VOL. 23, #3, Fall, 2005
Imperial Red Diamonds, Michael Nunn on The Tanzanite Market, Madagascar's IGM Forges Ahead, Special Burma Report, In The News
Imperial Red Diamonds
by Robert Genis
Red is known as a symbol for life and vitality. Red is also the color of passion. Red is the color most chosen by extroverts and one of the top color choices of men. In China, red is the color of prosperity and joy. Front doors are often painted red to bring happiness into one's life. Red roses symbolize passionate love and many think Ferrari's should only be red. Now combine the passion and power of red with the ultimate gemstone- the diamond- and you have pure sex appeal. Red is undoubtedly the rarest and most desirable diamond color. Red diamonds are almost priceless and almost impossible to obtain.
Famous Red Diamonds
The earliest known red diamond was the one carat Halphen Red owned by a London gem dealer. It was sold in the late 18th century for 800 pounds. The Halphen Red has since disappeared. The two most famous reds known today are the .95 Hancock Red and the 5.11 Moussaieff Red. Many speculate the Hancock Red is the .95 Halphen Red recut or repolished. Recent information disputes this and postulates the Hancock Red is a new Brazilian diamond.
Although the Hancock red sold for $895,000 a few years ago, it would probably sell for significantly more if it ever reenters the marketplace. Basically, these stones are priceless and considered to be worth over $1 million per carat. Minimum. Besides these few famous diamonds, only a few others are known to exist. Rumor has it that occasionally a red diamond is found in Borneo. Some say there may only be 50 true reds in the world. Obviously, the demand for this highly prized color far exceeds supply.
Diamonds were often coated to look red in the earliest times. However, the coatings could be easily removed and detected. From the 1950's, red diamonds were often irradiated; however the colors were typically not attractive and typically looked like bad red-black garnets.
Recently, Lucent Diamonds, Inc. of Lakewood, Colorado has developed a new process to turn natural diamonds into the sought after reds colors. Since 2004, they have been marketing these stones under the trade name "Imperial Red Diamonds." Lucent Diamonds has been involved in treating synthetic colored diamonds since 1995. They collaborate with the the Russian company NDS. In 2000, they changed their focus from making synthetic colored diamonds to taking natural diamonds and applying extremely high temperature and extremely high pressure. Alex Grizenko, CEO states, "What we finally proved is the process is scientifically repeatable." The main process of creating red diamonds is accomplished by High Pressure High Heat (HPHT) with a few tricks such as annealing and irradiation. According to Alex Grizenko, "What is usually different from natural red diamonds, is that in our "Imperial Red Diamonds" the color is throughout the growth zone. Interestingly, "Imperial Red Diamonds" are similar to natural reds in that they typically have the same types of defects as natural reds." In essence, Lucent takes less desirable colors and turn them into prized red and pink colors. Of course, some of this process remains a trade secret. According to Alex Grizenko, "The stones are cut and processed in Russia and the final processing is completed in the US."
According to Grizenko, "We can scientifically predetermine if the color will come out red or not in advance. We have finally refined the preselection process after continuous trial and error." It is clarity not color that is the starting point for what stones will be subjected to treatment. They need to start with VS1 or better clarity and find stones with certain other undisclosed properties. These stones are then subjected to a tremendous 65 kilobars of pressure and 2300 plus degrees centigrade of heat. If the clarity is not VS1 or better to start, Lucent ends up throwing away the finished product.
We are confident that price stability in the tanzanite industry is very much here to stay and we're confident that growing worldwide recognition in tanzanite's inherent value is such that an upward price curve is sustainable. Having said this we see there is still a huge disparity between the price of very fine quality tanzanite and its actual production profile, which is very similar to a 'D' flawless diamond, making exceptional tanzanite, in my view, an excellent value for a long time to come.
Gemstone Forecaster: Can you describe the worldwide demand for tanzanite?
