Diamonds not always a buyer’s best friend, dispute shows

Ratings by top grading labs are a major factor in the pricing of diamonds — but not all agree on how to apply them

Illustrative photo of a diamond, up close (photo credit: Nati Shohat/Flash90)
Illustrative photo of a diamond, up close (photo credit: Nati Shohat/Flash90)

A major US diamond information platform has announced that it would no longer sell stones certified by EGL International, a diamond certification service with roots in Israel, the latest shot in a long-running conflict that has nothing to do with Mideast politics for a change.

Founded in Tel Aviv in 1974 and now with eight offices worldwide, EGL (European Gemological Laboratory) is the target in a lawsuit in US courts after claims of “over-grading” diamonds, certifying them as being worth more than they really are – a charge the service vehemently denies.

Whether the issue for EGL’s alleged over-certification of the diamonds is fraud – or the result of a decades-old difference of opinion on how to fix and rate the value of stones – will be for the courts to decide.

EGL suffered the latest blow this week when Martin Rapaport, chairman of the Rapaport Group, which publishes an authoritative diamond price list and table that is considered the standard for diamond pricing in the US, said that his service would no longer list stones evaluated and certified by EGL for the all-important “four C’s” that determine the value of a diamond – carat, color, clarity and cut. In a statement, Rapaport said that his service “is opposed to the misrepresentation of diamond quality. The over-grading of diamonds is an unfair practice that destroys consumer confidence and the legitimacy of the diamond industry.”

The brouhaha stems from a series of lawsuits against Genesis Diamonds, a retailer in Nashville, brought by several customers who claim they were sold overpriced diamonds. In one case, a customer paid $135,000 for two stones, one weighing 3.01 carats and the second 3.04 carats, rated as “excellent” and “very good” cuts by EGL. But another appraisal placed the stones a grade lower, at “very good” and “good.” That appraisal valued them at just $22,500. The case was covered on a local Nashville television station, which highlighted the issue of the EGL report. Since then, other suits have been filed against Genesis.

But EGL CEO Guy D. Benhamou said that the reports got it all wrong — the issue is not fraud, but subjective interpretations of what constitutes a “good” diamond. In a statement, Benhamou said that “it is well known that since gemology is not an exact science, the same diamond sent to several gem labs could produce different grading results. You can receive different grades for the same diamond from several different labs. That does not mean that any of the diamond labs made a mistake, it is simply in the nature of the business. Any diamond grader and lab will tell you that.”

As it turns out, there is no “official” standard for diamond certification. The most widely accepted gradings are those set by the GIA, the Gemological Institute of America, the oldest of the five major gemological grading services. There are dozens of other smaller services as well. The GIA was established in 1931, when it set the grading system for color, size, clarity, and other factors. That system and its terminology became the standard in the industry, and all the grading services use it today.

Though they use the same terminology, the grading services often differ on what those terms represent — for example, what constitutes an “excellent” or “very good” cut, or what an “H” or “K” color looks like in a diamond. The Rapaport website (RapNet) itself conducted a face-off between the different major services last year, and found that each one had different interpretations of many of the grading factors in the same diamonds – with some significant differences in the grades given those stones.

That is apparently what happened here, both Rapaport and Benhamou agree – but while the latter sees that difference of opinion as natural and perhaps even preferable, the former demanded that labs stick to not only to the GIA’a nomenclature, but also to its interpretation of what the terms mean.

“We work to the standards of the International Organization for Standardization (ISO 9001) and IQ Net, we are holders of the World Federation of Diamond Bourses WFDB Mark, and we have invested hundreds of thousands of dollars in state-of-the art technology,” Benhamou said in the statement issued in May, after the television reports first aired. “One of the advantages of our certificate is that it does not automatically inflate the price of a diamond as compared to some other certificates, which do. It’s well known that a certificate is a type of packaging for a diamond, and some packages, because of a brand name, cost much more, while in fact this is not justified. So the very same diamond graded identically by EGL and another well-known lab would be more competitively priced with an EGL certificate. In fact, consumers might pay more for the very same diamond. This is why our certificates are appreciated and very much in demand,” he said.

“We have been established for 20 years and have supplied hundreds of thousands of certificates to countless satisfied clients. Our work is widely regarded as among the most professional in the industry, and we have built our reputation on complete honesty, excellence and creativity,” he added.

That’s not good enough for Rapaport. In his statement Monday, the diamond expert said that “retailers who sell over-graded diamonds using GIA terminology and non-GIA grading standards are at great risk. When consumers try to resell their diamonds or send them to the GIA for regrading and discover significant quality differences, there will be hell to pay. We reject the idea that there is no diamond grading standard and caution RapNet members not to use GIA grading terminology to describe diamonds that are below a reasonable tolerance range of the GIA standard.”

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