I also wish they hadn't settled the case so it had gone to a jury trial, but now it looks like we're going to have to wait for another one to come around for that to happen, if then, but the longer this goes on without being resolved, the worse the industry looks.
a 501(c)3 Non-Profit Education Organization 18 October 2018
Editorial: The Case Against Diamond Grading Reports
What happens when litigation is based on "industry standards" that do not exist!
It will surprise many of you (who have not been in the business for more than 30 years) that we once operated without the major diamond labs. Stop and think about that for a minute. No GIA Diamond Grading Reports. No IGI. No EGL. No AGSL. No major diamond grading lab to do our diamond grading for us.
How on earth did we get by?
Well, back then being a jeweler was a profession, not a merchant category as it so often is now. We had to get and maintain an education in diamond grading. We invested in gemological equipment like Proportion Scopes, Master Diamond Color Grading Sets, Microscopes, and more. We were trained and equipped to do professional diamond grading in our stores. We were respected in our community based on the quality of our professional training and services. But there was something far more important that resulted from this: You were required to have the education, equipment and community standing to be a professional jeweler. It took years of experience and training to become a professional jeweler, as well as a significant investment in your professional services.
Today, with the advent of the major diamond grading labs, and Martin Rapaport lifting the skirts of the wholesale diamond industry, we have an industry composed mostly of diamond merchants rather than professional jewelers. Anyone with a website and Rap sheet can embed a link to a major wholesale diamond database and become an instant diamond merchant. We sell paper certificates, not diamonds. Names like BlueNile immediately surface as proof of this point, as pages on an internet site have taken the place of a professionally staffed and equipped jewelry store. The GIA Diamond Grading Reports, for instance, have replaced the romantic experience of a soon-to-be-wed couple working with a professional jeweler to pick out that special diamond.
The jewelry industry has, for all practical purposes, abdicated our standing as professional jewelers and instead allowed names like the GIA, IGI, EGL, et al…to do our thinking for us.
We have allowed ourselves to become an industry of merchants, selling paper from far-away labs, produced by graders who we do not know and have no access to.
But what guarantees do we have that these labs are, in fact, producing accurate diamond grading reports? What standards exist? What oversight exists? What assurance do consumers have that any diamond grading report from any lab is accurate?
More importantly…accurate compared to what? What are the standards by which any diamond grading lab can be evaluated?
The Manookian Litigation and Deposition
The answer to this was presented in my deposition to the United States Federal Court in Sherman Texas this last summer (one of the case numbers in the image above) in a variety of legal cases filed between four jewelry companies and the Manookian law firm. In these cases the Manookian law firm attempted to file fraud lawsuits against these four United States jewelry companies for using the EGL Israel diamond grading reports. At issue was the EGL-I practice of color grading diamonds table-up, rather than table down. The resulting color grade will almost always appear better in table up position as the brilliance of the diamond masks off some of the natural body color of the crystal.
The accusation was that the EGL-I grading practice resulted in fraudulent representation of the diamond color grade by these jewelers.
The issue clearly stated by Manookian was that the GIA diamond grading standard is the industry accepted standard for diamond grading.
The problem, of course, is that the GIA has no diamond grading standards. They have nomenclature of diamond grades, i.e.…VS1, VS2, SI1, and so on, but these are simply names of levels and not standards of levels. As far as establishing a written set of standards as to what qualifies a diamond to be a VS1 or VS2, the GIA standard for diamond grading does not exist in any legally binding published document.
Manookian's case fell apart for one simple reason: They based their claim of fraudulent diamond selling on EGL-I using a different grading system than the GIA, who they claimed is the industry standard for diamond grading.
My response was simply: Show me a copy of the GIA diamond grading standards!
Manookian's lawyer got very testy in the deposition because their entire case was built around the concept that the GIA diamond grading standards are the binding standards for the diamond industry. Every time their attorney asked me to admit that the GIA diamond grading standard was the accepted industry standard for diamond grading, I asked him to show me a copy of the GIA diamond grading standards for review. After eleven (11) GIA Diplomas and Certificates, dating back to 1978, I have never seen a GIA diamond grading standards book that the GIA can or will hold out as the legally binding standard for the GIA, or anyone else in the industry.
The attorney for Manookian could not produce a single, written GIA diamond grading standard for me to review. They simply do not exist.
At left (above) is a portion of my deposition where the opposing attorney (Q) asked me (A) about Martin Rapaport's support of the GIA, and if I could prove that no standards exist. An absurd question to ask me to prove a negative. This attorney was grasping at straws for his case. It begins with my response to his question. Rj
Unfortunately, as so often happens, the case was settled out of court with a non-disclosure agreement, so the final resolution is unknown. As always in these cases, the expert witness has no formal feedback on the outcome, but I was sincerely hoping this case would go to jury trial. Only then could the full story behind this or other cases be told. Only from a jury trial against the major gem lab’s lack of standards will we be able to fully expose the façade of major lab diamond grading reports.
But how do we know if errors or omissions exist in these diamond grading reports from any lab? And what happens when an error or problem is exposed? These are the issues we will review next.
The litigation surrounding the Manookian law firm and the four US jewelers exposed the under-belly of the diamond grading lab industry. It exposed the simple facts that no one in this industry wants to talk about:
There are no unified, legally binding diamond grading standards, no oversight of the labs, and no assurances of accuracy in any diamond grading report from any lab. In fact, the lab reports list very light-colored verbiage on the back of their reports, specifically to absolve themselves of any errors or omissions in the event of deceptive grading in their labs….and consumers are not being made aware of this fact.
In spite of hundreds of thousands of dollars in legal fees being piled up over the issue of the GIA diamond grading standards being the industry standard, not one attorney in any of the litigations was able to produce a single written set of those claimed standards. Legally, no uniform, enforceable diamond grading standards exist anywhere in the world.
This leaves the door wide open for deception, fraud and costly errors within the labs. In our next issue I will provide the proof of this, and the impact it has on consumers and the industry.
All consumers and everyone in the industry needs to review and be aware of the documents I will present next week. If you have problems viewing the images, please read this editorial in our IIJA Community Forums here: The Case Against Diamond Grading Reports. http://gemologyclass.com/content.php
Make a Tax Deductible Donation to the IIJA
Your donation is fully tax deductible under IRS 501(c)3. The IIJA is a 501(c)3 Non-Profit Education Organization dedicated to furthering ethics and integrity in the industry.
Robert James FGA, GG
President, Insurance Institute of Jewelry Appraisal Inc.
a 501(c)3 Non-Profit Education Organization
Property and Casualty Adjuster, Texas Department of Insurance License #1300433
If you would like to study gemology and jewelry appraisal with industry professionals with a solid reputation for ethics and integrity, we invite you to visit our website by clicking the link below:
https://instituteofappraisal.com/
©2018 Insurance Institute of Jewelry Appraisal Inc. ALL RIGHTS RESERVED. We encourage sharing and caring throughout the industry as long as all copyrights are left intact.
