VOL. 14, #4, Winter, 1996

Colored Diamonds: Australian Pink, Internet Kudos, Famous Colored Gems and Jewelry, Auction News, International Market Updates: Diamonds, Colombia, Southeast Asia, Africa, Collector's Corner, Canadian Boiler Room Update, Privacy Section: Safe Deposit Theft Claims on Rise

  Dec 28, 1996   admin



By Robert Genis

Colored diamonds are some of the most fascinating gems to collect. This includes reds, blues, greens, pinks, yellows, oranges, and browns. Some people only need to see a colored diamond to be hooked forever. Although they share the same physical properties as a white diamond, when it comes to reflecting light, these stones are basically geological freaks of nature. DeBeers cannot even compute the ratio of colored diamonds to white diamonds because they are so rare. Colored diamonds combine rarity, beauty, and sex appeal. They are the ultimate connoisseur collector gemstone.

Recent Discovery
Until the recent discovery of pink diamonds in Australia, most pink diamonds were very pastel. You really had to use your imagination or see the stone in the perfect light to see a hint of pink. Most dealers believed true pink stones would probably be never found more than once or twice a century. Occasionally, by properly mounting the stone, the diamond appeared pinker. In the early 1980s Australia, known for low-quality small diamonds, discovered a minute fraction of their output was pink. In no time, this new supply of pink diamonds hit the market. Compared to pink diamonds from India, Brazil, and South Africa, these stones were obviously pink. Gem collectors went crazy!

As a general rule, the new Australian diamonds tend to be small. Many collectors who would never buy a white diamond under one carat, fought over each other to buy Australian pink diamonds under one carat. Most Australian diamonds over 2 carats are pastel, and those which are fancy pink cost a small fortune.

Famous Pink Diamonds
At one time only men wore diamonds. Then Charles the Seventh of France gave a 5 carat pink to his mistress, Agnes Sorel. This forever changed the gift-giving relationship between men and women.

The Williamson, Tanzania's most famous diamond, is a 23.60 carat pink. It was named after the famous Canadian geologist Dr. John Williamson (1904-1958). He discovered the Tanzanian kimberlite pipe in 1940. The Williamson was cut from a 54.50 piece of rough. Like most South African pink diamonds, the stone is pastel pink. Queen Elizabeth received this diamond when she was still a princess. Today, it is part of one her favorite brooches.

India's fabled pink diamonds were also light pink. India was the world's main source of diamonds in the 16th and 17th centuries. In 1989, the famous 32.34 light pink Agra diamond sold at auction for about $6.6 million. Rajah of Gwaliar gave the stone to Babur, the first Mogul emperor, for sparing his life when Agra was overtaken by Babur. The stone also belonged to the Duke of Brunswick, the 19th century diamond connoisseur, who considered it the centerpiece of his diamond collection.

Brazil also produced pink diamonds. The Star of the South, Brazil's most famous diamond, is a 128.80 rose colored diamond. It was cut in Amsterdam in 1832 from a 261 carat piece of rough. A wealthy Indian collector paid $80,000 British pounds for the diamond in 1860. Today, the stone remains in India.

Country of Origin and Color
It is not known exactly why the color of pink Australian diamonds is pink. When a diamond is pure carbon, it is colorless. A defect in the crystal building blocks or the presence of an interloper atom creates the color in diamonds. Purple/pink diamonds may be created by the presence of nitrogen.

Why are Australian pink diamonds more intense than those from Africa or Brazil? Most non-Australian pinks receive a light, faint, or fancy light pink designation from the GIA. Australian pinks possess graining due to way they were formed in nature. If you look at pink diamond inclusions in a microscope, you will often see structural deformities that look like pink needles in an ice cube. The pink color emanates from this graining. If you really study the gem, you may see areas of pink graining and areas of colorlessness. It is the cutter's job to orient the crystal to get the maximum amount of pink when the stone is face-up. This is a very difficult task.

The total annual production of Australian rough pink diamond may be a few thousand carats. Compared to the historical output from Brazil, India, and Africa, this amount is significant. In 1996, Australia marketed 47 carats of pink diamonds. In 1995, Australia sold 46 carats of pink diamonds.

