Your best customer enters the store a month before his 25th wedding anniversary and wants to get his wife a diamond of around 5 carats – “the finest he can get.” You obtain on memo a $55,000 4.64-ct. emerald-cut diamond with a grading report from a major lab saying it’s D color, SI1 clarity. You sell it for $65,000 and tell the customer the lab report is a guarantee the diamond is as good as you say it is.

Two months later the customer returns with a report from another major lab. This report says the same diamond is E color, SI2 clarity, worth at least $15,000 less than he paid.

Hypothetical?

The example is drawn from actual differences in grading reports on a 4.64-ct. diamond that JCK acquired on memo in February and sent to the major U.S. gem labs: the Gemological Institute of America’s Gem Trade Lab, which has locations in Santa Monica, Cal., and New York, N.Y.; the International Gemological Institute in New York; and the European Gemological Lab in Los Angeles, Cal.

This is not an isolated case; grading discrepancies are all too common, say jewelers polled for this report. Lab reports often vary by one grade and sometimes two, they say. Therein lies a potential time bomb: while the trade may accept the situation as a fact of business life, most consumers believe a grading report is a guarantee that a diamond is exactly what the report says it is. A few well-publicized stories that this is not the case could explode into a credibility and public relations crisis for the entire industry.

Key questions: Who is responsible for satisfying a customer who discovers a difference of a grade or more on the diamond he or she bought?

Top executives of all the major diamond grading labs say the jeweler must bear the responsibility. They stress that jewelers must inform customers that diamond grading is subjective, based on opinion.

Not all jewelers agree. “I like certificates because they take the burden of subjectivity off my store and put it on the lab,” says Phil Forrester, president of Gainesville Jewelry in Gainesville, Ga., a multimillion-dollar business based largely on diamond sales.

Another critical question: just how subjective are lab reports? “Few people realize that diamond grades don’t represent specific colors or clarities, they represent a range of colors and inclusions,” says GIA President William E. Boyajian.

Such a comment raises another important issue. If the labs openly concede their diamond grades are not specific, shouldn’t they state the tolerances? Joel Windman, general counsel for the Jewelers Vigilance Committee in New York City, says yes. The labs flatly refuse, however, saying there’s no official tolerance and that stating their grades are opinions already implies a certain margin for difference.

Potentially, very big bucks: The accuracy of diamond grading was a matter of almost academic importance 20 years ago. Very few jewelers bothered with grading reports, which were virtually unknown among consumers. But the gemstone investment craziness of the late 1970s changed that. The “certificate” joined color, cut, clarity and carat weight as the fifth C. It became an essential marketing and sales tool for the hucksters who talked thousands of consumers into buying diamonds as a “sure-fire” way to beat inflation and make money.

Predictably, the investment boom went bust. But diamond reports gained new consumer credibility – with many jewelers preferring the term “certificate” with its implied guarantee.

Nearly all members of the JCK Retail Jewelers Panel now say their customers are aware of diamond grading reports to some degree. Indeed, few carat-sized diamonds of respectable quality are sold without them. “Grading is nearly universal,” says Hertz Hasenfeld of Hasenfeld & Stein in New York City. “Just about any diamond that’s worth grading is graded by a lab today. That’s a total shift from 20 years ago, when only D and E flawless stones would get ‘certs.'”

When the volume of diamond trading is linked with the money involved in a grading discrepancy, it becomes obvious why today’s grading debate is so urgent. The dollar figures are potentially immense.

Rapid growth: All the major labs report huge business increases in the past decade, with the biggest growth in better-quality stones down to a half carat.

GIA volume has tripled at least, says Boyajian; its labs added 40 to 50 new graders this year. IGI’s business has grown 15%-25% yearly for the past five years. And Tom Tashey says he has seen nearly “infinite” growth since he bought EGL Los Angeles from founder Guy Margel in 1985. (Unlike other major gem labs, EGL labs are wholly owned franchises using the name licensed from the original lab in Antwerp, Belgium.)

