Thoughts on This Week’s ABC News Diamond Exposé

When I first started reporting on the industry in the early 1990s, one of the big stories was about a St. Louis jeweler named Rick Chotin, who was caught by a local news station selling fracture-filled stones without disclosure.

No one knew how many diamonds he sold this way, but there were reports it was hundreds; he even sold them to close friends of his. When the stories ran, customers began flooding into his shop demanding their money back, and the state’s attorney general sued his company, which eventually went into Chapter 11. Faced with the loss of his reputation, his business, and possibly his liberty, Rick—who I had interviewed several times and found to be a very likable guy—committed suicide. I have written about many jewelry-related scandals since then, but few turned out so ugly. 

On top of the obvious personal tragedy here, this also had a huge effect on the business: I remember someone from the De Beers account at N.W. Ayer telling me all the negative publicity killed diamond sales in the St. Louis area.

In the decades since then, we haven’t heard much about jewelers not properly disclosing clarity enhancement, as the trade has moved on to other issues, from conflict diamonds to HPHT to synthetics. So if there are still jewelers out there selling fracture-filled diamonds without proper disclosure, as the story that ran this week on the ABC News show The Lookout indicates, that is pretty disturbing and a huge black eye for our business. 

One thing the show didn’t mention is that proper disclosure of fracture-filling, including a mention of any special care requirements, is mandated by the Federal Trade Commission’s jewelry industry guides. So jewelers who don’t disclose properly could face legal sanctions. 

“The FTC says that when one has an affirmative obligation to disclose, it must be done in language that is well-understood by a reasonably intelligent consumer,” says Cecilia Gardner, president and CEO of the Jewelers Vigilance Committee. “It can’t be hidden. It can’t be in tiny little print. The same goes for any obligation to inform people about special care requirements.” 

Now, some have complained to me that it’s a little too easy for reporters to go down to the stores in New York City’s 47th Street Diamond District and find wrongdoing, as at least some of the retailers there don’t have the best reputations. Still, they are jewelers who represent a public face of our trade; and they obviously do a good deal of business, or they wouldn’t be there. Given all the issues in New York City, local jewelers who don’t properly disclose may not face the same blowback Rick Chotin did. Still, I hope either they or someone in local government takes a serious look at their business practices.

(I do have to commend the show for mentioning that one 47th Street jeweler comported herself honestly; good for it—and her.)

In comments on our story yesterday, most of our readers were just as appalled by the stores’ purported inflated appraisals as they were by the nondisclosure. According to the show, the two stores appraised the stones’ values as $8,500 and $9,700, even though the show paid around $3,500 for each. (An independent appraiser valued them both at around $3,000, close to what was paid.)

Obviously, disparities like this are ridiculous; if a store really sold $10,000 stones for $3,500, everyone would flock there to make an easy six grand. And yet discounting off appraised values has become an age-old retail tactic; in his final conference calls as J.C. Penney CEO, Ron Johnson boasted about how this would be a cornerstone of the company’s jewelry-selling strategy.

And Gardner notes it is “trickier” to make a legal case against inflated appraisals. 

“Although the representations may be inaccurate, the question becomes: Are they deceptive?” she says. “You get into whether consumers are relying on these representations, and the fact that in the end the consumers generally end up paying the right price. So one gets into an argument whether this is deceptive in light of the fact that the consumer does not suffer economic harm.”

Of course, sometimes consumers do pay inflated insurance premiums based on these appraisals, but Gardner says the difference is generally not considered economically significant. Still, she adds this is a very old issue and one her organization continues to look at and work on.

Clearly, we all need to work on these problems. This is largely an ethical trade. Yet, when a Gallup poll a few years back asked Americans what professions they trust, jewelers ranked near the bottom of the list, down with lawyers and members of Congress. Programs like this don’t help—and demonstrate that this industry still has a lot of cleaning up to do.

JCK News Director