UpFront

GEM EXPERTS SPAR OVER TREATED EMERALD CASE

After more than two weeks of testimony, two jewelry retailers and an appraiser were found liable for costs incurred by a customer who bought an allegedly undisclosed treated emerald. The case has ignited a war of words between two notable gem experts.

A Superior Court jury in Washington, D.C., found Blue Planet Gems Inc., Bethesda, Md., owned by author and gemologist Fred Ward and Carol Tutera, liable on several charges. The charges include breach of express warranty and breach of implied warranty concerning an emerald ring Blue Planet sold to plaintiff Doree Lynn of Washington, D.C. The jury awarded Lynn the cost of the ring plus triple damages on the ring, which originally cost $14,500.

The appraiser in the case, Karen Sternberg, was directed to pay $9,100 for negligence.

Another defendant, Lynn’s insurer, State Farm Insurance Co., was exonerated.

The case has pitted Ward against C.R. “Cap” Beesley, president of American Gemological Laboratories, New York, N.Y., who testified at the trial on behalf of State Farm.

Beesley used a press conference at the JA International Jewelry Show in July to call the decision a “landmark for gem enhancement disclosure issues.” He calls the verdict “a crystal-clear message” and “resounding condemnation of a retailer’s failure to protect his client.” Beesley says his intent was not “to slam Fred Ward but to highlight an issue that can cause potential trouble to retailers all over.”

Ward contends the stone was not filled when he acquired it from his supplier and that Beesley was partly responsible for the verdict through his testimony. Ward says he ordered the 3.65-ct. emerald in January 1994 from Equatorian Imports, Dallas, Tex., and then checked for treatments beyond the light oiling disclosed on the invoice. “The stone was completely clean across the table and table facets with no fracture filling,” he says. He had the emerald bezel-set with two carat-sized diamond side stones and then checked the emerald again. Appraiser Sternberg checked the emerald in a separate test.

About a month later, says Ward, Lynn returned to Blue Planet saying she might have damaged the emerald in an accident in her kitchen. Ward says he took the ring back to the goldsmith who mounted the emerald. He confirmed the emerald was fractured across the table and declined to add sizing beads to the mount as Lynn had requested for fear the heat would further damage the emerald. “I examined the emerald under a microscope and found a huge fracture across its table and table facets and a crushed area at the impact point,” says Ward. “There was no filler in the fracture.”

According to Ward, Lynn called State Farm about replacing the emerald through a Washington, D.C., jeweler who was never identified in the proceedings. She delayed several months before giving it to that jeweler. “When the ring finally arrived at the jeweler, it had sizing beads on it and the emerald had been badly filled with some substance other than oil,” says Ward.

The emerald was then sent to Beesley’s lab, which reported the filler was Opticon, a resin commonly used to fill emerald fractures. A Gemological Institute of America report says the emerald has evidence of clarity enhancement but, according to Ward, describes the fracture as being larger and deeper than he’d seen in his original examination.

Before ending up in court, the case went through a two-day non-binding arbitration in which the arbiters ruled that State Farm, by accepting the appraisal and policy premiums, should pay the full appraised value of the emerald. State Farm rejected the ruling and requested the trial.

Ward says Beesley made misleading statements at his press conference by failing to mention Ward originally won the case at arbitration and by implying the appraiser worked for Ward when she is independent. He also says Beesley offered “expert testimony” though he hadn’t seen the stone before it was broken and filled.

Beesley says the nature of the fractures indicate they had been there before the emerald was polished.

Ward also brands “patently untrue” Beesley’s statement that he ignored a treatment disclosure made by Equatorian Imports’ owner Ray Zajicek. Ward says the oiling was disclosed and that the emerald “was not treated with Opticon or any similar substance.” Zajicek testified the stone was oiled, not treated with Opticon, says Ward.

The judge in the case is reviewing a number of post-trial motions from both sides. Ward plans to appeal the verdict and says neither he nor his company had anything to do with damaging the stone.

Business as Usual for Versace Jewelry, Watches

The murder of designer Gianni Versace by spree killer Andrew Cunanan in July rocked not only the international fashion world, but also the jewelry and watch industries.

