GIA Goes to Court

By Jeff Miller
Posted: 10/18/2005 1:01 PM 

(Diamonds.net, Rapaport News – October 18, 2005) The following press release from the Gemological Institute of America (GIA) details results of its internal investigation and action, following charges filed against GIA by Max Pincione. (*Read the court case below) The GIA stresses that they have “zero tolerance” for misconduct and have made some organizational changes, one of which was to appoint gemologist Thomas Moses as the new head of the GIA Lab, with the title of senior vice president, GIA Laboratory and Research.

GIA Completes Independent Review, Announces Organizational Changes

Carlsbad, Calif. – Oct. 18, 2005 – The Board of Governors of The Gemological Institute of America, Inc. (“GIA”) announced today that a Special Committee of the Board has completed a comprehensive review of the policies and practices currently in place at the GIA Laboratory. The review was initiated as a result of a lawsuit filed in the spring of 2005 by Max Pincione, which named GIA as one of four defendants. GIA is continuing to defend itself vigorously in that litigation.

Ralph Destino, Chairman of GIA’s Board of Governors, said, “The Board was deeply disturbed by the claims asserted in the complaint, and we felt that we had a responsibility to ourselves, our clients, and the public to not only look into them but to also thoroughly examine all lab practices. That is precisely what we have done.”

Four-Month Independent Review

In May, the Board formed a Special Committee to investigate the allegations in the lawsuit and any related business practices. The Special Committee, in turn, engaged the law firm of DLA Piper Rudnick Gray Cary US LLP (“DLA Piper”) to conduct the review under the leadership of Thomas F. O’Neil III, a partner based in Washington, D.C. who chairs the firm’s Government Affairs practice group and who served as an assistant United States Attorney for the District of Maryland.

“Tom O’Neil has an outstanding reputation as a thorough and tough investigator. We knew we were in good hands,” said Mr. Destino.

Mr. O’Neil said, “We conducted an extensive four-month review, during which we interviewed dozens of witnesses and reviewed tens of thousands of documents, including thousands of diamond grading reports. From the outset, the Board embraced the important guiding principles of self-policing and zero tolerance of misconduct.

“The investigation revealed that, although GIA had undertaken to fortify various facets of the grading process during the past decade, additional measures are warranted. Accordingly, we have presented for the Board’s consideration a number of possible enhancements of, and supplements to, existing policies governing the grading process and compliance in general.
“The Board already has decided to implement a number of our recommendations, including the appointment of a Compliance Officer in the laboratory who will report to the general counsel and will oversee the enforcement of the Institute’s compliance policies,” added Mr. O’Neil.

Board Action

The Board has appointed an Operations Review Committee to assess, and implement as appropriate, the recommendations of DLA Piper.

Mr. Destino said that, “As a consequence of the investigation, GIA has made a number of key personnel changes including:
  • Four employees of GIA’s New York lab have been terminated;
  • Thomas M. Moses, G.G., a distinguished gemologist with a stellar reputation around the world, has been named the new head of the GIA Lab, with the title of Senior Vice President, GIA Laboratory and Research; and
  • Thomas C. Yonelunas, former head of the GIA Laboratory, while not implicated in any violations of GIA’s Professional Ethics and Conduct Compliance Statement, has tendered his resignation, effective December 31, 2005 to ensure a smooth transition of leadership.”

Zero Tolerance Policy

Mr. Destino said, “We have zero tolerance for any misconduct by employees of the laboratory. They undermine confidence in GIA’s ability to serve the diamond industry and ensure the public’s trust in gems and jewelry. Going forward, all GIA employees will be obligated to report all suspected violations of the Institute’s compliance policies to the new Compliance Officer.

“At the same time,” added Mr. Destino, “our policies apply with equal force to lab clients. We, therefore, will not tolerate any violations of our code of ethics by clients of the lab, most particularly improper attempts to influence the outcome of our grading reports. We have identified a small community of lab clients who are implicated in such actions and, rest assured, they will be dealt with swiftly and decisively.”

GIA Must Be ‘Beyond Reproach’

GIA President William E. Boyajian said, “I want to thank the Board of Governors for their strong leadership in this sensitive matter. Because of GIA’s important position in the industry and in the public eye as the leading authority in gemology, we take very seriously the need for our practices, procedures, and employees to be beyond reproach.”

Mr. Boyajian continued, “That is why we are so pleased with the appointment of Tom Moses to oversee the laboratory. Tom Moses is a man of unquestioned integrity and professionalism, as he has demonstrated over his 23 years of outstanding service to the Institute. His leadership will be essential in bringing a serious, systematic approach to our efforts to strengthen our organization even further. At the same time, I want to thank Tom Yonelunas for his many years of service to GIA and the entire industry.”

*THE CASE

Court Case: Pincione VS. Vivid, GIA

By Jeff Miller
Posted: 8/26/2005 3:57 PM

(Diamonds.net, Rapaport News – August 26, 2005) Judging from the e-mails and phone calls into Rapaport this past week, there is great concern within the diamond industry about a pending court case related to alleged payments in exchange for upgraded diamond certificates dating back to year 2001.

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.) This information is provided as a courtesy to Rapaport readers. All parties continue to negotiate and those negotiations are not a matter of public record.

Furthermore, defendant 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.

The Plaintiff:

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.

The Defendants:

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.

The Complaints:

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.
Damages:

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.”