De Beers’ USA Freedom Day or a Monumental Mistake?

De Beers has made the strategic decision that it must be able to operate in the United States of America, apparently at any price. There is every indication that De Beers will enter a guilty plea on price fixing charges in respect to the 1994 industrial diamonds case heard in the courtroom of District Court Judge George C. Smith in Ohio.

It is my view that entering such a plea will be a monumental mistake that De Beers will regret for many years to come. It will come second only to Nicky Oppenheimer’s Harvard Alumni speech in which he expressed pride in being such an effective monopolist – a speech that has been cited in each anti-trust case brought against De Beers ever since. An admission of guilt in Ohio doesn’t seem to make any sense – especially as De Beers has become a target of the fastest-growth business in the United States: class action or anti-trust cases against large conglomerates, preferably companies such as De Beers.

The 2001 (not yet recognized as such) class action Andrew Leider versus Gary Ralfe et al is still making slow progress through New York’s Southern District Court; they are waiting for all the documents subpoenaed from sightholders. The recent W.B. David & Co anti-trust and racketeering complaint is still in its infancy, as is another case reportedly filed by Arrigotti Fine Jewelry et al in a New Jersey court.

On a recent visit to New York, I heard about another law firm of class action experts who are already working on a complaint against De Beers even though they still lack a client. Class action is business. Big business. Parties familiar with the W.B. David & Co case say that a draft of the complaint was presented to De Beers well in advance of filing the suit, in the anticipation that De Beers would enter into negotiations.

The company didn’t – which makes sense - it would only encourage others to do more of the same. Moreover, it would imply guilt. This gets us back to the forthcoming July 13, 2004, plea in Ohio. For those who have forgotten what this is all about, here’s a quick reminder:

In 1994, De Beers and General Electric were both accused of price-fixing charges over industrial diamonds. De Beers declined to appear in court. In October 1994, a trial started in which General Electric was defended by the prestigious Arnold & Portner law firm. As GE’s legendary CEO & Chairman Jack Welch later reminisced: “The team did such a good job destroying the government’s case that we never had to present our evidence.”

On December 5, 1994, after having listened to almost two months of U.S. government evidence, Judge George Smith threw out the entire case, saying: “The government’s arguments are without merit. Even when the evidence is viewed in the light most favorable to the government, no rational interpretation of facts would find General Electric guilty.” No case to answer. Judge George Smith couldn’t have been more unequivocal about it.

I have written in the past: “It would be totally out of character for both Gary Ralfe and Nicky Oppenheimer to enter a ‘guilty plea’ to price-fixing (or a reduced charge) if it weren’t so. In today’s corporate environment, no company head in his right mind would admit to criminal charges if he hadn’t committed them.”

These words were written before the W.B. David and the Arrigotti cases and well before I reached the conclusion that the Class Action Industry is waiting in the wings.

Unless I am totally misguided (and some people will eagerly charge that I am) it doesn’t really make sense to admit to a crime (price fixing) which, by definition, needs the collusion of two parties to commit – when the government was unable to make a case and the other party spent three years successfully denying it while awaiting trial. It seems that De Beers has done very well in America, without actually being there.

An Ohio guilty plea may make the travel somewhat easier – but may also give rise to so much more legal wranglings that the downside of a guilty plea may be far heavier than the upside.

Reading the map (and some interim rulings in the Leider versus Ralfe case) seems to suggest that wherever De Beers is at risk, their clients are also at risk. One must assume that this has all been taken into account. And, yet, I wonder if it has…