This huge growth in demand for grading reports is a natural extension of U.S. consumers’ desire for more information, says Jerry Ehrenwald of IGI. “People now read food labels, they compare specifications, so it’s natural they want to know more about the diamond they plan to buy – especially after seeing exposs about diamonds on TV ” he says.

Grading differences: The lab executives acknowledge that differences in grading will always exist – among labs and within the same lab – despite diligent, consistent procedures to prevent them. In fact, there’s a belief that labs never will be able to eliminate discrepancies totally because grading is a subjective process. To cover any challenge, the labs include disclaimers explaining that grading is based on expert opinions and rejecting liability for any differences in those opinions.

To try to reduce subjectivity, however, the labs routinely have a number of employees grade the same diamond. Major and extremely high-quality stones receive an extra look. For example, GIA sends each diamond through six graders: two preliminary graders, two double-checkers and two senior quality control employees. As many as 18 people may be involved in checking a major stone, says Tom Yonelunas, director of GIA’s lab in New York City. The other labs, which generally charge less than GIA, say they have at least three people look at each diamond, with more working on major diamonds.

The labs also stress that they keep their equipment, lighting and procedures consistent, and all use GIA-graded master stones to reduce any potential differences among labs. Despite these precautions, however, the fact remains that some diamonds are borderline and others have properties that may bring differences of opinion and different grades. For example, another diamond in the JCK study – a .84-ct. heart shape with a tiny chip on the right lobe – received a VS1 clarity grade from GIA and VVS1 grades from the other two labs. GIA grades according to what it sees; the other two labs gave better grades because their officials felt the defect could be polished out quite easily to an Internally Flawless grade.

The “opinion” factor and subjectivity also increase as the grades get lower. Thus, say lab executives, there’s a lot more leeway within an SI2 clarity grade than within a VVS1. There’s also more leeway within a K color than within an E.

This is why all labs acknowledge a potential margin of difference of one color and one clarity grade on each diamond. They concede, however, that it’s possible to get differences of two and, very rarely, even three grades. That will happen when human beings examine thousands of diamonds each month.

The results of JCK’s diamond grading study were no surprise to anyone in the trade. More than half the members of the JCK Retail Jewelers Panel say they often find discrepancies of one grade when checking against the lab report or supplier’s invoice; about half say they discover differences of two grades on occasion. Not every jeweler double-checks incoming diamonds, even though some worry that consumers who have learned about grading reports will feel conned if a subsequent report produces a lower grade.

JCK’s diamond samples: The 4.64-ct. emerald-cut diamond and the .84-ct. heart-shaped diamond mentioned thus far were among five that JCK acquired for this study from Myron Broff, a diamond dealer in Pittsburgh, Pa. The diamonds were valued at $59,000-$75,000 wholesale, depending on grading discrepancies. Four of them had “old paper” – reports more than 10 years old. A jeweler agreed to submit all five diamonds on JCK’s behalf to the GIA and IGI labs in New York and the EGL lab in Los Angeles.

The results:

• Only one diamond, a 1.01-ct. round, received identical grades from all three labs.

• Two had a difference of one grade (clarity or color) – the unstated tolerance given by all major labs.

• Two had discrepancies of two grades.

• The measurements and percentages of each diamond – presumably the one part of a grading report that is not subjective – varied on some reports from a hundredth of a millimeter (within accepted tolerances) to more than a half millimeter (way beyond them).

The biggest discrepancies were in the .84-ct. heart-shaped diamond. IGI and EGL graded it D VVS1, with EGL noting it was “potentially internally flawless.” GIA graded the stone D VS1. (GIA had graded the stone D internally flawless in 1983, but that earlier report didn’t note a tiny chip on the right lobe, so the stone apparently was damaged in the interim.)

The measurements also varied the most widely on the heart-shaped stone:

• GIA listed it as 6.70mm x 6.91mm x 3.20mm the first time (with a fair to good symmetry grade) and 6.67mm x 6.71mm x 3.21mm the second time (with a good symmetry grade).

• IGI measured the stone at 6.11mm x 6.92mm x 3.2mm with a good symmetry grade.