Australian pink diamonds lose 70-90% of their weight when cut from the rough. White diamonds tend to lose 50% when cut. Also, pink diamonds take twice as long to cut. This is because the pink rough found in Australia is heavily included with fractures and crystals. The Australian pink diamonds require special wheels for grinding. Argyle cuts the rough in its own factories in Perth.

Recent Prices
Argyle recently auctioned this year's production in Geneva, Switzerland. Buyers bid from Tokyo, Hong Kong, Perth, London and Geneva. The stones averaged more than $100,000 per carat. Thirteen buyers bought the 47 diamonds. The best stones were a 3.06 purplish and a .93 oval purple/red. The largest pink was a 3.66 cushion.

Recent auction prices include the October, 1995 Sotheby's sale. A 5.04 pear shape, fancy pink, VS2, sold for $87,798 per carat, or $442,500. Also, a 3.03 oval, fancy pink, VS1 sold for $173,267 per carat or $525,000. In October, 1995, at Christie's, a 3.03 rectangular, fancy purple/pink, VVS1 went for $291,254 per carat, or $882,500.

What To Look For
Australian pink diamonds have two problems. First, the vast majority are small. Second, most are included. What is vitally important in a pink diamond is the color. Saturation is the key to collecting colored diamonds. Inclusions that would not be acceptable in white diamonds are perfectly acceptable in colored diamonds. A colored diamond can have inclusions and still be worth hundreds of thousands of dollars per carat. Remember, it is better to have an intensely saturated colored diamond with inclusions, than a clean, non-saturated, lightly colored diamond.

The colored diamond market is a collectors' market. Most pieces are sold at auction or brokered to private collectors. Prices in the six figures are common. Collectors, not dealers, jewelers, or investors dominate this market. Most stones disappear into collections and are not seen again for years. Some collectors never stop with a main stone, they keep collecting until they have as many different examples of colors they can find. Other collectors specialize in one color, and collect every colored diamond they can find, irrespective of size. Since these stones are rare to begin with, this process makes colored diamonds even rarer.

How to Order
Experts believe there may be no more than 4,000 carats of red, pink, blue, green, purple, yellow, and orange fancy colored diamonds for sale at any given time on the world market. These stones are so rare, you cannot simply call a dealer or jeweler and say, "I want a carat size pink today." Most retail jewelers do not even offer colored diamonds for sale. Most diamond dealers do not deal in colored diamonds. Certain specialty dealers have private/collector and dealer contacts, but you may have to wait until one enters the market for sale.

Colored diamonds may be the last frontier in high end collectibles. The beauty and rarity of these stones has created unprecedented desire and unparalleled prices among collectors. They have been immune from the wide downward swings like the white diamond market experienced in the 1980s. Although these diamonds do go up and down, worldwide collectors have not found a ceiling on their prices. Many collectors approach this market in a similar way as the art market. What price can you put on a Van Gogh or Picasso?

Irrespective of your budget, you can collect colored diamonds. With this in mind, high end connoisseurs should specialize in carat size plus pinks or blues. Moderate budget collectors can purchase subcarat blues and pinks, or carat size fancy oranges or yellows. Even if you are on a limited budget, you can collect fancy brown diamonds.

As most long time readers of the Gemstone Forecaster are aware, we consider a conservative ideal model collector portfolio to contain a Colombian emerald, Mogok Burma ruby, and a Burma or Kashmir sapphire. We are now including colored diamonds in that portfolio mix. Feel free to contact National Gemstone if you have any questions or need a colored diamond quote.


The National Gemstone Internet Web Site continues to receive kudos from numerous on-line publications and search engines who review sites. Thank you.

  • Your Personal Network
    WWW National Gemstone
    "This page could serve as a useful introduction for those getting their feet wet in the world of fine diamonds, precious stones, and collector gemstones. You'll get a wealth of education about diamonds and gems from the President of National Gemstone, Robert Genis, whose 25 years of experience in the field is quite obvious. Aside from the four C's, learn how to read a GIA certificate and why some jewelry stores charge 100-160% over wholesale price for diamonds. His quarterly newsletter, The Gemstone Forecaster, goes into great detail reporting on the different gemstones (diamond, emerald, ruby, and more) and why their prices are either up or down. To get a taste for these rocks, view photos of great gems from the Smithsonian Institute collection."