Mike Nunn: Tanzanite's route to market is actually quite simple. About 90% by volume is cut and polished in India and about 70% is traded through New York and is consumed in the USA, with much of this being sold through the Caribbean and Alaska. Of the other 30% we estimate about half goes to the Far East and the balance is consumed in Europe. The finest qualities are generally cut in Germany, although India's quality is catching up.
Going forward we expect more vigorous growth in Asia, the Middle East and Europe, although we also expect, as a result of our marketing efforts, a broader appeal in the USA. Ultimately we would like to see tanzanite's market distribution profile being similar to that of diamonds, although this will be achieved more through tanzanite's growing appeal as the gift given on the birth of a child as opposed to the engagement ring market.
We have initially appointed six sightholders with plans to increase this number in the medium term. These sightholders all cut and polish loose tanzanite and manufacture jewelry with quite a few having retail operations. Tanzanite International, for example, has more than 100 stores, whilst others have plans to open retail outlets shortly, and STS has almost 1000 people in their factories cutting and polishing tanzanite.
Gemstone Forecaster: Do you have any problems internationally selling tanzanite because it is heated?
Mike Nunn: This is really not an issue. All tanzanite is assumed to have been heated to relatively low temperatures. This process is complimentary to the natural process, placing the tanzanite in a more stable valance state and with no structural or chemical alteration evidenced between heated and unheated tanzanite. Tanzanite's color is permanent.
Gemstone Forecaster: Can you tell our readers about the recent discovery of the 3 kilogram tanzanite you recently discovered? What are your plans for the material?
Mike Nunn: We're obviously very excited with this find, which weighs 16,839 carats, well over 3 kilograms, and according to known records, is the world's largest single piece of rough tanzanite to have ever been mined.
Erring on the side of caution we've named the crystal "The Mawenzi", after Kilimanjaro's second highest peak, just in case a larger stone is ever found, although this is highly unlikely. The piece still needs to be analyzed and as a result we haven't placed a value on it yet.
Going forward TanzaniteOne hopes to cut and polish some exquisite individual tanzanite gems from the crystal, with a view to perhaps exhibiting these at Tanzania's National Museum. Another possibility we're looking into is naming the premiere gem cut from this crystal in honor of Tanzanian President Benjamin Mkapa, in recognition of his contribution to the Tanzanian economy during his past 10 years in office.
Gemstone Forecaster: Also, I understand you have a new optical grading and sorting system for tanzanite. Can you elaborate on this?
Mike Nunn: This system is also hugely exciting for us as it is a world first in the colored gemstone industry. This technological breakthrough, which achieved a tanzanite recovery of between 96% and 100% during commissioning, helps us achieve our goals of continuously improving recoveries and efficiencies.
The entire operation is able to be managed and monitored electronically from an off-site location. As a result our security systems are tightened up and this bodes well for production.
Despite being in its early stages of operation, the optical sorting system is already delivering impressive results. By using this system TanzaniteOne aims to significantly increase capacity at our mine and enhance the profitability of our existing tanzanite operations, whilst simultaneously freeing up further capacity for future expansion.
Gemstone Forecaster: Thank you
The Project de Gouverance sur les Resources Minerales (PGRM) is funded by the World Bank with a $32 million dollar loan that will run through 2008. The PGRM's goal is to develop Madagascar's gem trade. The first step in modernizing Madagascar's gem industry was the creation of a gemological institute. According to Tom Cushman of Sun Valley, Idaho, the Manager Advisor, "We created the Institute of Gemology of Madagascar (IGM) out of nothing." Cushman met with World Bank and Madagascar officials in 2003. After negotiating for 6 months, they agreed to set up a cutting school, a gemology school, and a laboratory.
