Scio Director Claims Company Is on “Life Support”

Another dispute among directors of the lab-grown diamond producer

Another dispute has arisen on the board of lab-grown diamond producer Scio.

In a searing resignation letter from the Greenville, S.C.–based company’s board, former director James Korn charged that current chair Bernard McPheely has “led to Scio to insolvency” and the company “operates on life support.”

“During the first investor call you conducted with our shareholders on July 17, 2014, you predicted that Scio would be cash-flow break-even within six to nine months,” Korn wrote. “Scio has never achieved anything even close to that; indeed, its performance has regressed significantly on most every measurable financial metric under your leadership.”

Korn additionally complained that the two-year-old proxy fight led by McPheely forced the resignation of Theo Strous—“the only board member with any diamond industry experience”—and Robert Linares, “one of the world’s leading authorities on lab grown diamonds.”

He further charged that McPheely failed to report several material events to shareholders, including a recent equipment failure.

A response filed by Scio’s five directors (not including McPheely) said it was “at a loss” to explain Korn’s actions.

“During Mr. Korn’s tenure on the board, he was an active and welcome participant,” it read. “At no time… have we witnessed Mr. Korn express any of the concerns leveled in his letter of resignation. To the contrary, meeting minutes and Mr. Korn’s voting records show his consistent support of the Chairman’s and the board’s actions.”

It added: “While we believe these claims to be baseless and have consistently seen Mr. McPheely work tirelessly on behalf of Scio’s shareholders, we have taken steps to obtain an independent investigation into the allegations.”

The investigation will delay the company’s annual report, it added.

It concluded: “The road has been more challenging than we anticipated [but] we remain focused on the tasks ahead of us including growing better and better diamonds, increasing operational reliability and doing so with greater predictability both for our growing customer base and for our investors.”

There is something of an irony in Korn’s action: McPheely himself resigned from the company’s former board in 2013, also with a critical public resignation letter.

JCK News Director