Selling diamonds can also be particularly frustrating for individuals. One wealthy woman living in New York city decided to sell back a diamond ring that she had bought from Tiffany two years earlier for $100,000, and use the proceeds to buy a necklace of matched pearls that she fancied. She had read about the "diamond boom" in news magazines, and hoped that she might make a profit on the diamond. Instead, the sales executive with whom she dealt explained, with a touch of embarrassment, that Tiffany had "a strict policy against repurchasing diamonds." He assured her, however, that the diamond was extremely valuable and suggested another jewelry store. The woman went from one leading jeweler to another, trying to sell her diamond. One store offered her the opportunity to swap it for another jewel, and two other jewelers offered to accept the diamond "on consignment," and pay her a percentage of what they sold it for, but none of the half-dozen jewelers she visited that day offered her cash for her $100,000 diamond. She finally gave up and kept it.
Retail jewelers generally prefer not to buy back diamonds from customers because the offer they would make most likely would be considered ridiculously low. The "keystone," or markup, on a diamond and setting may range from 100 to 200 percent, depending on the policy of the store. If they bought diamonds back from customers, they would have to buy them back at the wholesale price. Most jewelers would prefer not make a customer an offer that not only might be deemed insulting but would also undercut the widely-held notion that diamonds hold their value. Moreover, since retailers generally receive their diamonds from wholesalers on consignment and need not pay for them until they are sold, they would not readily risk their own cash to buy diamonds from customers. Rather than offer customers a fraction of what they paid for diamonds, retail jewelers usually recommend their clients to other firms
One frequently recommended is Empire Diamonds, on the 66th floor of the Empire State Building in midtown Manhattan. Empire's reception room, which resembles a doctor's office, is usually crowded with elderly women who sit nervously in plastic chairs waiting for their name to be called. One by one, they are ushered into a small examining room where an appraiser scrutinizes their diamonds and makes a cash offer. "We usually can't pay more than 60 percent of the current wholesale price," Jack Braud, the president of Empire Diamonds, explained. "In most cases, we have to pay less since the setting has to be discarded and we have to leave a margin for error in our evaluation [especially if the diamond is mounted in a setting]." Empire removes the diamonds from their settings, which are sold as scrap, and resells them to wholesalers. Because of the steep markup on diamonds between the wholesale and retail levels, individuals who buy retail and, ;n effect, sell wholesale often suffer enormous losses on the transaction. For example, Braud estimated that a half-carat diamond ring that might cost $2,000 at a retail jewelry store could only be sold for $600 at Empire.
The appraisers at Empire Diamonds examine thousands Of diamonds a month but only rarely turn up a diamond of extraordinary quality. Almost all the diamonds found in Jewelry are slightly flawed, off-color, commercial-grade diamonds. The chief appraiser explained, "When most of these diamonds were purchased, American women were concerned with the size of the diamond, not its intrinsic quality." He pointed out that the flaws were commonly concealed by the setting, and added, "The sort of flawless, investment-grade diamond one reads about is almost never found in jewelry."
Many of the elderly women who bring their Jewelry to Empire Diamonds and other buying services have been the recent victims of burglaries or muggings and fear further attempts. Thieves, however, have an even more difficult time selling diamonds than their victims. When suspicious-looking characters turn up at Empire Diamonds, for instance, they are asked to wait in the reception room, and the police are called in. In 1980, for example, a disheveled youth came into Empire with a bag full of jewelry that he called "family heirlooms." When Brand pointed out that a few pieces were imitations, the young man casually tossed them in the wastepaper basket. Braud buzzed for the police.
When thieves bring diamonds to underworld fences, they usually get a pittance for them. In 1979, for example, New York City police recovered stolen diamonds with an insured value Of $50,000 that had been sold to a fence for only $200. According to the assistant district attorney that handled this particular case, the fence was unable to dispose of the diamonds on 47th Street, and was eventually turned in by one of the diamond dealers whom he had contacted.