  • Jayde Gold Diamond Award
    "National Gemstone was one of the first gem dealers on the net. National Gemstone's Web Page is a fascinating information resource. It contains 'The Gemstone Forecaster' newsletters and numerous articles covering every facet of precious gemstones and diamonds. If you have an interest in collecting or investing in fine gemstones, start here."


  • Business>Stocks>Commodities>Gems
    Good Life>Hobbies & interests>Collecting & investment
    National Gemstone
    "National Gemstone is a full service diamond and precious gemstone brokerage firm. National Gemstone markets GIA diamonds and AGL colored gemstones to collectors/investors."


  • Lycos Internet Directory
    Business & Investing: Investing & Investments
    Entertainment & Leisure: Hobbies: Rocks, Minerals & Gems
    "The National Gemstone Home Page targets new and veteran gem collectors and dealers with online information sources, price indexes and forecast newsletters. This site also offers dazzling photographs from the Smithsonian's gem and mineral collection."


  • Excite Online Directory
    Business & Investing Channel
    "Based in Tucson, AZ, this company is certified as expert in gemstone-related matters. They offer a price list, brochure, newsletters, info on how to collect for profit, a 20-year selected gem performance chart, photos from the Smithsonian gem and mineral collection, and an 800 number for inquiries."


Mary Pickford, the famous movie star, loved large rubies and star sapphires. She owned the 60 carat Star of Bombay and the 200 carat Star of India sapphires.

Gloria Swanson wore an emerald and amethyst necklace in the 1920 movie, "Affairs of Anatole".

Marlene Dietrich wore a cabochon emerald and diamond matching earring and bracelet suite in many of her movies. She wore her own ruby bracelet in "Stage Fright", which recently was sold at Sotheby's for $900,000.

Joan Crawford had a 70 carat star sapphire engagement ring. Her favorite bracelet had three star sapphires.

Richard Burton gave Elizabeth Taylor an emerald and diamond brooch as an engagement present. He also have her an emerald necklace as a wedding present. Another husband gave her a cabochon sapphire ring. Her third husband, Mike Todd, gave her a ruby necklace and matching earring set.

Jackie Kennedy Onassis received a 47 carat kunzite ring, an amethyst necklace, red tourmaline earrings, and a 17.68 ruby ring. All these colored gems were given by President Kennedy and recently sold at auction.

Queen Elizabeth is also known for her jewelry. It includes the Timur Ruby - a 352.50 carat spinel, the Prince Albert brooch, a large sapphire given Queen Victoria by Prince Albert, and Queen Mary's large ruby earrings.

Princess Diana also kept her jewelry from the divorce of Prince Charles. It includes the large oval sapphire engagement ring, diamond earrings with an emerald drop, and a diamond and emerald bracelet.


Sotheby's sold $22.5 million, or 71% of their lots in October, 1996. The top lot was a 19th century necklace with 23 blue Burma sapphires and old-mine-cut diamonds, which sold for $2.7 million. A ruby necklace sold for $882,500. At Sotheby's, 100% of all major pearl necklaces sold, primarily to Asian buyers. Christie's sold $31.4 million, or 79.1% of their lots during the October auction. The sale featured jewels from Ginger Rogers, Dinah Shore, Audrey Meadows, and Gene Tierney. Ginger Rogers's diamond ring went for $129,000. Her emerald and diamond jewelry suite sold for $43,700. Audrey Meadows's ruby and diamond necklace sold for $112,000. A diamond cluster necklace with 52 carats of diamonds sold for $1.9 million. A 101.31 heart shaped diamond, D- internally flawless failed to meet its minimum bid of $14 million. The highest bid for the diamond was in the $8-9 million range. A fancy blue pear shaped diamond sold for $1.3 million. Finally, a diamond necklace by Harry Winston sold for $904,500.


Hope Diamond
The most famous diamond in the world, the 45.52 carat blue Hope Diamond, recently was moved from the Smithsonian to Harry Winston's. It was carried in a leather and suede carrying case by a 40 person SWAT team with UZIs.

Harry Winston plans to refurbish the necklace that holds the diamond, rather than the stone. The plan is to put the diamond in the new Harry Winston gallery at the Smithsonian in September, 1997. The Hope will be on a revolving stand, and the Smithsonian wanted to make sure all the links of the necklace were tight.

