Crime Pays… But Payback Time is Coming
January 05, 06A few weeks ago, we expressed our genuine relief about the GIA court case settlement in New York. Our words turned out to have been slightly premature, since we wrote them well before becoming privy to the settlement details. It didn’t take much for our “relief” to turn into “disbelief” and, eventually, into plain “anger” - especially after being reliably informed that the GIA had coughed up $15 million for the problem to go away.
Today, we learned that the sum wasn’t $15 million but well below $4 million - vive le difference. Since the settlement was clouded in mystery, and the GIA failed to communicate effectively, we all made erroneous assumptions, myself included.
We incorrectly assumed that the plaintiff, Max Pincione, had agreed to the settlement with the defendants Vivid Collections LLC, Moty Spector and Ali Khazeneh. In Pincione's damages lawsuit, his main case was against previous partners or suppliers who he claimed had defrauded and slandered him. There were charges of breach of contract, damage to reputation, etc., mostly unrelated to the GIA. The handwritten note of bribes paid to GIA personnel was merely one of the means to show that Pincione had been defrauded by one of his business associates. No doubt, Pincione calculated that this court case would be a major embarrassment to the reputation of the GIA. But the GIA was, basically, a marginal issue in this commercial dispute.
When the GIA announced a settlement, I assumed that the plaintiff had agreed to it in order to be dropped from the suit. When I learned that all charges were dropped, I then assumed that the other defendants had concluded similar settlement agreements. It never dawned on me for a second that the other defendants were not involved at all. It never occurred to me that defendants would get out of this lawsuit without paying a penny, or that the GIA would pay only for the plaintiff to drop the charges against everybody involved.
So what is the net result? We have a number of parties, belonging to the so-called "communitty of clients", who have apparently made tens, if not hundreds, of millions of dollars by systematically purchasing, over a long period of time, fraudulent GIA certificates through bribery.
Who would have imagined that the GIA would pay based on the yet unproven charges of bribery by third parties? But this is exactly what has happened. It shows that crime pays and that the GIA is willing to spend money to keep those alleged bribers from having their day in court, willing to pay for their crimes. It's nice when you run a non-profit organization and can spend your money bailing out criminals.
Again, the lack of accurate information almost made me draw wrong conclusions – and I hate that, as this is can be lethal for a journalist’s reputation. What I know now is that the court case was actually “going nowhere.” Pincione changed lawyers three times in a short period. Motions were submitted and withdrawn. Pincione’s lawyers were constantly busy preparing a new complaint, of whose contents we are unaware.
Apparently, the commitment Pincione signed in previous lawsuits, to never again sue his business associates, was still valid. Though he was suing for more than $250 million in damages, Pincione settled for something in the range of 1 percent-2 percent of that amount. The settlement, from a GIA perspective, involved less money than the legal fees for a three to four-year protracted court case. Moreover, the GIA's insurance company may pay for most (if not all) of the sum – so the GIA’s financial resources may not have to feel a dent.
Some people privy to the GIA’s “thinking” argue that Pincione probably didn’t have a case; that the motions by other defendants asking for dismissals might well be granted at some point, and that the money spent is “peanuts” compared to the total costs.
My sources tell me that the GIA never thought that it was paying for the other defendants. GIA Chairman
Having all the facts (or what I hope are all the facts) certainly justifies the initial conclusion that it is indeed very good that the case is closed. Whether Destino will be successful in getting some money from the other defendants is an open question – but it is more a question of principle than of money; it isn’t going to break the bank.
Criminal Actions still Expected
Some of the parties directly or indirectly implicated in the court case have claimed innocence; they said they did not know; they were not involved; the company was under different ownership, etc. Some of the individuals or companies may indeed be falsely accused. The sad thing is that even if these claims of innocence were true, the stain will last forever! The implicated parties have all been smeared and none have been cleared. That is problematic – but the parties concerned will have plenty of legal remedy to vindicate themselves.
No, the ex-defendants aren’t off the hook. The criminal investigations are still going on and criminal charges might still be brought against the former defendants - and possibly others - in a criminal court action. Penalties and jail terms still remain viable options; bribery is considered a major crime in the United States.
I have now learned that the GIA’s lawyers have turned over nine separate full reports to law enforcement officials. These reports detail what the GIA believes constitutes criminal activities. This is not the end of it! The GIA is still pursuing more leads, and more reports will be submitted to the police.