• EGL reported it as 6.7mm x 6.92mm x 3.21mm with a fair to good symmetry.

Regarding the 4.64-ct. emerald cut diamond, GIA graded it E SI2, while the other two labs said D SI1.

Grading consistency is best with round caraters – where the labs do most of their business and their grading masters are comparable.

Inconsistencies are more likely in grading fancy shapes. For one thing, there are no fancy-shape master stones; graders must base their judgments on round masters. For another, the cut affects how light travels through the stone, making uniform opinions more difficult.

Inclusions also lead to differences of opinion. The 4.64-ct. diamond, for example, has a visible white inclusion. Should the clarity grade be imperfect (I) or slightly imperfect (SI) because the inclusion is so tiny in relation to the size of the stone? We got differing opinions.

Some in the diamond trade say the stone should be graded I or I1 at best because of the visible inclusion. Others say the labs’ SI1 or SI2 grades are acceptable because of the inclusion’s relatively small size.

Trust is the best grade: The labs say their disclaimers make it clear that a diamond report should be seen as an informed opinion – not a guarantee. They say it’s up to jewelers to be sure their customers know that.

How do jewelers feel? The majority of JCK’s panelists do much of their business in uncertified goods; only their top stones have lab papers. Nine out of 10 jewelers who use grading reports say they explain to customers that grading is subjective. The key to overcoming consumer worries, they say, is to sell the diamond, not the grading report.

Phil Forrester, the Gainesville, Ga., jeweler who says certificates take the burden of subjectivity off him, also says jewelers need to win customers’ trust in selling diamonds. “People buy from you because they trust you, because you’ve got good salespeople who know what they are doing and because you go out and work for their business,” he says. “We tell them grading is subjective, but we also tell them they’ve got 30 days to return their diamond for any reason for a full refund.”

Few do, he says. Forrester says he sells hundreds of carat-plus diamonds yearly – nearly all with grading reports.

In the unfortunate case where the same diamond gets different grading reports, the jeweler must use the lower grade and price it accordingly, says Tom Tivol of Tivol in Kansas City, Mo. “If the higher grade is used, then the jeweler is selling only letters and numbers on a report, not a diamond, and that may come back as trouble later,” he says.

Tivol also laments that too many jewelers still use the term “certificate,” which implies a guarantee. “Sales associates must tell customers up front that the report is a subjective opinion, not a ‘certificate’ with a guaranteed grade,” he says.

Jewelers who sell diamonds and not grading reports obviously accept the subjectivity of the lab reports. Most problems seem to arise when the customer has not been warned about the reports’ limitations – and JCK panelists readily point the finger at “upstairs” gemologists who sell diamonds solely by grading reports and the Rapaport Diamond Report price list. “A lot of these people tell customers the reports are a guarantee that the diamond is a certain grade,” says IGI’s Jerry Ehrenwald. “That’s an abuse of their purpose.”

Double-edged sword: Because lab reports have “commoditized” diamonds to some degree, many jewelers have a love-hate attitude toward them. The reports helped to raise consumer confidence in the product by providing a third-party endorsement of quality. But they’ve also invited unprecedented price comparison and a resulting fall in margins, especially on large diamonds.

The fact that more than one in five of JCK’s retail panelists feels the reports are a handicap to business is some measure of discontent. They believe grading reports allow diamonds to become commodities that anyone can sell because they remove the expertise that once was the domain of the retail jeweler.

“They’ve allowed competitors to bid for one another’s business, especially on the bigger stones,” says Terry Chandler of Michelson’s Jewelers in Paducah, Ky. “This forces margins downward and makes it hard to live on our diamond business. You can’t sell a $10,000 diamond for $11,000 and stay in business.”

Jewelers say the key to keeping business strong is to return to selling diamonds, not paper, and put back the romance that grading reports removed. Says Mark Moeller of R.F. Moeller Jeweler in St. Paul, Minn.: “I’ve got a guy not 100 yards up the street from me selling graded diamonds at 20% under Rapaport I sell 10 diamonds to his one because I’m known in the area as the place to buy diamonds. That comes from professionalism, hard work and good promotions.”

