March 30, 2016
Herbert Slattery III
Tennessee State Attorney General
Office of the Attorney General
P.O. Box 20207
Nashville, TN 37202-0207
Office of Attorney General, Consumer Advocate & Protection
P.O. Box 20207
Nashville, TN 37202-4015
I want to make you aware of my efforts to wage a long-term battle against practices in my industry that I consider to be fraudulent and damaging to consumers. I am uncertain whether there are issues that are immediately actionable for your office, but felt that this important matter needed to be brought to your attention.
My family has operated a jewelry store in the Nashville area since 1982. Both my father and I have also been active in the diamond business on the wholesale level since the 1960’s, working with very large suppliers and chains nationally and internationally. My wife is a GIA registered gemologist and manages our retail store.
Starting in 2011, we began a campaign to make consumers aware of a set of practices which we felt were fraudulent, centered around the use of misleading EGL InternationalCertifications to misrepresent the quality of diamonds being offered to the public. While all diamond certifications are subjective to a degree, the responsible labs provide grading that is in a narrow range. These diamond lab grades are critical to the fairness of pricing for consumers, as it is the grades which are used to compare diamonds for industry price lists (such as Rappaport) used in wholesale sourcing by jewelers. The grades determine the prices within a range. Retail jewelers use the combination of grades and wholesale price lists to track the value of inventory and to set consumer prices and markups.
In the period prior to our 2011 ad campaign, we became aware of the negative impact on the local market for jewelry retailers of Genesis Diamond’s huge ad campaign, which focused on their ability to use volume purchasing to offer dramatic savings for consumers on retail purchases compared to the local competition. Despite a huge marketing budget and stores in high-cost locations, Genesis seemed to be able to generate a profitable margin at diamond prices that none of us could match.
Investigation of this confusing issue led us to conclude that the prices they were offering were artificially created by the use of misleading certifications provided to them by EGL International, a lab that competed with the more traditionally used Gemological Institute of America labs and the EGL USA labs. To better understand this issue, in 2012, we purchased diamonds (at our expense) from two of Genesis locations (in both Nashville and Louisville KY) and sent them to GIA and EGL USA for comparative certification.
General industry practice accepts a one grade tolerance due to inherent subjectivity in the grading process. We discovered that the certification provided by Genesis with these two diamonds were as much as five grades different from that provided by theother independent labs. This equated to a price difference of 86-92% on the Rappaport wholesale pricelist used at the time.
It was no wonder, then, that Genesis could promise the consumer a “better price”. They were selling a diamond that was simply not equal in quality to others available at the same price, a fraud that was supported by the misleading certification. Our investigation also indicated that Genesis’ owner group had been involved in numerous disputes with competing retailers and consumer advocacy groups related to their previous business operations in Charlotte, which they shut down before moving to the Nashville market.
During 2012 and 2013, we worked to bring this deceptive practice to light, and filed complaints with the Jewelers Vigilance Committee in New York (an industry self-policing organization) and with Mr. Hill in his role at Tennessee Consumer Advocate & Protection division. Other jewelry retailers began to join in our public attack on Genesis market claims. Genesis filed suit against one of these competitors – the suit was later dropped.
In May 2014, WSMV Channel 4 released an investigative report (later nominated for an Emmy as Best Consumer Business Report) which explored the Genesis practices and the foreign certification issue. Also, during 2014, several consumers filed lawsuits against Genesis. The basis for the suits essentially related to valuation claims made by Genesis (appraisals) when jewels were purchased that were later challenged when the stones were insured. The use of over-inflated appraisals is clearly a misleading business practice.
The WSMV reports and the lawsuits caused a firestorm in our industry. By August 2014, EGL International certs were no longer recognized by the wholesale pricing organizations such as Rapnet, and by November 2014, EGL International announced that it would cease operations. In December 2014, a class action suit was filed in California citing RICO and fraud allegations against EGL International.
Since this time, similar lawsuits have been filed in other jurisdictions against other jewelers. The cases against Genesis locally have been settled. Genesis claims to use only GIA certifications in its current operations.
I am writing you today for several reasons:
- As a result of our wholesale business, I travel to independent jewelry stores across the country. After dozens of meetings with jewelers in markets across the US, I have concluded that Genesis’ advertising statements are the most outrageous I have witnessed in any of the markets I visit (especially when based on an apparent foundation of fraudulent practices).
- The EGL certs provided by Genesis when I bought the test diamonds had the greatest discrepancy between EGL International grading and USA GIA standards that any of the independent jewelers I have canvassed have ever seen.
- We believe that anyone who purchased a diamond with an EGL International certification prior to the delisting of EGL International in 2014 deserves to be notified that they may be a victim of fraud. In other industries where there is evidence of a faulty or misleading product, the consumers are often notified and products are often recalled. The VW diesel case comes to mind – and on a nationwide basis, we wonder if the numbers of consumers and the consumer dollars involved are dissimilar?
- We are a small family business and have invested significant resources in this effort to make our industry and consumers aware of these misleading business practices and the potential damages suffered by consumers as a result. We have reached the limit of our ability to get this message out to consumers on our own, and are reaching out to you again in hopes that your office will take action on this issue in some way that protects the Tennessee consumer.
Both Mr. Hill, in our earlier contacts with his office, and the WSMV investigative reporter, pressed me as to my ulterior motive in my fight to bring these issues to the awareness of the public. I feel it is important to address this directly. There is no personal motive. We have not taken any legal action on our own behalf related to this issue. We have not tried to create any financial remuneration for ourselves or our retail store. We have criticized Genesis, but have not been accused of slander, etc., as we have backed any claims we have made with facts. We have not only criticized Genesis but also our entire industry, as respects its historical tacit acceptance of these misleading business practices. As a result of the awareness of these practices caused by our campaigns, the industry has been irrevocably changed.
But there are many consumers who have been financially damaged and who have not been represented in this process. We believe it is in your power to seek redress for them. We stand to gain nothing from this redress, but we feel it is our duty to bring it to your attention, just as it was out duty to defend the majority of those jewelers who have historically represented our industry well, by adhering to appropriate business practices, against predatory and unethical actions by a minority.
We would welcome an opportunity to speak with you directly regarding this matter, and hope that you will strongly consider the Tennessee consumers you represent as you review this matter.
Forster’s Diamond Outlet and Star129.com
Please Note: All of the facts stated in this letter are backed up by information available on our website, www.diamondoutlet.com, or in our store at 5362 Hickory Hollow Pkwy Nashville TN 37013.