Editorial: An open letter response to Rapaport

[PinkDiamond]

Editorial: An open letter response to Rapaport
23 February 2016

" Dear Rapaport,

It was with profound disbelief that I read your press release today entitled: Rapaport Launches New Investment Diamond Grading Report. In all honesty, my initial response to this press release was simply: Has Rapaport totally lost their fakakta minds? It’s not enough that the “Rap Sheet” ruined the profitability of the retail diamond markets, or that the effort to “commoditize” diamonds was such an incredibly absurd (read: failed) idea. Now Rapaport wants to promulgate the selling of diamonds to consumers as “investments” like stocks and bonds? YIKES!

Let’s look at the problems with the Rapaport press release:

Rapaport says: “The new report conservatively grades diamonds based on Gemological Institute of America (GIA) standards.”

The reality: The GIA has no standards, they have nomenclature. There are no standards of GIA grading. This is a totally absurd claim for Rapaport to make and one that may inevitably cause great harm to consumers who believe that diamonds can be graded as investments based on “GIA standards” that do not exist. Rapaport can use GIA nomenclature, but there are no GIA standards!

Rapaport says: "The Rapaport Investment Diamond Report is designed to identify the best diamonds in the market while providing the trade, investors and consumers with the highest level of confidence in quality.”

The reality: Based on WHAT? Who determines what the “best diamonds in the market” are supposed to be? Rapaport? If it’s Rapaport who decides then Rapaport Investment Diamond Report will become a monopoly market manipulator, and can dictate unilaterally what is or is not the “best” diamond in the market. Rapaport can have an unfair impact on the market regarding which diamonds are getting sold as “investments,” including which cutter’s or dealer’s diamonds are considered “investment grade” and which are not!

Who gave Rapaport the right or authority to make that decision regarding what is the “best” diamond on the market? And, what is to keep Rapaport from throwing unfair advantage to one diamond producer over another?

If Rapaport was touting an investment stock based on the above criteria, they would certainly be subject to the US Security and Exchange Commission scrutiny.

Which brings another issue:

Rapaport claims to issue Grading Reports that “…enhance the ability to trade diamonds electronically and enable new highly liquid and efficient investment diamond markets." So exactly where is the SEC in all of this? How can Rapaport have such a monopolistic and collateral influence over the “investment diamond” market without any oversight by the SEC?

Finally, who oversees Rapaport? Who determines that Rapaport is not committing fraud by manipulation of the investment diamond markets, grades or trading?

The bottom line question is: Who does Rapaport answer to?

Based on the historical record, the answer is: Nobody!

I want to be very clear with consumers out there: Diamonds are not investments like stocks or bonds. This kind of dog and pony show that Rapaport is trying to pull has been done by them before with diamonds as “commodities” and it failed then, as this will now.

I am astounded at the absurdity of this tripe included in this press release from Rapaport. It’s almost as if Rapaport is not happy with just screwing up the home town retail jeweler markets, now they are even going after consumers as well.

While I do not normally advocate government involvement in this industry, I do believe it’s time for a US Federal government investigation into the whole diamond grading lab report business, and even greater on an international level

Rapaport....your press release is the most heinous thing I have ever seen perpetrated on the consumer diamond market....and I have seen some heinous things perpetrated on this market.

Diamonds are never investments on the level of stocks and bonds.

It is time the US Federal Government got involved in this whole diamond grading report industry, before we see yet another multi-million-dollar fraud perpetrated on consumers that further erodes confidence in our industry.


Robert James FGA, GG President,
International School of Gemology
Property and Casualty Adjuster, Texas Department of Insurance #1300433
This is my opinion, I welcome you to send yours.
http://www.schoolofgemology.com/ISGComm ... o-Rapaport

©2016 YourGemologist LLC and the International School of Gemology. ALL RIGHTS RESERVED. We encourage sharing and caring throughout the industry as long as all copyrights are left intact.

[PinkDiamond]

There were many, many supportive replies to the above article, and this one is reprinted here with permission.

