As Brigitte Gabriel, Chairwoman of ACT For America puts it best: “The silent majority does not count!” But how does it relate to what I do? What does this expression mean for diamond investing?
With nothing but humility, I consider myself a big advocate of investing in diamonds, and more specifically in fancy color diamonds. I help investors find the best diamond possible for their capital allocation in this unique and passionate asset class. Yes, it is a class on its own. In the last few years, more and more individuals as well as institutions have been allocating some of their financial resources to enter the world of diamond investments. With auction prices for investment diamonds soaring, and the media talking about them, investors are realizing that there is something there.
A diamond auction in action at Sotheby’s
There is a growing trend of investing in diamonds becoming standard practice. Simultaneously, there is a growth of fraudulent and misleading acts by individuals and companies who want to see nothing more than maximizing their profits at the expense of those that put their trust in them.
What is the Illusion That Frauds Are Selling?
There are many fraud cases that have unfolded in recent years about “boiler rooms” in London, cold calling older individuals and convincing them to put all their life’s savings into some diamonds that have no real investment potential but because they sell them at many times their true value. It is completely unacceptable to sell someone a diamond with no investment potential and claim that it has it.
The concept that they are tapping into is about what investments even are at their basis: allocating financial resources into a product or other activities, with the hope it will yield a higher value than the capital actually allocated. But they are in fact offering an investment knowing that it will never reach that price, and it is not and will never be an investment. Despicable.
A story that ran on April 13, 2017 on the website of The Mirror in the UK, had talked about not one or two or even three, but of nine fraudulent companies that cheated investors out of their money. Another such fraud has emerged on June 1, in Texas, where 3 individuals pled guilty to a $6.5 million diamond investment fraud scheme. The individuals claimed to have a diamond investment fund. None of the individuals had any experience or knowledge about diamonds or how to invest in them, and caused major losses to investors.
The website homepage of one of the fraudulent diamond investment companies in the UK
Diamond investment fraud goes back as far as 1977, that’s 40 years!
No one is immune to these fraudsters. Back in November 2016, I had written about a large scam in Italy, where authorities estimate the losses to be in the $300 million range. A bank was selling diamonds from diamond brokers as investments to its customers. The most notable company involved in this large scam is Diamond Private Investment (DPI). Since the explosion of the fraud, the founder Maurizio Sacchi has supposedly left Italy, but the website is still working and continuously being updated! The last price list they published is April 2017. (Someone should probably crack down on this?!)
What is the Reality?
If we properly analyze these frauds and the individuals behind them, we discover that they all have something in common. None of them are real manufacturers or traders/dealers within the diamond industry. Each one of them claim to be a diamond company, but in fact all that they have is a good- looking website, and a toll-free number. All the fraudsters have aggressive sales people that call retired people, the most vulnerable target market of all, to get money.
The majority of diamond manufacturers and traders/dealers everywhere in the world, if not all, belong to either a recognized diamond association or a Diamond Bourse somewhere in the world, and all have some sort of ethical standards. Most of these companies have been around for at least 1 generation, and some go back as far as 4 generations.
The Silent Majority Does Not Count
Unfortunately, (despite their ethical standards), all of these legitimate dealers seem to be silent about all these frauds. None is taking a stand for their own industry, an industry that trades in what is probably the last real asset capable of bringing real value to investors. It is also an asset that is not controlled by any large bank or government. We have seen large banks accused, prosecuted and fined for manipulating foreign exchange, interest rates, and even some commodities that have a spot price on the market, and guess what? All of these are set by the banks. Diamonds, just like art, follow the free and true economic rule of supply and demand markets.
What to Do About Diamond Investment Fraud
The diamond industry has been going through tremendous change since 2014, and in my opinion, it is a change for the better. I have been advocating about transparency for years, and the industry is finally following through on this newly emerging demand. The diamond industry is coming around and are following money laundry regulations as well as the KYC rules (Know Your Client).
It is time to further regulate the diamond investment industry in such a way for all those that want to engage in diamond investments. The participants from the diamond trade, the investment sector and the investors themselves should come together and form a regulatory body which will guide, not control, the practice. Government regulators should also be involved. A standard code of ethics should be developed and a seal of approval should be given to those that adhere to them. This could provide all of the assurance that investors seek in order to truly engage in this arena. It would operate in a similar fashion that the GIA (Gemological Institute of America) does as the standard and leading driver when it comes to diamond characteristics, by issuing a certificate of authenticity and seal of approval as to the quality of the diamond. Those that engage in diamond investments should also have a seal of approval that potential investors can trust. This is where the GDIC (Global Diamond Investment Council) comes in, a budding organization that will tackle all of these issues and more.
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