The End of the Diamond Grading Game?

By Rob Bates

A friend once asked the head of a lab notorious for overgrading how he lived with himself. Simple, the man replied. If I were supplying such a horrible product, why do I have so many customers? 

Sad to say, he had a point. The trade (well, a lot of it) has only itself to blame for the current diamond grading mess. As one longtime industry observer told me:  

While the most logical and consumer-friendly strategy would be to arrive at a single, universally harmonized, ISO-recognized grading standard, with a standard nomenclature and one supreme set of master stones, that is not going to happen, and not only because GIAwants to protect its brand (which is does, of course).… The current situation suits everyone…. The labs like the situation because it enables to them to position themselves in the market, generally relative to GIA. The retailers like the situation because they can cherry-pick reports according to what they are selling and who they want to sell to. The consumers should not like the situation, but for the most part they do not even know there is a situation. 

True enough, but that’s for now. As I’ve argued in other contexts, this is a dangerous game to play. As with conflict diamonds, it won’t be pretty if consumers find out.

In one city, they have. A Nashville, Tenn., jeweler who sold EGL International reports became the target of a string of TV exposés and lawsuits. The lawyers behind those suits are now threatening a wider class action targeting bigger fish.    

While the recent statement by diamond associations that carrying overgraded reports is “unacceptable” was probably inevitable, it remains significant. Carrying reports that deviate by more than one color grade from the standard GIA scale (sadly, the groups punted on clarity) is now considered a trade sin along the lines of nondisclosure of synthetics or selling conflict diamonds—a serious infraction that could subject dealers to bourse sanctions or arbitration. (That said, arbitrations rarely involve non-business topics.) 

The notable difference is that—unlike misrepresenting synthetics—stocking reports with “generous” grades has been a widespread trade practice. Some of the biggest names in the industry do it. I know honorable retailers who carried reports they didn’t agree with because they felt they had no choice.

Dealers and retailers will now likely take a good look at the reports they carry, if they haven’t already. Labs may tighten up their standards, and some GIA rivals may need new ways to attract business. This won’t be easy, but it’s possible: The American Gem Society lab put itself on the map with its cut grade. I still believe some enterprising gemologist could develop a more consumer-friendly diamond scale.

Of course, if this issue fades away—and the legal threats amount to nothing—the old habits could return, even if we’re spared some of the notable excesses we’ve seen in the past. It’s a tough time for the trade, and fudging grades is one of the few areas where there is leeway to make a profit. (You can still find EGL International reports on the web.) The grading game has been disrupted, but it’s too soon to declare it dead.