A response from Gerry Manning on our Rapaport Editorial

I received this response to our editorial, and asked Gerry's permission to post here. He said to go for it. Interesting reading that all should review. Rj
================================================== ================================================== ==========================

Your opinion piece regarding Rapaport is about as fine-pointed and accurate an analysis of his influence as I've seen anywhere.


I couldn't agree with you more regarding the need for oversight to step in to the "diamond-grading-cum -investment" quagmire. This newly proposed marketplace by Rapaport is yet another means of profiting on a market by simply describing it rather than actually being involved in the day to day slog of working in the market itself.



IGI figured out long ago that what GIA had to offer were "Certs" (opinions, actually, as noted in the fine print on each of their documents). These analyses excluded replacement value at retail, but described the necessary characteristics for someone to seek a replacement that duplicated those characteristics in the open market.


IGI's genius was to provide a "retail replacement value" based upon a standardized multiple -over-wholesale that was then the norm in the marketplace hierarchy. IGI has made a fortune by providing a highly structured, brilliantly organized protocol that has held up under challenge in court, won significantly against counter-claims by insurers who wanted to wheedle out of paying their statutory obligation to their insured clients. Yet IGI has also embraced the synthetic marketplace, understanding that synthetics and simulants can also be market stimulants, not products to be ignored.


IGI went on to place value on all jewelry, natural and synthetic colored stones, all metals; in short, the entire market offering of the jewelry industry to the (eventual) consumer. And this service is now a staple all over the world where they have offices. I believe that IGI now employs more GIA graduates than GIA does. A remarkable turn of events that has been brilliantly engineered by Jerry Ehrenwald and his long time right and, David Weinstein.


Perhaps Rapaport has calculated that he can create a real "financial market" after he has already become a de-facto "market-maker" by compiling pricing data to set benchmarks that limit a reasonable markup for the retail sector to their end-used clientele. In so-doing, Rapaport has tangentially provided Blue Nile and Diamonds.com with an easily accessed price construct, thereby obviating the Brick & Morter retailers' an opportunity to compete in this tangled "web world." We all know the difference between a small local retailer with a monthly rental, all the attendant costs of trying to service a local community - and a Big Box mall operation that exists through high-volume sales, or a web-retailer that has none of the fixed in-ground costs yet reaches millions of potential buyers. When Brick & Mortar can no longer compete in the natural diamond world (as we know is mostly the case now), what then?


Lest he be able to maneuver unchallenged, Rapaport and the entire diamond industry now face a reality they've long disregarded as a challenge to their security. That challenge comes from the lab-grown diamond industry that has been perfecting its ability to grow HPHT diamonds reaching well over the 1 carat size in finished cuts, meeting the colorless VS or IF qualification without all the cost of mining and dealing with the "bloody" aspects of the natural diamond amalgam.


More trouble brews in the diamond world. Much more trouble. The vast reserve inventories of the DeBeers, the Russians and all those countries and companies who rely on the mine-to-market realities of this decentralized "market" are just beginning to realize that by pulling the iron hand of DeBeers from market control, from advertising and market supports, from paying for everyone else's success in maintaining price models - has resulted in the evolution that helped to elevate the success of Rapaport and all he has spawned.


Taking down Number One a peg has taken down everyone else far more than anyone had forecast. And now Rapaport proposes to put his finger in the dyke after he and others worked so effectively to burst the dam? Well, this will be an interesting thing to watch.


Praise be to The Force that natural colored gemstones have proven uncontrollable to the extent that diamonds have allowed themselves to be commoditized.


Natural color still behaves naturally, without the synthesized market manipulations of an individual - or group - that seeks to profit from those who toil in the natural colored gemstone marketplace. Seeking to set arbitrary price constructs, to "commoditize" natural colored gemstones will not bring fair value to those who mine, cut, market and sell their gemstones to the end user, the all-important consumer. Thankfully Mr. Rapaport (probably) realizes that to attempt this would be to tilt at a windmill even he cannot control.


Best,


Gerry Manning
Manning International