The Curse of the Hope
In 1642, Tavernier, the famous gem dealer and traveler, brought the French Blue diamond from India. At the time it was a rough diamond of 112 carats. Tavernier sold the stone to Louis the Fourteenth. He had it recut to a 67.50 pear shape. He died shortly after he had the stone cut. His mistress, Countess Du Berry, was beheaded shortly after she wore the diamond.

The Hope was passed to Louis the Sixteenth and Marie Antoinette, who were also beheaded. It remained in the French Treasury until the great gem robbery of 1792.

Some believe it was then recut to its present size. The stone appeared in the 1830s and was purchased by Henry Hope, a gem collector, for $90,000. He died in 1839, and Henry Thomas Hope, a nephew, displayed the stone at the 1851 Crystal Palace Exposition. In 1887, the wife of Henry Thomas died, and she bequeathed the stone to Lord Hope, her daughter's son.

In 1894, Lord Hope married an American actress. Her comeback proved unsuccessful. Later Lord Hope had to sell the stone to pay for his financial debts.

In 1908, a Turkish Sultan bought the stone for $400,000. However, because of a revolution, he was forced to return the stone to Paris for it to be resold.

In 1911, Cartier bought the stone for $154,000 and sold it to Washington socialite Evelyn Walsh McLean. She was the wife of Edward McLean, the owner of the Washington Post. She was beset with tragedy. She lost her son in a car crash, her husband died, and her daughter overdosed on sleeping pills. The stone was eventually sold to Harry Winston for $179,920 in 1947. He donated the stone to the Smithsonian in 1958. A woman once wrote a letter to Harry Winston begging him to take the stone back because since he made the gift, the county had fallen apart! The diamond is the most popular exhibit at the Smithsonian.

White Price Increases
The recent demand for diamonds has increased prices. For the first time since December, 1995, we have increases our diamond price matrix. The D-H colors, IF clarities rose approximately 3%. The D-H colors, VVS1 increased 5%. The D-H colors, VVS2 clarities rose 6.5%. The D-H colors, VS1 increased 9%, and the D-H colors, VS2 increased 10%.

Recent DeBeers Rough Diamond Increases

Year Increase
1982 2.5%
1983 3.5%
1986 7.5%
1987 10.0%
1988 13.5%
1989 15.5%
1990 5.5%
1993 1.5%
1995 5.0%
1996 3.0%

The double digit increases in the late 1980s were caused by the hot Japanese market. Then world-wide recessions hit the U.S., European, and Japanese markets. This caused diamond prices to barely move in the early 1990s. However, DeBeers has increased prices two times in the past year and a half. Some fine polished diamonds are up 20%. Look for this trend to continue.

When DeBeers announces a 3% price increase, what exactly does that mean? The number is simply an average of over 5,000 classifications. The recent price increase means large stones went up significantly, and the average does not seem like much because it is computed with the decreases in small diamonds!

How Rare is Rare?

Carats Comments
0.50 Not that rare. Slight movement in better goods.
0.75 A little bit expensive; they are around, but the better goods are a little scarce.
1.00 Hard to find; you don't see the higher colors.
1.25 Very scarce; scarcer than the 1 caraters.
1.35 Scarce.
1.40 Scarce.
1.45 Scarce.
1.50 You can find some.
1.75 Not a lot around.
2.00 Do not exist.
3.00 More plentiful than 2 or 4 caraters.
4.00+ Shortages in some sizes; there's 50% less availability than there was two years ago.

Source: National Jeweler Survey, October 1, 1996.

Million Dollar Bra
Victoria's Secret's "Christmas Dreams and Fantasies" is offering a Miracle Bra with 100 carats of diamonds and semiprecious stones. The price? A cool $1 million.



Price Increases
According to Colored Stone, Volume 9, #15, November/December, 1996, reports from Colombia indicate Colombian emeralds have increased 35% since last year. The reason is because all the fine goods are coming out of Muzo. The owner has elected to sell his rough overseas directly to Israel, Switzerland and Hong Kong via auctions. Therefore, the local dealers have had to raise prices due to the lack of material in Bogota.

Politics: Schizophrenic US Relations
In September, 1996, President Clinton authorized $40 million worth of military equipment for the Colombian army. It included helicopters, observation planes, utility vehicles, parts, and communication equipment.