Jewelry and watches from the Versace empire will continue to be marketed as they were before the shooting death of its founder and chief designer, says Giovanni Mattera, head of Versace’s U.S. watch and jewelry division. “We lost a tremendous artist and a great man … and we will work hard to honor his memory,” he says.

Versace jewelry has been sold for four years and watches for six years in Versace boutiques and high-end jewelry stores around the world. In recent years, Versace delegated financial and design control to brother Santo, the company’s chief executive, and sister Donatella, who designs the company’s Versus line. But Gianni Versace continued to oversee the Milan company’s jewelry and watch designs. In fact, he and Donatella designed a 102-ct. diamond tiara that won a De Beers Diamonds-International Award in 1996. And only days before his death, he finalized the design of a new line of watches that will be made by Franck Müller, a luxury watchmaker in Geneva, Switzerland, for a fall debut.

All Versace jewelry is produced by Laudier/Georg Lauer GmbH, Pforzheim, Germany. “We cannot say what effect his death will have on jewelry production,” says Managing Director Norbert Breuer. “There will be a very strong demand for the existing line because this is the only fine jewelry he designed.”

Versace plans to go ahead with a public stock offering scheduled for next year, Mattera says. The company operates 160 boutiques (the largest opened on New York City’s Fifth Avenue in 1996) and 55 Versus stores worldwide.

THAI SLIDE HITS HO CLAN HARD

A vicious downturn in Thailand’s economy reportedly has slammed one of the country’s best-known gem and jewelry dynasties, the Ho Group of Bangkok.

The Ho family owns or controls a number of high-profile companies, including the giant Jewelry Trade Center office complex in Bangkok; World Jewels, a loose gem house; Bijoux D’Amour, a public company that manufactures gold jewelry; Jewel Siam, a trade magazine; and the Asian Institute of Gemmological Sciences. It also owns a number of real estate ventures.

Stock analysts and business colleagues in Bangkok say the Hos were forced out of active management of most of their holdings in June. Henry Ho, still listed as managing director of the Jewelry Trade Center, denies the reports. “The Hos remain in the same business they have been in for more than a quarter of a century and have no plans to exit the gem business,” he says.

Ho acknowledges the downturn in Thailand’s economy substantially affects all companies, including those listed on the Thai Stock Exchange. “The stock index dropped from 1,200 to 500 in less than 12 months,” he says. At the same time, Thailand’s financial sector has been hit hard by a 15% devaluation in the baht, the national currency, and a major credit squeeze among the country’s top banks and finance houses.

What effect this will have on the availability of loose stones and jewelry from Thai companies isn’t known yet.

The root of the Hos’ problem is the Jewelry Trade Center, a $350 million, 55-story jewelry industry complex in the center of Bangkok. The building was developed by a partnership that includes the Ho Group and the Central Group, which owns a chain of department stores. Despite the Hos’ continued insistence that occupancy rates were as high as 50%, analysts say rent-paying tenants occupied less than 20% of the building.

In addition, the Ho family invested in a huge real estate deal in their native Myanmar three years ago. But their partner in this venture, the Kaery Group – a Bangkok hotel development company – allegedly pulled out of the venture in an exodus of foreign investors from the country.

At press time, the Central Group reportedly had moved to take control of the Jewelry Trade Center. The family reportedly still has a managing role in World Jewels. The Gem Lab was open for business, but the management situation was unclear, say analysts.

TAX BILL BOOSTS ESTATE DEDUCTION

There’s good news for jewelers and other business owners in the federal tax law President Bill Clinton signed in August.

Heavy estate tax loads – which often precluded heirs from continuing a family business after the founder’s death – were lightened, deductions for home offices were clarified and expanded, capital gains tax rates were lowered and self-employed health insurance deductions were broadened.

The new law, which had bipartisan support, calls for balancing the budget by 2002 and cutting $152 billion in taxes in the next five years – the biggest tax cut since 1981.

“Lifting the estate tax threshold is extremely important for independent jewelers,” says Matthew Runci, executive director of Jewelers of America. “This is a significant accomplishment that will bring substantial financial benefit.”