The IGM was given the National Laboratory building for the site of the new gemological laboratory. However, it was not to ready to be inhabited. It had no water pressure, the roof leaked and it was filled with old Russian equipment and chemicals. Cushman decided the building needed to be totally rebuilt. However, construction projects in third-world countries are dicey at best. The contract eventually went to the brother-in-law of a high government official and the project is 50% done and is expected to be finished by this Christmas 2005.
The IGM school is in Antananarivo, the capital. In conjunction with the Gemmological Association of Great Britain (GEM-A), the IGM offers students an FGA degree from the association. It is the first gemology school in Africa.
Initially, the main problem facing this gemology school was the need for capable people to learn and teach gemology. The few local appraisers were not interested and saw the new school as potential competition. Another large hurdle was the language barrier; none of the gemological courses were in French, the official language of Madagascar. Cushman stated, "GEM-A agreed to translate their courses into French for the new laboratory in Madagascar. This was accomplished in 6 months." This was a major undertaking given GEM-A has very little financial support. It is a lean operation compared to the GIA.
Cushman recruited 4 teachers and sent one to the Gemmological Association of Great Britain, 2 to Ecole de Gemmologie de Montreal (EGM) and the last to the Gemological Institute of America (GIA). Of the 4, three returned in June, 2004 with degrees, and one soon will pass the required courses. The bottom line is at a year out, they had a course and teachers.
The gem school opened in October, 2004 with 16 students. They are all Madagascar residents and range from ages 16-60.
IGM also visits the field and offers day classes. It is hands-on and they bring synthetic stones to show the locals how to identify naturals vs. synthetics. Audio visual equipment is also utilized. The gemology school now has over 11 teachers.
The laboratory is presently not operating. According to Cushman, "When finished, the lab will look exactly like the GIA or AIGS in Thailand." IGM has all the equipment and is ready to start, they are simply waiting for the building to be completed. Cushman continues, "We bought all the equipment we needed for under $150,000. The laboratory's main mission will be gemstone identification and the lab has 3,000 teaching stones. This is needed because synthetics are flooding the market from abroad. Interestingly, Cushman said, "Heat treatment is not a big deal in Madagascar. There are few ovens in Madagascar. At most, only low temperature cooking could be done here. Madagascar material is routinely sent to Bangkok for treatment."
The GIA has already been to Madagascar and conducted gemology courses for 18 students. GIA revisited in June 2004 and taught gemological ID, colored gemstone and diamond grading. Cushman said, "Our teachers watched the GIA teach. Now the IGM courses are offered inside our temporary building that was designed to resemble the LA classroom." So far, the school has trained over 20 gemologists.
Cushman states, "We set up the lapidary school in October, 2004. The gem-cutting school focuses on teaching skills in mechanized precision cutting, particularly for larger stones." The school offers two-month cutting classes. Cushman faced many challenges with the cutting operation. He needed someone who was both a top flight cutter, a teacher, and someone who would relocate to Madagascar. Through a strange series of events, Cushman luckily hired Soosai Prosper, a 2002 AGTA cutting edge winner who already had experience setting up a cutting factory in India. Interestingly, Swarovski had a factory in Madagascar they no longer needed. The IGM, in essence, bought a turn key operation. After 6 months Prosper had 6 highly trained cutters. The plan was to open regional cutting schools in Madagascar gem-mining areas and they now have a satellite school in Antsirabe. According to Cushman, "Prosper is a miraculous teacher and the students love him." The cutting school has trained 80 cutters and plans to continue with more advanced cutting styles. Another 11 students are in training.
Far too often, third world colored gemstone producing countries are left with the crumbs from their efforts because they lack the skills of identifying, cutting, heating and marketing the material. Hopefully this project will remedy this situation in Madagascar.
Special Burma Report
The Gemstone Forecaster uses many people around the world to gather the latest information regarding the gem situation in Burma. Not every reporter, for safety and political reasons, wishes to be identified. We vouch for the personal integrity of the author and stand behind this report.
