Jeweler Found Guilty of Fraud Must Pay $40 Million
A Florida jeweler found guilty of defrauding wealthy customers out of more than $80 million with overpriced, altered, and fake jewelry has been ordered by a federal court to forfeit $40 million in cash and securities to the government.
The March jury verdict against Jack Hasson, 47, a well known West Palm Beach, Fla., jeweler who lived an opulent lifestyle and collected celebrities as clients, is the largest fraud judgment ever against a jeweler. The trial lasted seven weeks and included 63 witnesses. Hasson was found guilty of money laundering, obstructing justice, and conspiracy to defraud jewelry customers, including champion golfers Greg Norman and Jack Nicklaus.
The government claimed Hasson defrauded clients by selling them fake, altered, and stolen jewelry; forging documents; misrepresenting the value and origins of gems; and coercing witnesses. Government prosecutors sought almost $49 million from Hasson, who they said laundered some $30 million through foreign accounts in South America, the Bahamas, and Europe. That included a $20 million account in Paris under an alias. Hasson’s attorneys contended Hasson set up accounts under other names to hide money from his first ex-wife, not from the government.
During the trial, according to published reports, former employees and associates also described schemes to fool customers, including setting up a “dummy” corporation on the Isle of Man, near Scotland, through which Hasson claimed to buy millions of dollars of jewelry; switching gems in jewelry (Hasson’s former jeweler claimed he could replace real diamonds with fakes in 30 seconds); and altering the color and weights of gems. In the most elaborate scheme, Hasson paid a number of people to masquerade as the Sultan of Brunei’s nephew, his bodyguards, and harem on Hasson’s private plane to trick a rich client into buying expensive jewelry.
In addition to the $40 million forfeiture (cash, securities, part of a Florida ranch, and a Colorado ski chalet), Hasson faces up to 45 years in jail and a $100 million fine, says the U.S. attorney general’s office in Palm Beach, Fla. Sentencing was due to take place this month.
Hasson’s lawyers said they would appeal.
Also waiting to be sentenced were three associates—a lawyer who pleaded guilty to helping Hasson launder money; Hasson’s former jewelry maker and bench man; and Hasson’s brother, who lied about playing the Sultan of Brunei’s nephew. A fourth associate, who suffered a heart attack during the trial, was acquitted of money laundering and obstruction of justice.
Claims on the forfeited money and property were expected to be filed by Aben E. Johnson, 72, a retired Detroit businessman, who spent $83 million with Hasson on jewelry later appraised at only $6 million. In early 1998, Johnson filed a civil suit in Florida state court seeking triple damages of $180 million. His suit claimed Hasson altered sales receipts and appraisals, forged his name on documents, and used phony gemological papers. That sparked the FBI investigation and Hasson’s arrest by the FBI on April 12, 1999. Johnson’s suit will be heard in state court once the federal process, including appeals and sentencing, is completed. — William George Shuster
L.A. Lab Loses Its Ties to EGL
The sprawling family of European Gemological Laboratories just got smaller. In a court victory for the New York lab, the Los Angeles lab has been kicked out of the loose federation, which has branches in seven countries besides the United States.
Tom and Myriam Tashey of EGL-LA lost the right, as of 2002, to operate any lab under the EGL name. According to the terms of a sweeping decision handed down in February by the U.S. District Court in New York, they also lost the use of the name of their Chicago lab, Gem Quality Institute, as well as the use by that lab of the SI3 diamond grade and the Tolkowsky mark on EGL diamond certificates.
GQI, which has 10 employees and issues 10,000 diamond reports a year, has already been renamed Professional Gem Sciences Inc., says Tom Tashey. His EGL-LA lab, which has 47 employees and produces 85,000 diamond reports a year, will remain in business under that name until the EGL license expires in 2002. At that point, Tashey will rename the operation. In addition, Tashey’s quarterly newsletter, GQ Eye, will now be called The Professional Gemologist.
EGL-USA in New York sued the Tasheys in 1997, charging violations of their sublicensing agreement with EGL. According to the court summary, “Tashey decided to build up his own business by trading upon the reputation of EGL to benefit GQI, confusing the marketplace in the process….” Also noted in the document: “Tashey’s grading of stones under the EGL name and issuance of EGL certificates outside the Los Angeles area [at trade shows, according to Tashey] infringed plaintiff’s marks.”
Tashey, who may appeal the decision, calls the prohibition against his using the SI3 designation “absurd.” During the trial, EGL in New York presented testimony that some of its clients complained about the use of the grade. “Some of the stones we grade at SI3 the GIA would grade at I1,” Tashey explains. Though the new grade is widely used—Martin Rapaport’s monthly pricing report includes SI3 diamonds—the judge denied Tashey use of it in association with the EGL name.
As for the Tolkowsky designation on diamond certificates, Tashey is indifferent. “We’ll call them Ideal,” he says. Tashey doesn’t like the term Ideal because it suggests that a particular stone is the best available, but he concedes that it’s the term the industry prefers to use.