Specifically, the law raises the general tax exemption for a family-owned business from $600,000 to $1 million (phased in over 10 years) and excludes up to $675,000 of a qualified business (reduced

to $300,000 over 10 years). The family-owned business must account for at least 50% of the estate. Heirs or their family members must participate in the business for 10 years following the death of the founder or principal owner.

The law also contains a provision for paying estate tax by installments, though interest on installment payments will no longer be deductible. Forty-five percent of the regular interest rate will be applied to the estate tax attributable to closely held business in excess of $1 million.

Other provisions will affect:

  • Capital gains taxes (taxes paid on profits from the sale of stocks, bonds and other investments). The top rate drops from 28% to 20% effective May 7, 1997, for investments held at least 18 months.

  • Health insurance for the self-employed. The law increases the self-employed’s health insurance deductibility on a graduated scale (from 40% now to 100% in 2007). Health insurance is the No. 1 financial burden of small businesses, and the change is designed to put self-employed business owners on an even playing field with large companies, which can deduct all of their health insurance costs.

  • Venture-capital gains. Gains from small-business stock held more than six months can be rolled over to buy other small-business stock.

  • Delay of penalties. The law delays penalties for small-business owners who don’t file taxes electronically under the Electronic Federal Tax Payment System until July 1, 1998.

At least one provision that small-business owners sought – clarifying independent contractor rules – failed to make it into the final bill.

YELTSIN DECREE ORDERS DIAMOND POLICY CHANGE

Russian President Boris Yeltsin has signed a sweeping decree overhauling Russia’s diamond policies. While the decree appears to pave the way for the long-delayed rough diamond marketing agreement between De Beers and Russia, many parts of the decree could substantially alter its terms.

In the document, Yeltsin agrees to accept a Russian government proposal for further cooperation with De Beers but with a stipulation guaranteeing some input into De Beers’ decisions. He says Russia will work with De Beers on the following conditions:

  • Joint regulation of the volume and range of rough diamonds sold on the world market.

  • Development of a common strategy to maintain prices for cut diamonds and diamond jewelry.

  • Agreement on pricing principles, including joint control over fixing of prices for natural rough diamonds.

A De Beers spokesman says the decree is a “major step” toward ratifying a proposed diamond marketing contract agreed to in early 1996. But De Beers is still studying the complex document for the effect it may have on the terms of that contract.

Briefly, the agreement obliges Russia’s diamond marketing agency, Almazy-Rossii-Sakha, to sell $1.2 billion worth of rough diamonds to the CSO each year, the majority from new mine production.

Zale promotes Raff

Beryl Raff is the new executive vice president and chief operating officer of Zale Corp., Irving, Tex., the largest U.S. retail jewelry chain.

The appointment fills a vacancy created when Larry Pollock resigned in January 1996. It also makes Raff the highest-ranking woman in the history of Zale Corp. and one of the highest-ranking in the retail jewelry industry.

Raff was president of the Zales Jewelers division for three years and led its successful turnaround after Zale Corp. emerged from bankruptcy. Now she will oversee the daily operations of all four Zale divisions – Zales Jewelers, Gordon’s Jewelers, Bailey Banks & Biddle and Diamond Park Fine Jewelers (a leased jewelry department division).

Her promotion marks the last of the three executive vice presidential appointments by Chief Executive Officer Robert J. DiNicola. With his top management team in place, DiNicola will spend more time on long-term strategies.

GIA opens office in Los angeles

The Gemological Institute of America wants to keep in touch with the Los Angeles jewelry community now that it has moved its headquarters from nearby Santa Monica to Carlsbad, a two-hour drive away.

For this reason GIA has opened an educational office in the International Jewelry Center on S. Hill Street in Los Angeles. The office will serve as a base for extension classes on diamond grading, gem identification and colored stone grading, as well as a workroom for Learn-At-Home students. A Workroom Program with flexible hours will allow distance-education students to schedule lab practice and take proctored exams.

The office doesn’t have a grading and identification lab, but Brinks Security (in the same building) offers free daily shipping to the GIA Gem Trade Laboratory in Carlsbad.

Veronica Clark-Hudson, a former GIA Extension instructor, is director of Los Angeles education and oversees programs offered there.

GIA Los Angeles, 550 S. Hill St., Suite 901, Los Angeles, CA 90013; (213) 622-7576.