Living with subjectivity: While a good many retailers worry that a grading report may be challenged or inaccurate, diamond dealers seem more casual. They say they’re much better off with grading, even if it costs them money on occasion. Most compare grading to a baseball game: the umpire may miss a few calls but the system works as long as everything is done in good faith.

Off the record, diamond dealers say there’s a subtle difference in lab standards. Says one: “If it’s a borderline stone, GIA is less likely to cut you a break than IGI or EGL.” Executives of IGI and EGL deny there’s a difference. They say they try to keep the same standards as GIA and double- or triple-check stones to ensure they do.

Nevertheless, that doesn’t stop diamond dealers from “lab shopping” – sending borderline cases to labs they think will give them the higher grade. Myron Broff, the Pittsburgh diamond dealer, says he’s gotten “better” color grades from GIA’s Santa Monica lab than its New York lab over the years. (GIA vehemently denies there’s any difference between its labs. Tom Yonelunas at the New York lab says staff and stones are exchanged between coasts regularly to ensure a uniform standard.) Broff also says EGL appears to be easier on clarity grades. Other dealers believe the labs go through cycles where grading can loosen a bit, then be tightened by a new supervisor.

“Labs have a culture,” says Martin Rapaport, publisher of the Rapaport Diamond Report. “You may have a staff that’s been there for a long time that grades a certain way – maybe they’re a little easier on the H-I colors, for example – but over time this changes as the staff turns over.”

Another factor, says Broff, is the number of lower-quality diamonds coming through some labs these days. “If you look at a lot of K I1s ,” he says, “a nice stone will look a whole lot better by comparison and it might get a better grade that it would have otherwise.”

All agree that GIA reports carry the highest “value” because they enjoy the widest acceptance worldwide and its labs are thought to be a bit tougher than the others. Dealers say reports from IGI and EGL carry a 5% to 10% discount (with EGL’s Los Angeles franchise trading at a premium to other EGL reports) because they are “easier.”

Diamonds graded by Antwerp’s Diamond High Council (known in the trade by its Flemish abbreviation HRD) usually trade at parity with GIA-graded stones except in the top grades, say dealers. “HRD uses a slightly different standard for a flawless grade that would include some stones GIA might call VVS1,” says one dealer. (HRD grades any diamond with an inclusion smaller than 5 microns flawless or loupe clean. Dealers say some darker inclusions of that size can be seen with a 10X loupe, so GIA would give the stone a lower grade.)

Ehrenwald of IGI and Tashey of EGL Los Angeles admit there’s a price difference between diamonds carrying their reports and those graded by the GIA. They say that’s because GIA set the standards for everyone – including their own labs – not because GIA has higher standards.

Ehrenwald says he regularly submits stones to GIA to check his own lab’s work: “Most of the time they come back with the same grade. Sometimes they’re higher, other times we’re higher, but there’s no trend either way.”

Lobbying for change: Most jewelers accept that diamond grading reports are here to stay, like them or not. But quite a few think the reports could be improved. Two of the most talked-about changes in recent times are addition of a cut grade and of a new SI3 grade.

The politics for and against a cut grade are almost as rigid as the pro-choice/pro-life movements in U.S. politics. The vast majority of jewelers in JCK’s retail panel believe grading reports are incomplete without some mention of cut. They say a great deal of a diamond’s value depends on how well it is cut. The problem is that while most people agree what makes a badly cut stone, there’s less agreement on what makes the best.

Many members of the American Gem Society believe proportions devised by Marcel Tolkowsky (commonly called the Ideal Cut) are best. The new AGS lab, due to start business this summer, will include a make grade on its own grading reports and, presumably, will hold that cut as its top standard.

The New York Diamond Dealers’ Club argues that a cut grade is too subjective because what’s attractive in the U.S. would be a “bad” make in Hong Kong – and that includes Tolkowsky’s proportions. However, DDC does want the reports to include as much proportion information as possible so buyers can make up their own minds.

A third group opposes a make grade because it believes such an addition it would make it even easier for “upstairs” dealers and discounters to sell diamonds.