While those who actually attempt to sell diamonds often experience disappointment at the low price they are offered, the stories circulated in the press by N. W. Ayer continue to suggest that diamonds are resold at enormous profits. Consider, the legend created around the so-called "Elizabeth Taylor" diamond. This pear-shaped diamond, which weighed 69.42 carats after it had been cut and polished, was the fifty-sixth largest diamond in the world, and one of the few large cut diamonds in private hands. Except for the fact that it was a diamond, it had little in common with the millions of small stones that are mass-marketed each year in engagement rings and other jewelry. When Harry Winston originally bought the diamond from De Beers, it weighed over 100 carats. Winston had it cut into a fifty-eight-faceted jewel, which he sold in 1967 to Harriet Annenberg Ames, the daughter of publisher Moses Annenberg, for $500,000. Mrs. Ames found it, however, extremely costly to maintain: the insurance premium just for keeping it in her safe was $30,000 a year. After keeping it for two years, she decided to resell it and brought it back to Harry Winston.
Winston advised Mrs. Ames that he could not buy it back for the price for which she had purchased it from him. She then called Ward Landrigan, the head of Parke-Bernet's jewelry department, and explained that because she did not want any publicity, the diamond should be auctioned without her family's name attached to it.
This caveat gave the publicist that Parke-Bernet retained for the auction the idea for a brilliant gambit. The huge diamond, which would appear on the cover of the catalogue, would be called "The No Name Diamond," and the buyer would have the right to re-christen it. In August of 1969, Ward Landrigan brought the diamond to Elizabeth Taylor's chalet in Gstaad, Switzerland, and assured her that it was the finest diamond then available on the market. She expressed interest in it, and shortly thereafter items were planted in gossip columns suggesting that Elizabeth Taylor planned to bid up to a million dollars for the No Name Diamond.
At that point, Robert H. Kenmore, whose conglomerate had just acquired Cartier in New York, saw the possibility of gaining considerable publicity for Cartier by buying the No Name Diamond, renaming it the Cartier Diamond and reselling it to Elizabeth Taylor. He preferred to pay a million dollars for it, so that the sale would be indelibly impressed on the public's mind as the most expensive diamond ever purchased. He arranged to borrow the million dollars from a bank, and took the $60,000 interest cost on the loan out of his conglomerate's public relations budget.
The auction was held on October 2 3, 1969, and after sixty seconds of excited bidding, the diamond was sold to Cartier for $1,050,000. Harriet Ames received from Parke-Bernet, after paying their commission and sales tax, $868,600, and Cartier received the diamond. Four days later, Elizabeth Taylor and her husband, Richard Burton, bought the diamond from Cartier for $1,100,000 (which meant that Cartier took a slight loss on the interest charge), and a few days later the diamond was transferred to Elizabeth Taylor's representative on an international airliner flying over the Mediterranean to avoid any further sales tax on the diamond.
Some ten years later, when she was married to John Warner, the United States senator from Virginia, Elizabeth Taylor decided to sell this well-publicized diamond. She announced that the minimum price was four million dollars, and to cover the insurance costs for showing it to prospective buyers, she further asked to be paid $2,000 for each viewing of the diamond. At this price, however, there were no buyers. Finally in 1980 she agreed to sell the diamond for a reported $2 million to a New York diamond dealer named Henry Lambert who, in turn, planned to sell the sto
ne to an Arabian client. The profit Miss Taylor received from the transaction, after paying sales taxes and other charges, was barely enough to cover the eleven years of insurance premiums on it.