EGL USA in New York was awarded no monetary damages, but Tashey must pay its legal fees. Mark Gershburg, the EGL USA director who works out of the New York office, says he is pleased with the decision. Another EGL lab will be opened in Los Angeles when Tashey’s license expires in 2002. “There will always be an EGL in Los Angeles,” says Gershburg. It has not been decided who will head it. — Jennifer McClure
New Method Of Laser Drilling Mimics Inclusions
Gemologists are worried about a new hard-to-spot method of laser drilling, which they think could fool jewelers and even experts in gem labs.
Tom Tashey of Chicago’s Professional Gem Sciences Inc. says his lab has examined several of the stones and has found that the drill hole has a “fan-like pattern” rather than the usual single hole. “We think it’s designed so that the labs won’t realize what it is,” Tashey says. “It looks like a natural inclusion.”
One dealer who submitted the stone to Tashey said it was not disclosed to him as a drilled stone, although he thought “it looked a little different.”
An alert from Tokyo’s Central Gem Laboratory credits the treatment to an Israeli company, Spectrolite. The company could not be reached for comment at press time. Others believe several Israeli companies are involved.
Ayal Uralevich, a veteran Los Angeles laser driller who also has examined the new treatment, says the drill holes are bigger than traditional ones. “They’re about four times as wide and much more noticeable, and it’s so bad people think it’s a cavity,” he says. Another laser driller says the treatment is most useful on stones in which the black piqués are close to the surface.
The Federal Trade Commission is expected this year to mandate disclosure of laser drilling as part of its Guides for the Jewelry Industry. Disclosure of laser drilling is already mandatory for members of the World Federation of Diamond Bourses. — Rob Bates
De Beers Announces New Adjustment
U.S. retailers likely will be paying more for certain sought-after smaller diamonds, the result of De Beers’ second price “adjustment” in less than a year. A De Beers statement, released prior to the February sight, noted that “strong demand and some reduction in supply of the lower-quality diamonds, which are predominantly polished in India, have been exerting upward pricing pressure in this area.” Market sources noted that De Beers’ adjustment last summer also raised prices on smaller stones. But that increase hasn’t kept pace with higher demand for these goods, mostly because of the strong U.S. economy and a fall-off in production from Australia’s Argyle mine.
A De Beers spokesman notes that the overall impact of the “adjustment” was “marginally positive”—meaning in the low single digits. Sightholders who examined the first post-increase sight boxes told JCK they thought the increases were relatively minor. “ De Beers doesn’t want to wipe out its clients’ profits,” said one.
While U.S. retailers will pay more for their diamonds, it looks as if the price of diamonds popular in the still-struggling Far East economies may decrease again. “All price adjustments involve some prices going up, some remaining the same, some coming down slightly,” says De Beers spokesman Andrew Lamont. “For those goods traditionally sold into the Far East, you would expect those prices to shift slightly.”
Analysts believe De Beers’ use of the term price “adjustment”—rather than “increase”—signals an attempt to be more flexible. But Lamont says, “It’s just a matter of semantics, really.… The overall effect is a marginal increase, but not really enough to note.” — Rob Bates
U.N. Says Antwerp Knowingly Buys ‘Dirty Diamonds’
The United Nations has issued a report supporting human rights groups’ charge that rough diamond sales are being used to finance vicious civil wars in Africa. The report singles out the Antwerp diamond industry—as well as African leaders—for permitting violations of the U.N. ban on trading in diamonds from areas under the control of rebel UNITA forces in Angola. De Beers, which now certifies it sells no “combat” diamonds from any source (see Diamond Notes, p. 72), largely escaped criticism.
A preview of the report made the front page of the New York Times, and one of the report’s authors—Canada’s U.N. ambassador, Robert Fowler— plans to keep the issue high-profile. “We want to keep shining a light on this,” he says. “We don’t want to have a ‘been there, done that’ situation and have things to go back to where they were.”
The report, which took a panel of nine experts six months to prepare, states “Belgian authorities have failed to establish an effective identification method” for African diamonds. “Nor has any effective effort been made to monitor the activities of suspect brokers, dealers, and traders,” the report adds.
“The unwillingness or inability of the diamond industry, particularly in Antwerp, to police its own ranks is a matter of special concern to the panel,” says the report, which was prepared for the U.N. Security Council under Fowler’s direction.
Antwerp protested, claiming it had taken tough action to curb illicit trading. “We’re being unfairly singled out,” complains Peter Meuws, general manager of HRD (Diamond High Council), the Antwerp industry group. “India and Israel aren’t mentioned at all. The report says we have lax controls, but there’s nothing to back that up.”
Industry leaders were also lukewarm on the report’s recommendations, one of which would make dealing in “undeclared” rough diamonds a criminal offense. Sean Cohen, president of the International Diamond Manufacturers Association, says that recommendation “doesn’t seem realistic,” although his group wouldn’t have a problem with it. “In the future, people are going to have to know where their rough comes from anyway, because of treatments and things like that,” he says.