Ostensibly, it seems that crime pays. But
We have written on the many positive steps that the GIA has already taken, ranging from having a single certificate price, canceling Rap’s collection window exclusivity, appointing a compliance officer, to free rechecks and lower prices. More people have been made redundant than have officially been announced. Changes are taking place – and that should be acknowledged.
At the same time – we don’t think the GIA has gone far enough. The industry wants to know who the individuals are who are suspected of bribery. One way or the other, “certified,” dishonest people represent a commercial danger to all players in the diamond pipeline.
The GIA finds itself in a peculiar position – totally of its own making. On the one hand, it seems to be taking many of the right steps to move forward. That must be acknowledged, respected and should give confidence. On the other hand, it has yet to make the break with the past. There are still too many unanswered questions; there are still too many symbols of past excesses; there is still too much hurt.
Someone who recently visited the GIA headquarters in Carlsbad wrote to me, “the GIA is ailing – and it is in denial. …. Nothing has changed. It is still the Destino and Boyajian show. Nothing will change unless and until Boyajian goes and the Board is overhauled. It is really so sad and it breaks my heart.”
The GIA management doesn't miss an opportunity to show that it hasn't the faintest notion of the depths of the resentment felt throughout the diamond cutting and trading centers. It also doesn’t recognize that there is still a broad consensus that a strong, reliable, honest, dependable, respected GIA is vital to diamond and diamond jewelry businesses.
Allow me to share parts of another e-mail from a highly respected and reputable member of the industry:
“We're all human beings, and although we try to uphold ourselves to the highest moral and ethical standards, when one sees another profiting so greatly from his criminal actions, and seemingly nothing happens to them when they are caught, the reaction goes from angry to really angry.
“Do people – and the GIA -- not realize how greatly these people damaged all of us in the industry? I will use myself as a microcosm in the industry by way of example. How many times in the last years was I on a buying trip to purchase rough, and felt inadequate because my offers on goods were turned down because others with unfair advantages were outbidding me? How many times in the past years did I lose out on a sale of a polished stone, or was forced to lower my prices to unacceptable levels because others got their grades falsely? How many consumers lost confidence or will lose confidence in diamonds as a result of these actions?”
Someone made the remark that we are only focused on “Certifigate” – the certification frauds. We are forgetting that the GIA is also a great educational institution involving tens of thousands of students. We are also forgetting that the GIA does great gemological research and develops magnificent instruments for the industry.
Bill Clinton was a great president, but his presidency was dominated by Monica Lewinsky. It is unfortunate, but sometimes there are a few issues that dominate the fate of a company or an organization, and the GIA must deal these with these. So far, it hasn’t.
Most stakeholders in the diamond business, including myself, still want to see concrete evidence that the GIA has dealt with the past appropriately and that it is "turning over a new leaf." All of us want to respect, admire, and even love what the organization does for the industry, but the GIA, by its very own actions, and even more so by its very own inactions, seems to make certain that it will remain in the headlines for many months to come. They still behave as if they believe that what happened to Arthur Andersen and Enron could never happen to an organization like the GIA. They are wrong!
Have a nice weekend. Clarification Regarding Ali Khazaneh In respect to this article, we have received a request by the New York law firm White Fleischner & Fino LLP, representing Ali Khazaneh, to clarify that “there were no allegations whatsoever against Mr. Khazaneh pertaining to the alleged ‘upgrading’ of diamonds submitted to the GIA.” We unreservedly publish the requested clarification, as it accurately reflects the situation – and we never implied, nor intended to imply, anything to the contrary. Actually, in our article we clearly say that in Pincione’s damage lawsuit, “his main case was against previous partners or suppliers …… mostly unrelated to the GIA.” We never suggested that Mr. Khazaneh was in any way himself involved in the alleged “upgrading”, nor have we attributed any alleged illegal activity to Mr. Khazaneh. We believe that our article makes this clear – but in order to avoid any misunderstanding we reiterate that no such claims have been made against Mr. Ali Khazaneh in the law suit. Mr. Khazaneh’s good business reputation is beyond question – and no contrary view must be construed from the article. His honesty is neither questioned nor doubted. We view any and all non-GIA related aspects of this court action as a routine private commercial dispute between individuals of no interest to the public – and we will refrain from getting drawn into the details of any of the other claims. C. E-Z.