Most knowledgeable diamond dealers believe that the value of extraordinarily large diamonds, such as the one bought and sold by Elizabeth Taylor, depends more on cunning publicity than the intrinsic quality of the stone. An extreme example of this is the seventy-carat diamond given to the Emperor Bokassa in 1977 by Albert Jolis, the president of Diamond Distributors, Inc. The Jolis family first negotiated a concession to mine diamonds in 1947 in what was then the French colony of Ubangi. Jolis's father, Jac Jolis, had made the case to the State Department that an American company should have the mining rights for diamonds in French Central Africa, thus ensuring the United States a supply of industrial diamonds. He even hired William Donovan, the wartime head of the OSS, to represent his firm in the negotiations. According to a declassified memorandum from the American embassy in Paris, State Department officials were persuaded that it was important for the United States to gain "direct access to strategic materials such as industrial diamonds." Eventually, with the assistance of Donovan, Jolis's firm gained control over the alluvial deposits of diamonds in Ubangi. In 1966, Bokassa, then a colonel in the provisional gendarmes, seized power in a military coup d'etat and proclaimed himself president of what was then the Central African Republic. President Bokassa agreed to continue the Jolis concession in return for the government receiving a share of a profit. A decade later, however, when Bokassa decided to become emperor and re-christened the country the Central African Empire, Jolis was given to understand that he was expected to provide a "very large diamond" for the coronation.
As the coronation date approached, Jolis found himself caught in a difficult situation. His firm could not afford to spend millions of dollars to acquire the sort of supervised diamond that would put the emperor-to-be in a league with the shah of Iran or the British royal family; yet if he presented him with a small diamond, Bokassa might well withdraw his firm's diamond concessions. Finally, Jolis hit upon a possible solution to this dilemma. One of his assistants had found a large chunk of industrial diamond boart, weighing nearly seventy carats, which curiously resembled Africa in shape. This piece of black, poorly crystallized diamond would ordinarily have been crushed into abrasive powder, and as such would have been worth about $2 a carat, or $140. Jolis instead ordered that this large diamond be polished and mounted on a large ring. He then had one of his workmen set a one-quarter carat white diamond at the point in the black stone that would coincide with the location of the capital of the Central African Empire. Finally, Jolis placed the ring in a presentation box with a certificate staring that this diamond, which resembled the continent of Africa, was unique in all the world.
The following week, though understandably nervous about how it would be received by the mercurial Bokassa, Jolis flew to the Central African capital of Bangui and presented the ring. Bokassa took it out of the box, examined it carefully for a moment, and took Jolis by the hand and led him into a room where his entire cabinet was assembled. He paraded around the table, jubilantly displaying to each and every one of his ministers this huge black diamond. He proudly slipped it onto his ring finger. Jolis's mining concession was secure, at least temporarily secure in the Central African Empire.
A few days later, the emperor proudly wore the black diamond during the coronation ceremony. The world press reported that this seventy-carat diamond, which had cost Jolis less than $500, was worth over $500,000. A piece of industrial boart was thus elevated to being one of the most celebrated crown jewels in the world. When the Emperor of Central Africa met Giscard D'Estaing, the president of France, he extended his black diamond to him as proof of his royalty.
The Bokassa empire ended in 1979 when French paratroopers, on orders from Paris, staged a bloodless coup d'etat and put the former emperor and his retinue on a jet headed for France. From there, Bokassa went into exile on the Ivory Coast with his prize diamond ring.& When Jolis heard that he retained among his crown Jewels the industrial diamond he had presented him two years earlier, he commented, "It's a priceless diamond as long as he doesn't try to sell it."
The value of the Emperor's diamond, like that of most other diamonds, depends heavily on the perception of the buyer. If it is accepted as a unique gem and a crown jewel, it could be auctioned off for a million dollars. If, on the other hand, it is seen as a piece of industrial boart, it will be sold for $140 and used as grinding powder. It is, as Jolis observed, "a two-tier market."
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Caveat Emptor
In 1977, in Los Angeles, a film producer, who had just closed his account with his stockbroker, received an unexpected call from a stranger with a distinct English accent. The caller, identifying himself as a representative of "De Beers Diamond Investments, Ltd.," began by commending the producer on his acumen in withdrawing from the stock market. "You obviously are aware of the fact that stocks and bonds can't keep pace with inflation," he continued in a soft voice, "but have you considered diamonds as an alternative?" He explained that diamonds had appreciated "700 percent over the last ten years," and that they were the "most prudent investment available, since the supply is tightly controlled by a private monopoly." Without further ado, the caller offered to sell the film producer a selection of "investment diamonds" for $5,000.