"I just came back from Burma and the authorities are a little edgy at the moment, and they seem to be clamping down on all sorts of things. Since Burma gave up its chance at taking the ASEAN chair for the year, they decided they would be free to do whatever they wanted without any threat of repercussion. Already they are rounding up more folks, and they have restricted the movements of United Nations personnel so much that the UN AIDS/TB group is leaving, and the UN Food Assistance Program is planning to pull out. That will cut down the number of expatriates in country by a considerable margin, leaving only a few managers from Asian trading companies and the Total/Unocal people.
Mogok is off limits because of a combination of things including a bit of rebel activity in the vicinity, and a small discovery of uranium below the Dattaw Mine area in eastern Mogok.
There are a few decent gems coming out, but bidding is aggressive so prices are quite high. Years ago I had a margin; now the margins are negative. The kyat has weakened considerably to somewhere between 1100-1200 to the dollar. It usually gets weak during the non-tourist, non-opium harvest season, but this year there is a kicker in that the government fell prey to an investment scam run by a Burmese out of Singapore. A lot of foreign reserves, in addition to a lot of personal cash of senior leaders and businessmen disappeared. All they could do was arrest the family, neighbors, friends, barbers, of the man responsible, but none of that is likely to bring him or the money back home. What do the Buddhists say about karma coming back to bite you?
My advice to your clients is to buy as much old Burma material as they can find. The new material is dramatically higher than prices in years past."
What follows in this article is a summary of the full court documents in the case of Max Pincione (a New York diamond dealer,) vs. Vivid Collection LLC, and the Gemological Institute of America (GIA.) All parties continue to negotiate and those negotiations are not a matter of public record.
Furthermore, defendent responses are not part of this court document. Quotations are direct phrases from the plaintiff's court filing. Other statements are paraphrased from the court documents to net-out the history and the pending case.
On April 21, 2005, attorneys for Pincione filed complaints against Moty Spector of Vivid Collection, Ali Khazeneh of New York's Upper East Side, and Bill Farley acting agent for GIA in New York in the Supreme Court of the State of New York in the county of New York.
Under oath, Pincione established that he is the plaintiff and is a dealer in fine gemstones, including "extremely rare and valuable diamonds." He states that he earned an international, "unparalleled, untarnished, and enviable" reputation for "dealing and honesty in the diamond and rare gem trade" whose principal client is listed as the "Royal Family of Saudi Arabia." Through an agent [Medad] for the Royal Family, orders were placed with Pincione.
Vivid Collection engages in the business of selling diamonds. Spector (as officer of Vivid) and Khazaneh are in the business of dealing and or selling diamonds. GIA is an expert business in evaluating the quality of diamonds presented for evaluation.
Pincione says that he received two pieces of jewelry from Vivid, both of which were certified by GIA. The first piece was a platinum round shape diamond ring of 37.01 carats, H-VS2; the second piece of jewelry was a diamond pendant with a 103.78 carat Pear-shaped, D-F.
On May 22, 2001, Shaer & Spector shipped to Cimabue of New York City, a diamond ring and cufflinks, green emerald earrings, and a necklace for $16,930,000 on memo. The diamond grading report dated October 3, 2000, shows a Pear Modified Brilliant, 103.78 carat, 56.3 percent depth, 48 percent table, medium to thick faceted, large, excellent (polish,) good (symmetry,) flawless (clarity grade,) D (color,) with No fluorescence. [The diamond ring certificate is not in the copy, only described by name in text.]
Pincione offered the ring to the Royal Family, and he said that the transaction was made with a "very good profit" to himself, Vivid, and Spector. The Royal Family had the ring inspected, and returned the ring to Pincione without explanation, but did ask for the return of payment. Pincione says it was the first time his client returned a purchase and demanded refund. He said he refunded the Royals their payment.
On March 23, 2005, Capt. Mohammad Hesham Ali Amin, general manager of Medad (a company owned by a member of the Royal Family) submitted a letter on behalf of Pincione "in lieu of my appearance." He writes that in May 2001, Pincione hosted an exhibition of diamonds and jewelry "to which members of the Royal Family" and others attended.
