The Sightholder Saga Continues (With Two Updates)

Some noteworthy items on the DTC/sightholder front:

– When the DTC dropped 24 sightholders last month, its statements generally cited two reasons: a) diamonds had to be allocated to African countries for their “beneficiation” goals; and b) it is receiving diminished supplies from Russian producer Alrosa. 

But now I am hearing from sources that some of the recently granted allocations are in the tens of millions, at – in some cases — record setting levels.

This, of course, calls into question the DTC’s rationale for dropping so many good companies. But more importantly, it strikes me as kind of scary.

If we’ve learned anything in the market in the last few years, it’s that bigger isn’t necessarily better. Let’s not forget what happened to major companies like Fabrikant and Lorenzi. In these troubling times, I wouldn’t be surprised to see more big names go down. And, of course, getting big allocations only increases the pressure.

 – As everyone is reporting today, six DTC sightholders were suspended for allegedly violating its “Best Practice Principles.” Two are reportedly not on the new sightholder list; the rest are.

Almost everyone would like to see De Beers become more aggressive in enforcing BPP. What makes this case dicey, as Chaim Even-Zohar wrote two weeks ago, is that these alleged violations occurred in the 1990s, before “BPP” was enacted.   

But what I found a bit disconcerting is that the “Brenig” ruling that implicated the sightholders was announced Dec. 6. The sightholder list was announced Dec. 17, 11 days later. If De Beers knew it would knock off everyone implicated in that case, why did it bother putting them on the list in the first place? Yes, it gets the “BPP” point across. But it seems needlessly humiliating. (See Update below.)

I should also note that De Beers’ Louise Prior told me recently that “there is no reserve list” of sightholders – meaning if sightholders are knocked off, no one will be appointed in their place. Yet India was hurt really badly in this round of cuts, and the impacted sightholders are all said to be Indians (based in Belgium.) No one knows what will happen with the suspended companies, but it would be a welcome gesture of good faith if the DTC looked into appointing clients in their place. 

– Finally, speaking of dropped sightholders, we all remember the W.B. David case, the New York sightholder that sued De Beers after losing its allocation in 2003.

It’s four years later, and the case is still alive. When W.B. David went out of business, its lawsuit against De Beers was looked at as a transferrable “asset,” and taken away from the original attorney. Among the lawyers handling the case now is Jared Stamell.

 

Stamell seems to be making a side career out of aggravating De Beers; he was one of the attorneys who won the $300 million anti-trust judgment settlement against De Beers. De Beers’ lawyers weren’t happy with Stamell’s appointment and complained to the judge, saying it could be a “conflict,” given his anti-trust work.

 

But he was not removed, and not only does he plan to refile the W.B. David suit, he has indicated he’d like to pick up clients among other dropped sightholders (though he won’t comment if he’s talked with any). It will certainly be interesting to watch because the David case is (to my knowledge) De Beers’ sole outstanding U.S. lawsuit, and the first legal test in the U.S. of Supplier of Choice.

 

An interesting fact about Stamell: As a young lawyer, he was a lawyer on the House Watergate Committee, serving with none other than Hillary Clinton (then Rodham.)

UPDATED (1/10): Edahn Golan from Idex emails with this:

 

My understanding is that the convicted had 30 days to file an appeal. After that time, the judgment is final. I guess DTC waited until January 7 to make its move.

 

It’s certainly a logical explanation, I guess, though I would cite it as another example of how De Beers’ strict adherence to the law hasn’t necessarily made it a better company.

 

UPDATE 2: DTC spokewoman Louise Prior says the above was “not a consideration in our decision to suspend.”

For more on BPP, I recommend Chaim’s piece today. It’s worth noting that once upon a time Louis Nchindo, now charged with corruption, was not just the MD of Debswana, he was a director of De Beers.

In response to an alert reader, I changed the word “judgement” above to the more accurate “settlement.”

JCK News Director