perpetrators, Andegem of China, and those participating in the hoax expeditions to the fake mines, have never been held accountable and most likely never will be. The money was too big and the players too famous to be brought to justice.
Conclusion
Gemstone fraud is far more prevalent than the major labs and organizations are willing to admit. Why? There are three reasons why this fraud has found such a welcoming home in the jewelry industry:
1. The fraudsters are very good at what they do, and have a lot of money to create the facade of the fraud.
2. There are no industry standards or oversight bodies responsible for investigating fraud in our industry. No requirement that new, unknown gemstones or treatments be reviewed before being sold on the market. When the government gets involved, the fraudsters are so overwhelmingly convincing that the naive government employees often side with the fraudsters simply due to lack of knowledge and the compelling argument these guys create.
3. Few are willing to endure the attacks. When millions of dollars are at stake, the fraudsters are more than willing to attack and destroy anyone who dares question their activities. This makes for a very nasty future for anyone who dares to get involved with investigating and exposing fraud in the industry. Additionally, the Jewelers Vigilance Committee is considered by my office to be the best friend of the fraudsters as the JVC is more interested in hosting fund-raising cocktail parties than actually being a committee of vigilant jewelers. Anyone who believes the Jewelers Vigilance Committee is anything other than a figure-head organization needs to do some serious research.
In case after case of fraud by gemstone, the above equation has played out. The unfortunate part is that, unlike the insurance industry, the jewelry industry is subject to no oversight, no laws and no review. Cookers in Thailand can use the above equation to generate millions of dollars in fraudulent sales, and be safe from prosecution as the gemstone industry crosses national borders that serve as walls to consumer protection laws.
The International School of Gemology Inc. will continue to investigate, pursue and report on gemstone fraud as long as I am at the helm of this organization. We do so with virtually no financial support from any major organization in the industry. However, we continue this effort because it's the right thing to do.
Sometimes doing the right thing comes with a cost. As long as I see the above equation being used in this industry, and as long as we are financially able, the ISG will continue to pay that cost for the benefit of the industry.
Robert James FGA, GG
President, International School of Gemology Inc.
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