Coloured Diamond Investment Scams
This article came about because I saw a news article about a TV personality who had been arrested for being involved in a diamond selling scam. Had it not been for the celebrity involvement, I would likely have gone right past it. I am glad I didn't because I was reminded about an area of the diamond business where too many people are losing savings, pensions and more to smooth-talking con artists.
You Can't Con An Honest Man
Those five words above are at the core of almost all cons and scams. The con artist relies upon the greed of humans. The idea is that we can get something for less than it is worth. I mention this first because this all too human weakness is what enables scammers to steal from their victims. That does not mean the victims deserved what happened or that they were not victims. They didn't, and they were!
What's The Story About The Coloured Diamonds?
The coloured diamonds scam is nothing new, and it has been working for many years.
As you know, most people buy white or clear diamonds for their beauty and rarity. Many people do not even know that coloured diamonds exist. However, exist they do, and they are much rarer than white diamonds. Roughly speaking, for every coloured diamond, there are 10,000 clear diamonds.
Coloured diamonds are referred to in the diamond trade as 'fancy coloured diamonds'. Their colours are natural due to impurities in the diamond's formation. In general, the stronger and purer the colour, the more valuable the diamond. For more information about fancy coloured diamonds, check here: https://www.gia.edu/fancy-color-diamond-quality-factor
Coloured diamonds can be enhanced artificially and can even be created entirely artificially. Enhanced colours in naturally coloured diamonds are considered legitimate as long as the buyer is informed that the diamond is colour enhanced. Artificially coloured diamonds are almost valueless.
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Who Are The Victims Of Diamond Scams?
Usually, scammers will contact victims by phone or email and may follow up with personal meetings.
Targets are selected by research. Typically victims are people who have a record of making investments. This information is easy to find from searching share ownership records of PLCs. The ideal victim is a widow or widower.
The scammers build up the trust of the victim while at the same time appealing to their greed. The goal is to sell the victim one or more diamonds as investments. Usually, the victim is told that the price is excellent, an absolute bargain that must be seized immediately or lost.
These fraudulent diamond sellers will often have trustworthy looking websites, glossy brochures. They will often meet with potential buyers at luxury office premises – usually rented on short term leases. The result is a very credible appearance where everything looks right.
TOWIE Star – Diamond Con Merchant
In a case, currently before the court in the UK as of 22nd September 2021, Lewis Bloor, a former TOWIE star, has been accused of being part of a scam that parted around 200 people from £3m. Lewis Bloor, who posed as "Thomas Hankin", was part of a team of six men who sold 'investors' coloured diamonds. In one example of the amounts of money involved, a buyer paid £5978.70 for a diamond, and Bloor earned £896.81 for his part in the deal.
The investment-grade diamonds were purported to come from the Argyle mine in Australia. The diamonds were purchased from a wholesaler and marked up by about 600%. This meant that a diamond costing the con artists £1000 was sold to the victim for about £6000. In this scam, buyers will be told that prices are appreciating by as much as 15-25% per year.
Why Are Coloured Diamonds Popular With Scammers?
Readers who know something about diamonds might wonder why so many diamond investment scams involve coloured diamonds. There are two main reasons for the preference for coloured diamonds.
The first reason is that coloured diamonds are genuinely rarer than white diamonds making it relatively easy for people to delude themselves with just a little knowledge. Secondly, clear diamonds have a rigorous grading and certification system. Due to their popularity, it is relatively easy to discover the 'proper' price for a diamond. Coloured diamonds are often not certificated in the same way. Their rarity means that it is much harder to assess the correct price.
In many cases, fake diamond certificates are presented to potential buyers that vastly overstate the value and quality of the diamond. In some cases, the company providing the certification may not even have seen the diamonds being certificated. Ideally, look out for diamonds with a certificate from the GIA (Gemological Institute of America), the leading and most trustworthy of all diamond grading laboratories.
Variations On A Scamming Theme!
There are many variants of these coloured diamond scams.
1) Selling artificially enhanced coloured diamonds. Natural Fancy Coloured Diamonds can have a high value (if chosen correctly at the right price paid). However, artificially coloured diamonds have very little value. The best way to ensure that you are buying a naturally coloured diamond is to inspect the diamond's certificate. Refuse to consider a diamond with a certification from a company that you do not recognise as reputable, such as the GIA.
2) Custodial fees. It is usual for buyers of overpriced coloured diamonds to take possession of the diamonds. However, in some sophisticated scams, the diamonds are held in custody on behalf of the buyer. The justification for this is security. However, this means the buyer probably never sees what he has just paid for. Worse yet, if the buyer wants to take possession of the diamond (which almost certainly does exist!), he must pay the VAT on the value of the diamond to take it from the vault in Switzerland. It is pretty standard for this VAT fee to exceed the actual value of the diamond. So, suppose your diamond is discovered to be part of a fraud operation. In that case, it is probably not worth trying to recover it.
3) Diamond Swaps. The buyer will be shown a genuinely valuable coloured diamond in this situation, and everything will look perfectly fine. All the documentation will be correct. However, after payment, the diamond you are given is not the same one you inspected and paid for. The best solution is to make any such transactions in the company of a diamond expert who can verify the diamond is the same as that you inspected.
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How To Avoid Diamond Buying Scams?
The best and most straightforward way to avoid being scammed is to follow the simple rule: If it looks too good to be true, it probably is.
Secondly, do not get involved in any investment proposal where the seller contacts you. The scammer will have researched you and will know all about you, while you don't know anything about the scammer, which puts you in a weak position. If you decide to get involved in diamond investing, learn about the subject, get help and advice from industry experts. The London Diamond Bourse can be of assistance here.
Don't invest in anything that you do not know about. Diamonds may seem glamorous, but there is so much to learn and know that it is hard to buy diamonds for investment and still make money.
The UK Gov.UK site has information about similar schemes at: https://www.gov.uk/government/news/high-court-orders-12-million-fancy-coloured-diamond-scam-into-liquidation
The London Diamond Bourse has published guidance about avoiding diamond investment scams: https://www.londondiamondbourse.com/consumer-advice-investment-diamonds/