Hesham Al Amin writes, "a member of the Saudi Royal Family purchased the 37.01 [carat] round diamond ring in the amount of" $1.2 million and "the diamond was inspected and was found not to be as purported and returned to Mr. Pincione."
Later, Hesham Ali Amin negotiated the transaction of the diamond pendant for $14 million. The pendant was returned after purchase and Pincione said he was banished from doing business in the kingdom.
"After review by a member of the purchaser's group, it was determined that the stone was not as purported," Hesham Ali Amin wrote.
The plaintiff was told that the diamonds were not of the quality stated in the GIA grading reports. "That the plaintiff by offering said stones with grading reports containing falsified information unbeknownst to plaintiff at the time, risked by his innocent acts, incarceration and punishment in Saudi Arabia, in accordance with their laws," the documents state.
He explains that in Saudi Arabia acts of fraud are punishable by imprisonment, and "I was forced to intercede into the matter so as to prevent Mr. Pincione from being incarcerated."
"As we personally know Mr. Pincione for many years, we do not believe he was involved in any deliberate act to misrepresent the stones." Hesham Al Amin states that Medad's reputation "has been marred" and that no members of the Royal Family "or other related clientele can conduct business with Mr. Pincione, as reputation and trust are two characteristics that can never be restored when destroyed."
In January 2005, Pincione learned for "the first time of the fraudulent actions and conspiracy of the defendants, from information and documents shown to the plaintiff."
The quality of the diamond ring sold to the Royal Family was "not H-VS2 as represented to the plaintiff by defendant Vivid and certified to the plaintiff by defendant GIA, but was in reality of J-quality."
The quality of the diamond pendant was "not D Flawless as represented" by Vivid and GIA, but "was in reality E-VVS2 quality."
The 2002 Defamation Suit:
In 2002, Pincione charged that Vivid, Spector, and Khazaneh "had groundlessly accused" him of "theft of a diamond and communicated the false accusation to Harry Winston Inc." Pincione's former employer. Pincione took action (defamation) against Vivid and Spector, which was settled out of court with payment of $750,000 to Pincione along with letters of apology from Spector and Khazaneh.
Settlement agreement between Pincione, Spector, and Vivid was signed on December 20, 2002. Vivid agreed to pay Pincione $750,000 in total, in exchange Pincione "forever releases and discharges Spector, Vivid, Martin Klien, Abraham Klien, Julius Klien Diamonds Inc., Khazaneh, and Rima Investors Corp," from claims, debts, demands, agreements, etc. And all defendants forever release Pincione from same. Each party also agreed to "refrain from accessing, discussing, copying, disclosing or otherwise using confidential information... concerning any of the parties."
Vivid releases that "they are unaware and have no knowledge directly or indirectly of any misappropriation, conversion, or any sort of theft of any times of jewelry by Pincione" from any, "but not limited to Harry Winston Inc. Nor are said releases aware of any other business improprieties of which they participated in directly or indirectly."
On July 8, 2002, Spector wrote in a notarized letter that..."you might have heard a rumor created by me whereby I wrongly accused Max Pincione of misappropriating a diamond from me, in excess" of $300,000 while "Pincione had been employed with Shaer & Spector."
Spector apologized to Pincione and "fully retract my previous statements," and declared that Pincione had "nothing to do with such a loss."
Khazaneh wrote on December 20, 2002, that at "sometime during the year 2000 I, Ali Khazaneh, of Rima Investors Corp., communicated the following information to Harry Winston Inc.: 'On August 27th 1999 Mr. Pincione presented an .83 carat Pink Trillion Diamond to Rima Corp'" and inquired if Rima was interested in having the diamond cut.