None of the major labs currently grades the quality of diamond cut, except to list depth and table percentages and to note in general the quality of symmetry. IGI also provides a detailed explanation of diamond make in a sheet accompanying the report.

GIA flags potential problems. For example, the report on one of the stones submitted on JCK’s behalf says the crown angles exceed 35x. But don’t look for a cut grade anytime soon, says GIA’s Boyajian.

SI3 and other grade changes: GIA also has resisted adding more clarity grades for lower-quality stones, arguing it would lead to a general lowering of grading standards. EGL Los Angeles added an SI3 grade about two years ago amid much controversy; it’s now considering changing its I1 grade to Mildly Included (MI) 1 and 2. The goal is to reduce the stigma of an “imperfect” grade for diamonds that are still relatively attractive.

EGL’s Tom Tashey says the SI3 grade has caught on because much of the diamond trade already used it informally and because it was included on the Rapaport Diamond Report price list. “There are so many more lower-quality diamonds being sold with grading reports these days that we need more grades in the lower end,” he says. “The ranges within existing grades are much too wide,” he adds, explaining that the same grade currently can apply to respectable stones and terrible ones.

Boyajian says the institute will make changes if it deems them necessary. “GIA’s research backup is what sets us apart from other labs which only do grading,” he adds. “Any changes or improvements are certain to be based on solid scientific research, not what’s in demand at the moment.”

He points to GIA’s new colored diamond grading system and reports as examples of change. These include several new color grades and a revamped format, including a more prominent disclaimer and a paragraph explaining the interrelationships among color tone, saturation and hue.

Meanwhile, GIA will revise its diamond grading reports later this year or early next year to make the disclaimer more prominent and include additional information (see box,”GIA to issue new diamond reports”).

Toward a better standard: Boyajian realizes people sometimes grouse about GIA and other gem labs. But he says they should try to compare today’s relatively few problems with those of 30 years ago, when there were no standards. “Everyone did what was right in their own eyes,” he says. “We had Double A, Triple A, Blue White Perfect. What did they mean? What were the tolerances? It was grading chaos.”

Tom Yonelunas adds that GIA does much more than just grade diamonds. “We never assume that every diamond sent to us is natural and untreated,” he says. “First, we check to see if it’s a diamond, then whether it’s natural, and whether it’s untreated or enhanced. These challenges are increasing as time goes by, so we keep adding steps to the grading process.”

Each lab stresses its integrity and says it takes strict measures to ensure it. One thing is certain, say diamond dealers. Even a shred of doubt can ruin a lab’s credibility and business, because their existence depends on their ability to provide impartiality, good faith and expertise. Remove any of these and their reports become useless.

Tom Tashey recalls how his lab had a long struggle to regain credibility after another EGL lab was accused of giving favorable grades for certain clients more than a decade ago. “EGL did not have a good reputation then and business fell off so much that it nearly closed down,” says Tashey. “Since then we’ve built this lab up on our own.”

APPEALS PROCESS

All major labs interviewed for this story have an appeal process under which clients can resubmit stones they believe should have a higher grade.

GIA’s rechecking policy, for example, is simple. If the stone comes back with a different grade, there’s no charge. If it gets the same grade, the client pays 50% of the usual lab fee. (The HRD lab has a similar process, though it gives clients a third chance by sending the diamond to an “arbitrator” – a major diamond dealer who passes judgment on the stone. “We had only five or six arbitrations last year out of thousands of stones we’ve graded,” says an HRD official.)

GIA President William E. Boyajian says GIA labs get it right 98% of the time. “We’ve done literally millions of diamonds,” he says. “Considering that volume, there’ve been few complaints.”

Only a very few cases in the past decade went beyond the recheck phase, says Boyajian. In one of those cases, a dealer sued GIA more than a decade ago over a diamond previously graded D If which subsequently received a VVS1 clarity grade. The case “was resolved,” Boyajian says without further detail.