The US response was in reaction to the violent attacks reported in our last Gemstone Forecaster. Last year the US cut off foreign aid to Colombia because the US said Colombia has not cooperated with the US effort to halt drugs coming from Colombia. This follows allegations that Colombian President Samper accepted money from drug dealers in the 1994 election. The State Department also revoked President Sampers visa.

The US government stated they were concerned about reports the leftist guerrillas were heavily involved in drug trafficking. The attacks were conducted by the Revolutionary Armed Forces of Colombia, or FARC. FARC still holds over 50 Colombian soldiers hostage. The police have abandoned 56 small towns this year because of guerrilla activity.

According to the Department of Defense and the Drug Enforcement Agency, between 10,000-15,000 guerrillas are involved in the drug trade. Studies speculate the guerrillas are making between $300-360 million per year, with the drug trade providing 1/2 of their income. FARC is making a commission off of each load of cocaine and heroin that travels through their controlled areas. Some reports contend the FARC grows their own cocoa and poppy, runs laboratories, and transports the drugs to Venezuela.

Property values have dropped 80% in the guerrilla controlled areas. The US State Department now advises against travel in over 70% of Colombia.



Burma (Myanmar)
The amount of unheated red Mogok ruby is practically non existent and prices are up dramatically. According to our overseas sources, Burmese dealers in Mogok are offering flame fusion synthetic rubies as natural ruby. Also, reports indicate the Burmese are selling pink sapphire and ruby doublets as natural ruby.

A new Burmese government corporation, the Union of Myanmar Economic Holdings Co, Ltd. or UMEHL, is now controlling the ruby trade in Burma. They control the ruby areas in Mogok and have opened an office in Thailand. In May, they auctioned over $2 million worth of colored stones and jade. Most of the buyers were locals.

There are also new government rules in regards to buying and selling Burma ruby, sapphire, and spinel on joint venture operations. All of the rough discovered in Mogok is sent to the government. Low quality rough is returned to the miners to dispose of as they wish. The mining company pays a 20% tax on the appraised value of the higher qualities. The gems are then cut and trading can begin. Also, for a small fee, Burmese nationals can obtain a license to trade in Burmese material. They can sell the gems to foreigners. The foreigner pays a 10% tax to the Burmese gem dealer, who later pays the government.

According to the International Marketing Consortium, an American company that markets Vietnamese gems, they will be offering a 2,165 carat Vietnamese ruby for sale. They also contend they have recently found a pocket of red spinel with some stones over 10 carats. If true, this may be an impetus the spinel markets need! Lastly, they expect to market Vietnamese pink sapphire.


Supply for medium quality tanzanite is good. The supply of high quality tanzanites is not available.

The supply of tsavorite is running very low.


New Stones in 1997
For collectors on a limited budget, a new spessartine garnet from Pakistan is coming to the market. They go from an orange-red to a red-orange. Expect a few hundred carats, but they are not as orange as the Namibian material and possess more brown. Also, Montana is producing sapphires in blue, orange, padparadscha, golden, yellow, and pink colors.


Gemstone Scams
This is an excellent article by the Jewelers-Circular Keystone, a gemstone trade publication. Remember, if anyone "high pressures" you into any investment that sounds "too good to be true", this should tell you to watch out!

JCK Magazine, October, 1996
"When I hear the word 'gemstone', fireworks go off," says Mary McDonald (not her real name). Her image of gems and fireworks is not beautiful and thrilling. Her fireworks are full of rage and terror, her gemstones clouded with lost hope and trust.

MacDonald's father, a farmer in Ohio, poured $150,000-his life savings-into the pockets of Canadian-based gemstone telemarketers who hounded him three to five times a day with telephone calls lasting 45 minutes or more. "It was brainwashing," says MacDonald. "After you hear what a good deal it is for hours, you feel you must take a leap of faith." Her father did, time and again, in a frantic attempt to recoup his growing losses.