JA pledges $100,000 to smithsonian Jewelers of America plans to donate $100,000 for the production of a gemstone videotape at the Smithsonian Institution.

The educational video – titled “Why Is a Ruby Red?” – will run on a continuous loop in the Janet Annenberg Hooker Hall of Geology, Gems and Minerals in the Smithsonian’s Natural Museum of Natural History in Washington, D.C. The money will be donated over the next four years.

MICHAEL ANTHONY, ANDIN CANCEL PLANS TO MERGE

Michael Anthony Jewelers Inc., Mt. Vernon, N.Y., announced July 18 it had ended merger negotiations with Andin International, New York, N.Y.

“Although we are disappointed this transaction failed to materialize, we are pleased with the support displayed by the financial community,” says Michael Paolercio, chief executive officer of Michael Anthony.

Confidentiality agreements prevent the two sides from saying what specifically caused the decision. A spokesperson for Michael Anthony says there were “significant issues which were uncovered during the due diligence process which couldn’t be resolved.”

Paolercio says Michael Anthony will consider other acquisitions in a long-term strategic plan to expand its customer base and increase product offerings. He said the announcement of another possible merger was “a strong possibility” later this year.

WINSTON HEADS AJC

Ronald Winston, president and chief executive officer of Harry Winston Inc., New York City, was named chairman of the American Jewelry Council. Winston was selected at a meeting in New York City during which members also discussed ways the industry can raise its profile in Washington, D.C., and improve lobbying efforts.

Winston’s selection was unanimous. “It made good sense to have a businessperson, especially with a high profile, in a visible leadership role on behalf of group,”says Matthew Runci, executive director of Jewelers of America. Represented at the meeting, besides JA, were Manufacturing Jewelers & Silversmiths of America, Jewelry Information Council, Jewelers Vigilance Committee, Diamond Promotion Service, Platinum Guild International and World Gold Council.

These organizations reactivated AJC in May to represent the jewelry trade in Washington, D.C., and to lobby on major issues.

Winston will serve indefinitely. Runci and James Marquart, chairman of MJSA, are co-coordinators.

CORRECTIONS

The JCK Watch Company

Directory, published in JCK, July 1997, contained two errors. On pages 118-119, the company description, brands, brand descriptions and retail prices for Swiss Army Brands Ltd. should have been listed under Swiss Watch Corp. and vice versa. Also, Sharp International Corp., Rockville Center, N.Y., was omitted from the directory. The company distributes watches in the U.S. through its Tri-Star division, (516) 536-1600.

REPORT TIES TEMPELSMAN TO CAMPAIGN PROBE

The Washington Post says Maurice Tempelsman, chairman of Lazare Kaplan International, New York, N.Y., gained support from the Clinton administration for his business dealings in Angola after he and his companies contributed $145,000 to the Democratic National Party for its 1996 campaign. LKI denies the charges.

According to the Aug. 2 front-page article, government officials, including former National Security Adviser Anthony Lake and Assistant Secretary of State George E. Moose, backed Tempelsman’s plan to set up a consortium to mine and sell diamonds in Angola despite opposition from foreign policy officials. The foreign policy officials feared the U.S. would get too involved in Angola’s political and military crisis.

The newspaper says Lake directed his deputy for African affairs to call the U.S. Export-Import Bank, an independent federal agency, about funding that Tempelsman was seeking for diamond mining equipment in Angola. The newspaper alleges the call was made even though the bank has been barred from doing business in Angola since the start of the civil war there in the 1970s. With a letter of support from Moose, the article says, Tempelsman tried to get the Angolan government and UNITA rebels to go along with the plan.

The newspaper quotes a State Department official as saying, “We have been very careful to only extend services we do with other businessmen.” But an unnamed Africa division official says, “This is commercial diplomacy taken to a new place.”

Tempelsman was unavailable to comment at press time because he was traveling in Angola to help resolve differences between the Angolan government and UNITA about the management of the country’s diamond resources.

But LKI President Leon Tempelsman says The Washington Post article is “riddled with inaccuracies.” He says he can’t comment further because of the on-going negotiations to settle the years-long civil war in Angola.