GIA TO ISSUE NEW DIAMOND REPORTS

GIA’s diamond grading reports will get an overhaul later this year or early next year.The new document should please retailers who want a more prominent disclaimer, but may not help those who are pushing for a diamond-cut grade.

Exactly what new information will be included is still being debated. However, it will be designed along the lines of the revamped colored diamond reports that GIA introduced in March. “We’ll be answering every concern that Bill Underwood [who chaired the Jewelers of America Diamond Reports Committee] has about our reports,” says GIA President William Boyajian.

GIA already has decided to move the disclaimer from the bottom to the upper left section in the new reports and to retain advice to “consult a credentialed jeweler or gemologist about the importance and interrelationship of cut, color, clarity and carat weight.” This was the main point of the JA report, which noted that unscrupulous operators have been known to cut off the disclaimers and sell GIA-graded diamonds as guarantees.

The JA committee wanted the disclaimer in the same type size as the color and clarity information. It’s not that big, says Boyajian, but it is the same type size as a new methodology explanation that’s being added to the reports. (The methodology section explains the equipment and procedures the lab uses to arrive at the grade.)

The JA committee recommended several other minor changes in wording that GIA will accommodate. It also recommended against a cut grade, though most members of the JCK Retail Jewelers Panel believe the reports should address this issue.

Tom Yonelunas, director of the GIA Gem Trade Lab, says debate over what new information will go in the reports is still under way. The reports certainly will contain more measurements (actual and percentages), but it hasn’t been decided yet how best to flag poorly made diamonds without penalizing stones that are considered attractive in some markets. GIA’s current reports note crown angles that exceed 35x on round stones – a warning that the table is spread beyond usually acceptable dimensions to make the diamond look larger. Similar notes could be made for pavilion depth.

The goal, says Yonelunas, is to introduce the new reports and the new information at the same time, though that may not be possible. GIA is still in the midst of an extensive research project on how diamond cut and proportion affect brilliance and scintillation. Researchers say findings from that study may change some long-held assumptions. In addition, related debates with the various segments of the trade may take longer than anticipated. “We have to be certain to protect everyone’s interest,” says Yonelunas.

GIA has been collecting additional information on diamonds sent in for grading in anticipation of the new reports, says Yonelunas. He says the Sarin Diamension machine used to measure each diamond automatically records all of the proportion information. When the new reports are available, holders of recently issued diamond reports may be able to get updated ones at a reduced rate, he says.

GIA did just that when it introduced the new colored diamond reports in late March, offering holders of diamond reports it had issued between Jan. 19 and March 19 a grace period of 90 days to get an updated report for half the cost of an original report.

Neither Yonelunas nor Boyajian believes the new diamond grading reports will undermine the value of old GIA reports. “We’ve kept the same standards as always,” says Yonelunas.

The new reports also will contain a credit-card-type hologram to deter counterfeit reports, says Boyajian, who notes that bogus GIA papers have turned up on the market in the past.

JCK’S DIAMOND GRADES

	OLD GRADE	RECENT GRADE
		GIA	EGL	IGI	differential
1.01 ct round	F VS1 stg bl	F VS1 stg blue fl	F VS1 strng blu fl	F VS1* str blu	$0
Proportion:	Fair to good (GIA, 1983)	Good	Good	Good
0.84-ct.heart	D IF	D VS1	D VVS1 pot. IF	D VVS1	$528
Proportion:	Fair to good (GIA, 1983)	Good	Fair to good	Good
0.53-ct. round	K IF	J VS1	I VVS2 ft. fluo	J VVS2	$150
Proportion:	Good (EGL, 1986)	Good **	Good	Good
4.64-ct. emerald	—	E SI2	D SI1	D SI1	$15,500
Proportion:	—	Good	—	Good
0.99-ct. round	J VS1 slt fl	I VS2	I VS2	J VS2	$160
Proportion:	Good (EGL, 1979)	Good	Good	Good

* IGI typographical error on the report cover states the weight as 1.10 cts.

** The GIA report notes the crown angle is greater than 35x.

Note: The price differentials noted are between the highest and lowest recent grades as listed in the Rapaport Diamond Report, factoring in an average 20% discount.