James McDonald (also not his real name) was not alone. More than 2,200 Americans suffered a total loss of $50 million due to the scam, says Michael C. Hartman, a certified fraud examiner and the U.S. Postal Service inspector who investigated the case. James McDonald began to invest in telemarketed gemstones in the 1980s. Back then, these "boiler room" operations were run out of Florida, with a sales pitch touting gemstones as a good investment. Poor quality stones were sold at grossly inflated prices to uninformed buyers as a hedge against inflation. A government crackdown sent the telemarketers fleeing to Canada, first to Toronto and then to Montreal. The scam artists set up operation again, but with a new tactic-the "liquidation story"-using new company names and old client lists. The gemstone sellers called the customer and offered to sell their gems to other buyers overseas. Great, the customer would respond.

But there was a catch. The telemarketers would tell the customer, "Because yours is the smallest portfolio, you must buy one more gemstone," says Hartman. The customer would then invest $5000 or $25,000 for another poor stone. The gems were sealed in plastic with a certificate of authenticity from New York or Florida. If the plastic was broken, the telemarketer would inform the client, the stone could not be returned for resale. This prevented a true appraisal. Each time a customer was sure he or she was buying the last gemstone needed to complete the portfolio, another complication would arise. "Imagine taking out a loan to buy one more gemstone," says Mary MacDonald. "Imagine the joy of the anticipated windfall, the relief that the loss was going to be paid off finally, that your savings would be safe again. Imagine having that joy turn to fear and desperation when the deal fell through again. Being told by your salesperson, 'It was all your fault! You screwed up the deal!' This was the type of emotional turmoil my father endured." That was typical, says Hartman. The victim would be blamed for holding up the deal and would get a series of telephone calls from different people-a certificate driver, then an account opener, then a senior sales officer and then the overseas buyer-so he would think he was dealing with separate and credible representatives. The pitch was sophisticated, says Hartman. The con artists changed their business names, voices and locales to avoid capture and embellish their stories. "Oh, you dealt with (the old company name). We are (the new company name)." They pointed out the negatives of the old company and the positives of the new one, never letting on they were one in the same.

At the beginning of each month, says MacDonald, the telephone calls would begin from companies named Equity Control Exchange, International Exchange Board, Capital Exchange Board, Associated Overseas Investor Services, Bo-Shek Cutting and Polishing Inc. and more. Each told her father not to deal with anyone else or the deal would fall through. "It made it seem something was really going on in the gemstone market," she says. She and her three sisters tried to intervene. One sister tried to contact the salesperson, only to be told he was out. She left an angry message with his secretary. The salesman called James MacDonald. "I do not talk to daughters; I do not talk to sons," he said. "I talk to you because it is your money." Her father's face turned red. "It became almost a panic to my father," she says. "He kept digging himself in deeper in hopes he could get out of debt." In anticipation of reaping $435,000, her 79-year-old father took out some bank loans-$18,000 for one stone. "They wanted him to mortgage his home," she says. "Thank God he didn't."

Others did. They also took out credit card loans. They were told, "You have to beg, borrow, and steal," says Hartman. That's how he and the U.S. Postal Inspection Service got involved. The Reverend Robert Finkbeiner, who lived near York, PA lost $300,000 of his own money to the telemarketing scam. Believing he could recoup his losses and make more money, he took out $1.1 million in loans under false pretenses. The loans-to pay Associated Overseas Investors Services-were from two banks, a social services agency of which he was president and the agency's primary contributors. While MacDonald's family filed complaints with 16 agencies in the U.S. and Canada from September, 1991 to March, 1992, it was not until the U.S. Postal Inspection Service heard about Finkbeiner that it got involved. The service combined forces with the Royal Canadian Mounted Police,and the chase was on. The Postal Inspection Service couldn't touch the telemarketers because they were on foreign soil. But when the con artists flew to a satellite office in Boca Raton, Fla. to recruit pitchmen in September, 1993, they were arrested. Eventually, 47 people and 11 corporations were charged. Thirty-seven pleaded guilty: 26 have been sentenced to three to 51 months in prison each. More are awaiting extradition. Fines exceed $400,000. Restitution totals more than $3 million.

But this doesn't lessen the pain and loss for the MacDonald family. One telemarketing salesman who worked five hours a day, four days a week earned $2 million in commissions during a 2 1/2 year period. James MacDonald, now 85, will be lucky if he gets back $1,000. "Our lives are ruined because we can't trust anyone anymore," says Mary MacDonald. "If they had acted on our complaint (in 1991), Finkbeiner wouldn't have been involved." The MacDonalds feel victimized by the justice system. But there is one person who draws their praise-CFE Mike Hartman.