In Washington, meanwhile, Rep. Tony Hall (D-Ohio), the legislator who wants all diamonds to carry “origin certificates,” has introduced another bill banning the purchase of diamonds from Sierra Leone, the Congo, and Liberia. (Fragile cease-fires are holding in all three.) Hall, whose district includes many refugees from Sierra Leone, warned in a speech on “Gemocide” that if this issue isn’t brought under control, the diamond industry could face a consumer boycott, like the one that hit the fur industry a few years ago. “My hope is that the respectable companies involved in the diamond trade will stop seeing Africa only as a cash cow, as only a place to strip for resources, and start getting involved in efforts to protect the people who have been savaged by the trade in these gems,” he said.
Christine Gordon, a London journalist who has long covered Angola, says the industry needs a blanket policy on how it handles diamond-driven wars. “We have seen three countries torn apart by war, all because of diamonds,” she says. “It’s become part of the guerilla handbook to grab a diamond mine.” In fact, the U.N. report notes that UNITA is better funded as a result of its diamond trading than it was when it received money from the United States.
During the Cold War, when it was fighting against the Soviet-backed Angolan government, UNITA received up to $60 million a year from the Central Intelligence Agency. But it fell out of favor when its leader lost a 1992 election and refused to accept the result. He took to the bush and resumed a war against the Angolan government that had begun before the country gained independence in 1975.
Over the past decade, the diamond-financed war in Angola has cost the lives of about 500,000 people while uprooting about 4 million others. — Rob Bates
FBI May Hire 10 More Agents To Fight Jewelry Crime
An 18-member delegation led by the Jewelers’ Security Alliance descended on Washington recently to lobby for a $2 million increase in FBI spending to combat jewelry crime. Members of the delegation came away optimistic that the agency would get the money.
“I definitely had the feeling our efforts are going to pay off, enabling the FBI to hire 10 agents who would go after the South American gangs,” says JSA president John Kennedy. “The visit exceeded my expectations.” Sen. Mitch McConnell (R-Ky.) said he contacted the Justice Department. Sen. Jim Bunning, another Kentucky Republican, said he spoke to the FBI.
The delegation represented every important sector of the jewelry industry and included JCK’s associate publisher, Frank Dallahan (see Counterpoint, p. 44). The delegation broke up into five groups, each accompanied by a lobbyist from the Washington law firm that JSA has hired for stronger representation on Capitol Hill. The groups visited senators, representatives, and congressional staff, focusing on key members of the subcommittees overseeing the FBI’s budget. Visits also were made to the FBI and its parent agency, the Department of Justice.
Despite a series of JSA-organized meetings with FBI and local police departments in 1998 and 1999, crime against traveling salespeople and trunk shows leaped 44% from 1998 to 1999, when it reached a record high. Kennedy says most of these holdups are staged by gangs from South America, particularly Colombia. He describes the situation as “out of control.”
On the other hand, jewelry store crime is decreasing, JSA reports. “On-premises” dollar losses from robbery, theft, and burglary fell from $117.5 million in 1997 to $57.6 million last year. The average robbery loss in 1999 was $131,000, and 5% of the incidents resulted in someone’s getting injured. The month with the greatest number of robberies is September, and Thursday is the most likely day criminals will strike. The states with the highest number of robberies are California, Georgia, New Jersey, and Ohio. — Larry Frederick
Diamonds De Beers To Promote Tennis Bracelet
De Beers will put its advertising and public relations muscle behind an old staple, the tennis bracelet—but it’s giving it a new name and a more upscale image.
The tennis bracelet will be dubbed the “diamond line bracelet.” “We don’t want to go back to what it was called in the 1980s,” notes Cheryl Pelligrino of the Diamond Information Center. “The tennis bracelet got democratized very quickly with $100 products. We want to position this as a top-quality, high-end purchase.” Pellegrino says De Beers aims to make the bracelet more “design focused,” with increased design variation.
For now, the campaign is focused on encouraging fashion magazines and the fashion sections of leading newspapers to publish articles about the diamond bracelet, but advertising is planned as well. Presenters at the VH-1 Vogue fashion awards received diamond line bracelets as a gift (see Fashion Facets, p. 84). — Rob Bates
Consumers Swamp De Beers Web Site Interactive Feature
The public apparently loves the Diamond Information Center’s “Design Your Own Engagement Ring” interactive feature at www.adiamondisforever.com. Since the feature debuted last June, average daily visits to the DIC site have leaped 400%. And once they get to the site, people are viewing 10 times more pages than they used to.
Fueling the heavy traffic have been “Click” television ads, which were introduced during the holiday season. The ads, created by J. Walter Thompson, De Beers’ advertising arm, show a ring “building” on a woman’s hand as she navigates through the feature. The ads were so effective that the agency began airing them again in late January and will run them through September, according to Anne Ritchie, partner account director for J. Walter Thompson. — Jennifer McClure