Telemarketing Gems:
A Jewelry Scam
"Want to buy a high-quality ruby, turn around and sell it to a buyer I have waiting in the wings, and turn a quick profit?"
If this pitch already sounds suspicious, imagine hearing it from a telemarketer.
One of the most successful gem scams involves selling "investment quality" gems by phone. Reports of new versions of this transnational con game surface in the press whenever some luckless buyer finally gets wise.
In one recent episode, a woman in California received a phone call from a man who identified himself as representing the Zurich Exchange in Ontario, Canada. He offered to sell her a fully certified natural ruby for $1,650. She was interested because a few years earlier she had bought a sapphire from another investment gem seller and she was convinced it was appreciating in value. The caller said he had a Japanese investor interested in buying the pair of stones and she could make a handy profit. She sent in her money.
The ruby was delivered from Florida, not Canada. And it looked a bit fuzzy, but it was sealed "to retain its value," so she couldn't be sure. However, it arrived with an official-looking certificate from Gem Identification Services.
But before the Zurich Exchange could sell the two stones, as promised, the representative called again and offered to sell her a 1.26-carat pear-shaped ruby for $4,700. A European investor, he told her, wanted to buy all three stones for a much higher price.
When she asked why he didn't just sell the stones himself, he said his firm didn't allow that. When she asked for some type of proof that she would receive funds from the future large sale, he told her that "exchange regulations" did not permit him to put anything like that in writing. She eventually sent a $700 deposit and received the pear-shaped ruby.
By this time she was sufficiently suspicious to have the stones appraised. Experts estimated the ruby's value at $50-$400 per carat wholesale, rather than the $3,750 per carat the seller had promised.
Similar scams continue to be under investigation by the Federal Trade Commission as well as by Canadian officials.
Some of these scams involve multi-million dollar insurance fraud (see this pdf article about a $160 million scam).
FOR AGENTS & UNDERWRITING
What about that certificate? Didn't it verify the gem's quality? The document that buyer received was (purportedly) from Gem Identification Services in New York City. The president of GIS said, "Our function is to provide an identification of stones and a cosmetic description of their appearance. It is not a quality analysis." The document the buyer should have gotten was a proper appraisal, preferably on the ACORD >78/79 form, giving both a detailed description of the stone and a valuation. The sales receipt was obviously of no relevance in substantiating the gem's worth and would have been a poor basis for insuring this piece.
FOR CLAIMS
Whenever possible, double check the stated valuation.
If a stone is lost, and it was part of a group, have the other stones in the group appraised. These appraisals must be done at the insurer's cost, but they will give you an idea of the general quality of jewelry the policyholder purchased. Also, if the valuations on those stones turn out to be inflated, the valuation of the lost stone probably also was too high.
If a stone is presented as damaged, have it examined by a reliable jeweler. Inspection in a gem lab sometimes reveals that a stone was originally flawed and the flaw concealed by some temporary measure. The failure of such a temporary treatment is not considered damage.
CIA™ Corner
From David W. Hendry, Jr.
President, JCRS
Gem scams are constantly being "recycled." Joel Volker, a staff counsel at ACORD, related the history of one scam in his article in inACORD (#1, 1999). In the 1980s, a man reported finding a large unpolished stone in a shoe box. The stone was appraised at $12 million, and word of the rare find spread rapidly through the jewelry industry. A scandal broke out when other professional appraisers put the stone's worth at about $200. The original appraiser ultimately lost his membership in the respected American Gem society, and the matter was forgotten.
Fifteen years later the owners of the stone decided to move it to a private vault and had it reappraised — by the same appraiser who gave the original inaccurate appraisal. The appraiser took the original appraisal as valid and updated it for inflation, bringing its value to $16 million.
Why would the owners want to pay huge premiums on a worthless stone? They were setting the stage for an insurance scam. A likely scenario is that the stone would at some future time be discovered missing. With a valued contract, the insurer would have to pay the full insured value (based on the appraisal).
Fortunately, in this case the insurance underwriter was suspicious, remembered the original incident, and declined to insure based on that appraisal. But you can be sure that similar frauds have been successful elsewhere and they will come around again and again. Inflated valuations can be eliminated if the appraisal carries a detailed description of the gem and is prepared by a qualified, reputable appraiser. The ACORD >78/79 appraisal, prepared by a CIA™, provides both proper descriptions and accurate valuations. It also recognizes the insurer as a party in the appraisal (first-party legal position in case of a dispute).
©2000, JCRS Inland Marine Solutions, Inc. All Rights Reserved. www.jcrs.com
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