His battles continue. "I have been doing this almost non-stop for 30 months," says Hartman. Currently, he's investigating two more boiler room operations, one already shut down, one not. He estimates victims have lost $20 million to these operations. The latest developments? One "freelance" in Boca Raton was arrested. There is Montreal to investigate. There are more gemstones and fireworks to be watched.

For more information on Canadian Boiler Rooms see The Gemstone Forecaster, Vol. 14, #3, Fall, 1996


Safe Deposit Theft Claims on Rise
Los Angeles Times
Thanks to subscriber C.M. of California for sending this article to the Gemstone Forecaster. Those of you who hold substantial assets in your safety deposit box may want to contact your insurance company regarding insuring your valuables. Although these charges are unproven allegations, forewarned is forearmed.

A great book on this subject is How to Bury Your Goods: the Complete Manual of Long Term Storage. You can buy it on-line at http://www.amazon.com.

"Did someone sneak into the vault of Bank of America's Century City branch, manage to get into the safe deposit boxes of at least three customers, steal hundreds of dollars of jewelry, cash, and gold coins, and, in some cases, substitute fakes-all without the bank's knowledge?

That is the substance of allegations contained in three separate lawsuits filed in Los Angeles County by former customers of the branch at 1901 Avenue of the Stars, which closed last year.

The bank denies the thefts occurred. But if they did, they would not be unprecedented: Clusters of safe deposit thefts have been reported in recent years. Just this month, Chicago police reported that at least six customers opened safe deposit boxes at a bank in the Loop to find more than $500,000 in diamonds, jewelry, and gold coins missing. Although rare, such thefts highlight the vulnerability of safe deposit boxes, which consumers have heretofore believed virtually impregnable. According to Bank Security report, an industry newsletter, a new breed of thieves may be targeting safe deposit boxes. "Many safe deposit robberies are apparently being perpetrated not by intruders, but by bank customers: renters of safe deposit boxes who gain access to others' boxes," the newsletter reported. And box holders may not learn of a theft for years unless they carefully check the contents periodically.

In Century City, the alleged thefts were uncovered only after the bank, a former Security Pacific National Bank branch, sent notices to the customers to clear out the boxes in preparation for a move to a new branch in the spring of 1995, the customers say.

According to court documents:

  • A prominent physician and his business manager say thieves took 270 gold Canadian Maple Leafs and South African Krugerrands worth $107,000. Thirty of the coins were replaced with counterfeits.
  • A San Fernando Valley woman who had been placing cash in a safe deposit box toward her retirement since 1993 opened it in March, 1995 to find $175,000 missing.
  • A Bel-Air woman says 16 pieces of jewelry worth $250,000 were removed from her safe deposit box between September, 1992 and September, 1993.

The victims say they reported the alleged thefts to police and the FBI, as well as to the bank. Neither the police or the FBI said they have records of any formal investigations into the complaints. As for the bank, the alleged victims say the bank executives have stonewalled them at every turn, refusing to turn over internal investigative reports and, in one case, refusing even to answer legal questionnaires, according to court documents. For its part, the bank said: "We have three lawsuits pending relating to claims of items allegedly missing from safe deposit boxes at the Century City Branch. We've investigated all three claims and have concluded they are all without merit. We therefore intend to proceed with our defense of the lawsuits, and we believe we will prevail." said spokesman Peter Magnani.

The people who say they suffered losses aren't taking the bank's explanation at face value. A. Richard Grossman, a physician after whom two Southern California burn centers are named, is half owner of the gold coins. "The coins had been inviolate for years," he said, "When I first heard about it, I felt sad and thought, 'It's not right.' But then I thought about it, and I got mad." Thieves opened plastic vials containing some of Grossman's gold coins, replaced the middle coins in a stack with counterfeits, then put genuine coins at each end so that a casual inspection would not show them missing, Grossman's suit alleges. Grossman and his business manager, Eugene Kaufman, who owns the other half of the coins, flatly denied any attempt to defraud the bank through a false claim.