"But how can I buy diamonds over the phone," the producer asked incredulously.
"All the diamonds are sealed in plastic with a certificate guaranteeing their quality," the caller responded. "And of course you have heard of De Beers." The more hesitant the producer became, the more determined the caller became. "We can register these diamonds under your wife's name, which might be helpful for your taxes," the caller went on.
"Think of how surprised she will be when the diamonds arrive ... and you are buying them below wholesale."
The caller, it turned out, was one of dozens of salesmen seated around a bank of telephones in Scottsdale, Arizona. Like the rest of the men in this boiler room, as it was called, he was making a pitch to sell diamonds and had been supplied with a list of names of individuals around the country who had recently closed brokerage accounts. For every order he sold, he received a commission of up 20 percent. Since the prices were in reality far above wholesale prices, the company could afford to pay its salesmen, most of them "telephone pros," large commissions. And despite the similarity of its name, De Beers Diamond Investments, Ltd., was in no way connected with De Beers Consolidated Mines. Like a host of other recently formed diamond boiler rooms, with names like Diamond Selection, Ltd., Kimberlite Diamond Resource Company, and Tel-Aviv Diamond Investments, Ltd., this firm was formed to promote "investment diamonds."
When the mail-order diamonds finally arrive at the purchaser's home, they are sealed in plastic with the certificate guaranteeing their quality. The customer is then advised of what amounts to a catch-22 situation: The quality of the diamond is only guaranteed as long as it remains sealed in plastic; if the customer takes it out of the plastic to have it independently appraised, the certificate is no longer valid. When customers broke the seal, many found diamonds of inferior or even worthless quality. Complaints to the authorities proliferated at such a rate in New York that the attorney general was forced to mobilize a "Diamond Task Force" to process the hundreds of allegations of fraud.
"It is incredible," William R. Ralkin, the assistant attorney general said in the New York Times in 1979. "These crooks will get outwardly rational people to buy a sealed bag containing supposed gems. . . . And they have the nerve to tell their victims not to unseal the packet for two to three years, after which they promise to buy back the stones it much higher prices." He added, "It never falls to amaze mc me how . . . professional people like lawyers [and] medical practitioners will send checks for thousands of dollars to people they never met or heard of after being contacted by these boiler room operators."
Aside from sellin
g tens of thousands of diamonds a month over the telephone, many of these newly created firms hold "diamond investment seminars" in expensive resort hotels. At such events, they present impressive graphs and data, and typically assisted by a few well-rehearsed shills in the audience, they proceed to sell sealed packets of diamonds to the audience. (Not uncommonly, in dealing with elderly investors, diamond salesmen play on the fear that their relatives might try to seize their cash assets and have them committed to nursing homes. They suggest that the investors can stymie such attempts by putting their money in diamonds and hiding them.
Some of these entrepreneurs were relative newcomers to the diamond business. Rayburne Martin, who went from De Beers Diamond Investments, Ltd., to Tel-Aviv Diamond Investments, Ltd., both domiciled in Scottsdale, Arizona, had a record of embezzlement and security law violations in Arkansas and was a fugitive from justice during most of his tenure in the diamond trade. Harold S. McClintock, also known as Harold Sager, had been convicted of stock fraud in Chicago, and he had been involved in a silver bullion caper in 1974 before he helped organize De Beers Diamond Investments, Ltd. Don Jay Shure, who arranged to set up another De Beers Diamond Investments, Ltd., in Irvine, California, had also formerly been convicted of fraud. Bernhard Dohrmann, the "marketing director" of the International Diamond Corporation, had served time in jail for security fraud in 1976. Donald Nixon, the nephew of President Richard M. Nixon, and Robert L. Vesco, the fugitive financier, were, according to the New York State attorney general, allegedly participating in a high-pressure telephone campaign to sell "over-valued or worthless diamonds" by employing "a battery of silken-voiced radio and television announcers." Among the diamond salesmen were also a wide array of former commodity and stock brokers who specialized in attempting to sell sealed diamonds to pension funds and retirement plans.
The Rise and Fall of Diamonds Page 22