Paraiba Files Suit Against AGTA, GIA, Alleging Gem Grading Fraud

A lawsuit has been filed against the American Gem Trade Association (AGTA), the Gemological Institute of America (GIA), Brazil Imports, Inc (BI), and a number of individuals – corporate directors of AGTA whom the suit alleges were “engaged in whole or in part with…illegal and improper actions.”

The plaintiff, David Sherman of Paraiba.com, Inc., is accusing the gem labs of grading tourmaline mined in Mozambique by BI, which is of inferior quality according to the plaintiff, as Paraiba stones (a valuable tourmaline mined only in the Paraiba area of Brazil). He is seeking damages of a minimum of $120 million.

Sherman developed a tourmaline mine in the Paraiba area of Brazil and marketed and sold the gemstones taken from the mine. The Paraiba stones were very valuable and often sold for $22,000 to $30,000 per carat, the suit states.

Once the Paraiba mine had been exhausted, the Paraiba stones thus became rarer. The suit alleges that BI found a deposit of “vastly inferior” tourmaline in Mozambique and Nigeria, and, with the complicity of the gem labs, passed off a large number of African stones as Paraiba stones, thereby saturating the market and debasing their value.

“The Paraiba stones were of limited number. The Paraiba mine and the adjoining mines in the Brazilian state of Del Norte that extracted the same named stone soon ran out of recoverable quantities of gemstones. As a result, the value of the existing stones maintained a high level of value and the value of the remaining stone were of increasing value as time passed,” the suit states.

“BI and various other persons including some or all of the individually named defendants in the present action began to import, sell and distribute the African stones throughout the U.S. These stones were fraudulently represented as being Paraiba stones,” it continues, alleging that “millions of dollars of these inferior stones were sold to the public under the moniker of being Paraiba stones.

To cover up this fraudulent action, the suit alleges BI and the gem labs entered into a scheme in which they agreed to redefine as a Paraiba stone “any cuprous elbaite that contained copper and manganese.”

“Further, AGTA had an economic interest in maintaining the fiction of the African stones being Paraiba stones in that AGTA charged for the preparation of certifications. AGTA would have been subject to litigation for preparing misleading certifications.

“Additionally, AGTA wanted to continue to charge fees to issue certifications falsely providing information to the public regarding the origin of the African stones so as to continue to collect fees for the provision of such certifications,” the statement continues.

The effect of all of this, states Sherman, was to diminish the value of the true Paraiba stone, from $20,000 to $30,000 per carat to a far lesser value, “as potential buyers were unable to ascertain the market value of the true Paraiba stones.” As a result, Sherman lost the value of his reserve stock, worth no less than $20 million, as well as the Paraiba name “as a distinct and valuable commodity.”

Sherman is seeking a further $100 million in punitive damages, due to the conduct of the defendants being willful, wanton and done with conscious disregard for the plaintiff’s rights and welfare and for their own profit.

 
The suit further alleges that the AGTA and the GIA, both not-for-profit organizations, engaged in operations that were for profit.