Khazaneh withdrew his remarks, saying "Pincione was never at my office on August 27, 1999," and that the plaintiff "never approached me or my company in regards to re-cutting a Pink Diamond or any other diamond for that matter."
New Charges in April 2005:
The decision to settle the defamation suit "out of court" was "part and parcel of an elaborate, fraudulent scheme, to have the plaintiff enter into a release which by its terms would, unbeknownst to the plaintiff, eliminate and prevent the discovery of additional, substantial and serious fraudulent actions of the defendants herein..."
In 2002, the agreement said that Pincione would "deliver to Vivid" any property in his custody pertaining to Spector, Vivid, or Abe [Abraham] Shaer of Shaer & Spector Inc., or documents give him by Mark Blickman.
This agreement, Pincione says, was drawn to "conceal a conspiracy between the defendants herein, to make money illegally, by obtaining from the defendant GIA false records, thereby attempting and succeeding to sell lower quality diamonds falsely certified as higher quality..."
Pincione states that due to prior "untarnished" reputation of GIA, he had every reason to "rely on the material representations made by the defendants, jointly and severally, about the quality of the gems and the diamond grading reports relating thereto."
Had Pincione been aware of the "falsification of entries in the diamond grading reports" he would "never have settled his defamation action or signed the release set forth herein," the court documents report.
The suit argues that the 2002 defamation suit agreement is null and void "because of said fraud, and said actions were made with actual intent to hinder and impede existing and future claims by the plaintiff."
Six Causes of Action in 2005:
1.) The 2002 case settlement was "drawn" with the intent "to conceal their [defendants] conspiracy and their procuring false diamond grading reports from the defendant GIA." For "bad faith" Pincione requests a declaratory judgment wherein the "release should be declared non effective and non operative as to any causes of action against the defendants arising out of their fraudulent actions."
2.) The plaintiff's reputation was ruined and the good will between Pincione and his clients was destroyed. By offering the diamonds to his clients "with falsified entries in the diamond grading reports, risked by his innocent acts, incarceration and punishment in Saudi Arabia..." and seeks $50 million in damages.
3.) Vivid "breached its contract" with Pincione by supplying "gems of quality certified honestly by defendant GIA." Subsequent loss of business is set forth in damages of $50 million.
4.) Defendants "jointly and severally breached their fiduciary relationship with the plaintiff by misrepresenting to him the value of gems submitted..." for sale to Pincione's clients, "thereby injuring the reputation and destroying the good will developed by the plaintiff after years of hard work." For this, the plaintiff has been damaged in the sum of $50 million.
5.) The court document says that Khazaneh executed the 2002 settlement agreement and release along with "a letter of apology, said defendant has been and continues to slander the plaintiff, by stating to various friends and customers of the plaintiff, that: 'I cannot understand why Pincione is not in jail, in that he has stolen so much' (paraphrased)." It is stated that Khazaneh was "warned" to cease and desist "in his slanderous statements." The court is asked to void the settlement agreement and release between Pincione and Khazaneh due to "slanderous statements." The plaintiff has been damaged in the sum of $50 million.
6.) Khazaneh has "caused the plaintiff to be threatened," in that the plaintiff states a man "who has identified himself as defendant Khazaneh's brother to make telephone calls to the plaintiff threatening the plaintiff with statements including but not limited to: 'If I were you, I would sleep with an eye open,'" and "Dr. Nuchbacker a friend and spiritual advisor to (Khazaneh) has many followers and they would kill for him in a blink..." Cited as "malicious acts" in the statement, the plaintiff says it was "part of a plan of action by defendant Khazaneh to put the plaintiff in fear of his life, and were acted upon with malice," has caused emotional distress, and in so seeks damage in the sum of $50 million.
Pincione demands judgment against the defendants of "rescinding the release in full" and demands five "cause of action" complaints in the sum of $50 million each; and "altogether with punitive damages against the defendants, jointly and severally, in the sum of $150 million, and the costs and disbursements of this action."