Meanwhile, Carole Cramer, 66, of Bel-Air says she first noticed missing jewelry from her box in 1992, according to court documents. At the time, she assumed she had simply forgotten to replace the jewelry in her box, and thought it had been stolen from her home, she said in an interview. She even called police and hired a private investigator, who turned up no evidence of a home burglary, she said. Several months later, she discovered other missing items and complained to the bank manager, Bruce Baker. "I said...I know specifically that there's a piece I know is missing. He said...( the bank would) do an internal investigation, but nothing came of it." Cramer sued the bank in September, 1995 and is now in court seeking to compel Bank of America to answer legal questionnaires about the alleged thefts. In response to Cramer's suit, the bank argued that the jewelry was not stolen. "Assuming...the subject jewelry was placed in the subject box, it is more likely than not that Cramer removed the subject jewelry herself and failed to return it to the subject box," the bank said in its trial brief.

In the third case, Mara Gudis, a San Fernando Valley woman in her 60s, says she discovered that $175,000 in cash was missing from her box when she answered a bank notice to clean it out in March, 1995, her suit alleges. "She was extremely distressed at what happened," said her lawyer, Ronald Rale. "Imagine having your nest egg taken from you." Again, the bank said there was no evidence of theft.

Safe deposit box thefts have been in the news in recent years. Earlier this month, at least six customers of Firstar Bank in downtown Chicago discovered missing diamonds, gold coins and other jewelry valued at more than $500,000. In that case, there was no sign of forcible entry into the boxes, leading police to believe that bank insiders may have been involved. FBI and Chicago police are investigating the reported thefts. "It has to be one of three things: either the (perpetrator) was a customer who was very good at picking locks and did it all himself, or he had help from an employee...or there was bank management who broke the rules at the bank, allowing him more leeway than he should have had," said Chicago police Sgt. Michael Siciliano.

In 1994, a New York city jeweler reportedly lost more than $115,000 in cash and jewels from a safe deposit box at a Manhattan branch of Republic National Bank of New York. Five or six other customers subsequently reported losses from safe deposit boxes the same day, said Phillip Burgess, a bank spokesman. Burgess said the alleged thefts are under investigation.

Still, law enforcement officials say safe deposit box thefts are rare. Security in most banks is tight. As a result, it's often difficult for victims to prove a theft occurred, or even to prove that items supposedly stolen were ever put in the box in the first place. In some cases, individuals who suffer thefts are loathe to go to authorities, fearing a phone call from the IRS wanting to know what was being hidden.

But observers say the risk to consumers, though small, is nevertheless real. Unlike deposits, items in safe deposit boxes are not insured by the federal government, and private homeowners insurance usually limits losses from safe deposit boxes. One problem for consumers is that thefts can go undetected for months. Bank Security Report details one new method thieves are using to gain access to safe deposit boxes. The thieves rent their own safe deposit box. Later, acting in pairs, they gain access to the vault to open the box. One distracts a guard long enough to make a wax impression of a master key and return it, which can take just a few seconds. With the duplicate, they can later enter the vault and access other vaults if left alone and unguarded.

Perhaps because safe deposit thefts are rare, police and FBI officials in Los Angeles seem unclear about who has responsibility for investigating theft reports. When asked who has jurisdiction over such thefts, LAPD detectives say the local FBI does, while FBI investigators point to the police. Robert Mack, supervisory special agent in the bank robbery squad of the FBI's Los Angeles office, acknowledged that federal jurisdiction applies to safe deposit thefts that occur during the course of burglary or robbery. Any other safe deposit box theft would fall under the purview of the police, he added. But detectives in the West L.A. division of the LAPD, denied they would investigate such thefts. "We don't handle it," said Detective Patrick Anguiano, coordinator of the division's burglary unit. "It's not our jurisdiction."

The information provided in this newsletter has been derived from research and sources believed to be reliable. However, no guarantee is expressed or implied as to their validity. Opinions included herein are subject to change without notice. The gem market is speculative and unregulated. Certification does not eliminate all risks associated with the grading of gems. Recommendations are meant for those who are financially suited for the risks involved. Past performance is not a guarantee of future performance. Neither NGC nor The Gemstone Forecaster guarantee a profit or that losses may not be incurred as a result of following its recommendations. They may also hold positions in areas they recommend. Subscribers should not view this publication as investment advice, nor is it intended as an offer or solicitation with respect to the purchase or sale of any security.