Last week’s column, “Failed Leadership and Fraudulent Certificates,” triggered an avalanche of reactions, some of which have appeared online while others were expressed through e-mails, phone calls or letters. I was startled to discover that quite a few people were acutely aware of the arbitration on a dispute between partners in a fraudulent upgrading scheme (They invariably confirmed the full names.) The fact that more people were aware of this arbitration and its contents is worrisome: why didn’t anyone speak up?

Since last week, we have also received information about the status of the investigation of the bribers and bribe recipients by the U.S. Attorney’s office. We will report on this in next week’s column, as more aspects need to be verified.

The Diamond Dealers Club (DDC), through its Managing Director, Dr. Martin Hochbaum, and secretary, Sylvain Ringer, formally responded to our memo. As we believe that the “right to reply” is a fundamental privilege to be afforded to anyone who is the subject of an article, we are including the DDC’s response verbatim in this column.

We want to stress that a draft of last week’s article was submitted to the DDC prior to its publication – in itself a quite unusual courtesy – and we did get responses that were quoted in our column. The DDC letter below should therefore be seen as an additional response.

We also want to note that we fully and firmly stand behind our report on the essence of the arbitration, and we are also aware that, in real time, concerns about this specific arbitration had been raised with the Club’s leadership. Therefore, in our previous article, we tied the arbitration to leadership questions. As it indeed happened around six to seven years ago, we have some sympathy for the view raised by some that we should have reported on the event much earlier – or should have left it alone.

The letter of the DDC is hereby reprinted without any further comments.

Dear Mr. Even-Zohar,

We are writing in response to your recent article about the Diamond Dealers Club. Your piece, which focuses on the Diamond Dealers Club, essentially addresses 2 issues affecting our 77-year old trade association: the proposed elimination of term limits; and, a DDC arbitration, which you claim focused on fraudulent GIA certificates.

It is not up to us to offer an opinion regarding the issue of term limits (as far as we are aware, Israel has such limits but most Bourses do not). The proposal to which you refer was recommended by the DDC Board of Directors in a secret vote of 11-1 with 1 abstention. It should be noted that this proposal could not become a part of the DDC By-Laws unless it is approved by a 2/3rd vote of the membership present at a regular meeting.

The largest part of your article focuses on an arbitration at the Diamond Dealers Club 6-7 years ago. According to you, at this arbitration the litigants were involved in a “fraudulent” business partnership that was organized solely to receive upgrades in GIA Certificates. In effect, you assert this was an example of “GIA Certifigate fraud” before people in the industry were aware of such fraud.

As a well respected journalist in our industry you should be aware that the DDC Board of Arbitrators and the DDC leadership are actually separate entities that are chosen independently and have distinct responsibilities. In fact, this separation or wall between our arbitrators and leadership is a major strength of our arbitration system.

Arbitrators are a judicial body; the leadership or Board of Directors is a legislative-executive body. When you assert that “DDC itself must have had the names of some of the fraudulent parties by their own admission,” we are compelled to point out that arbitrations are not public forums. They are held privately and the arbitrators are counseled that they are not to discuss anything that occurred during an arbitration with others, including the DDC Board. DDC arbitrators are constantly informed, including at our annual training sessions, that failure to follow this rule could lead to a panel being dismissed and to a decision being reversed.

Moreover, arbitration decisions are only disseminated to the litigants. While our leadership is at times called on to implement decisions, it does not become involved with or informed of the deliberations in a case. This barrier or obstacle between our arbitrators and leadership has served DDC well for more than 75 years, 75 years in which thousands of arbitration cases have been heard and successfully concluded (including many of our arbitration awards being either confirmed or upheld by the New York State Supreme Court and the Appellate Division).

DDC has no information to suggest the truth of the claim about a “certifigate fraud” that supposedly came up at an arbitration. It seems at the least far-fetched to believe that two members set up a fraudulent business partnership and then came to our arbitrators to resolve a dispute that occurred between them in this “fraudulent partnership”.

Assuming, for the sake of argument, that there is truth to this allegation. Arbitrators are not criminal investigators; they are not prosecutors. They are only empowered to resolve the dispute that is pending before them. They hold hearings involving two (occasionally more) adversaries and come to a conclusion based on the information presented to them. They do so within a framework of our own By-Laws as well as the government’s Civil Practice Law and Rules (CPLR) to which we must adhere.

Our meetings and press reports in the last few years have led us to understand that the allegation of fraud by GIA staff is under investigation by government authorities (in the past, we contacted our members and urged them to report to us information they had on the improper grading of diamonds). As is the case throughout the industry, we too look forward to the conclusions of this investigation and to any judicial decisions that follow so that the integrity of our industry is restored to its rightful place.

In 2005 the DDC Board said: “Promoting industry integrity must be a continuing objective that requires the cooperation of all segments of our trade.” That is a goal to which all of us must continually rededicate ourselves.

Warmest wishes and we trust this assuages the concerns you expressed. We look forward to welcoming you to the Diamond Dealers Club on your next visit to New York.

Thank you Martin Hochbaum and Sylvain Ringer.

Have a nice weekend.