The Lessons of Whitehall: "No Longer a Handshake Industry" - Cutting Remarks

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Rob Bates

The Lessons of Whitehall: "No Longer a Handshake Industry"
September 26, 2008

Two of the lawyers involved in the big Whitehall consignment fight -- Lawrence Ginsburg of Moses Singer, and Joseph Vann of Cohen Tauber Spievack and Wagner -- held a very interesting seminar with the Indian Diamond and Colorstone Association last night.

Their main message: Though the Whitehall situation came out okay in the end, with consignors retaining rights to their goods, it could have gone the other way, and a lot of people -- not to mention the industry's business model -- would have been seriously hurt as a result.

"This is no longer in a handshake industry," said Ginsburg, noting that it's increasingly being funded by non-traditional players like hedge funds. "You are dealing with people who, if things go bad, will use every angle."

He warned attendees not to give out diamonds out to people "they don't know." (Something which nevertheless happens every day in the diamond industry.)

"More than ever you have to know who you are dealing with," he said. "We won the battle with Friedman's. We finessed the battle with Whitehall. Next time, we may not win. Be careful. Be cynical. We are in a different world."

Vann said consignors to big companies have to do extra due diligence -- including checking the company's financial health, and reviewing company filings to insure the company hasn't changed the spelling of its name (something which, rather ridiculously, became an issue with Whitehall.)

Vann had the most interesting suggestion - urging the industry to band together and lobby Congress for changes in the UCC laws so that the jewelry industry, which is uniquely dependent on consignment, can be better protected. This suggestion was enthusiastically received and hopefully something will become of it.

Posted by Rob Bates on September 26, 2008 | Comments (1)

September 29, 2008
In response to: The Lessons of Whitehall: "No Longer a Handshake Industry"
MGA commented:

The UCC rules are not difficult, they are just different from the rules of our industry. If we want to be serious as an industry, we will need to learn to operate the way the other industries work. Creditors can be predatory; when they see an absence of secured creditors, i.e. those who have filed UCC's, they know they can make a grab of the company assets and flip them quickly for cash. They will sell them well below market value and sue the debtor for the difference owed. In the 21st century, there is no reason for suppliers not to protect themselves if they are exposed for more than they can afford to lose (this depends on the company 10,000 or 50,000.) There are simple liens which can be filed to protect companies sending memo goods. It doesn't have to be each time they ship, just a blanket lien on their own goods up to a stated amount. Filing such a lien forces the supplier to know who they are dealing with. It is not just an issue of trust either. When a secured creditor moves in, they will place a legal demand to secure all assets. Returning those consigned assets before the creditor seizes them could be considered criminal.