The proposed elimination of term limits at the Diamond Dealers Club (DDC) in New York will, in theory, enable an incumbent president to become a president-for-life. After changing the rules a few years ago to enable the incumbent to stay on for four consecutive two-year periods, the rules have now changed again – and the two-year terms of office have changed to three years, and term limits will most likely disappear altogether.

The DDC, once upon a time one of the most important and prestigious bourses in the world, sees its membership declining. Some very significant, prominent New York diamantaires have recently resigned or are contemplating doing so, simply because they don’t like the way the bourse is managed. There is also a sense that incumbent leadership has “entrenched” itself and cannot really be removed.

People get the leadership they deserve. People vote for various reasons – sometimes because they believe the candidate is good (or the best among the candidates), in other cases because of fear. Sometimes leaders can be vindictive, spiteful or even dangerous – and you don’t dare cross them. “Open” votes invariably produce different results from “secret ballots.”

Actually, it isn’t my business who the members of the DDC elect, but I like to believe that bourse members will judge the quality of leadership and, for their own best interest, go for the best candidates – without fear. Leadership is shown by action, and by display of courage and public integrity.

DDC Held Keys to GIA’s Certifigate Scandal

My DDC file is a bulky one. Almost randomly I have selected the following story for the membership to contemplate when choosing their leaders. In the early part of this decade (the 2000-2005 period), there was a DTC sightholding company in New York that had developed the fraudulent certificate upgrades into an art. The bribery went smoothly; the results were always delivered. It was the GIA Certifigate fraud in its most sinister and criminal form.

Then a third party entered the scenario. A not very successful diamantaire, G, came up with a “brilliant” criminal scheme: why not use the same connection to the criminal graders for other people’s stones?

So G. entered into a lucrative partnership with a dealer in very large goods called K. The partners agreed that the “value added” created through the fraudulent upgrade would be split equally. K. would hand the goods to G. on a memo basis; when the new certificate was obtained, G would return the goods to K. and, after the sale, the parties would settle the account between them.

It lasted quite a while, but eventually G., who, as already mentioned, was not a very successful diamantaire, got into financial hardship. At some point, instead of returning diamonds to K. after their upgrade, he sold them. He ended up owing money to K. and at this point the DDC comes into the picture.

K. went to the bourse and filed a complaint against G. In the ensuing arbitration, I have been informed, the (three) arbitrators of the DDC heard details of the fraudulent scheme. The sole and only activity of partner G. it would seem, was to take an already GIA-certified large stone back through the bribery trail to the GIA and produce a better certificate. There appears to be no other reason for the partnership. There was nothing else G. could do for K. According to my information, the bourse accepted this dispute for arbitration and, indeed, a judgment (verdict) was rendered in favor of K. 

When informally getting reconfirmation of this event that happened well before the GIA Certifigate fraud came out into the open, my DDC sources told me initially that, indeed, there was a complaint, but there was never a full arbitration, and there was no verdict. It was explained to me that there are often problems in getting people to testify, and that in this specific instance – which was clearly remembered – the complainant decided to go to court. The DDC doesn’t keep transcripts of proceedings, though the record of the registration of a complaint and the fact that arbitration took place must be kept. “It isn’t difficult for an arbitration file to disappear or to be mislaid,” confided a former DDC officer to me in a telephone interview. 

Response by DDC

After presenting a draft of this editorial for comment to the DDC, the Club’s vice president in charge of arbitration, David Abraham, clarified that the sources who told me that the case did not come to a complete arbitration had actually been referring to an entirely different complaint. This might imply that the Club may have dealt with more than one GIA Certifigate-related situation, but I hope that this is a wrong conclusion. David Abraham advised us that the specific arbitration mentioned in this article took place before he assumed responsibility for the bourse’s arbitration mechanism. He stressed that he “will never tolerate the arbitration on criminal issues within the bourse.”

Now, to come back to the arbitration of K. against G. The sad and unequivocal fact is that, assuming that such an arbitration did actually take place, then a number of people at the DDC knew and learned about the GIA Certifigate fraud long before most others in the industry. The party that complained charged that his partner in this bizarre partnership failed to return the stones to him. The bourse should have been well aware of what was happening.

Asking the GIA for Names… to Do What?

Here the questions of quality of leadership and level of institutional integrity come into play. The DDC, like other organizations, takes the GIA to task for not “disclosing” the names of the companies they had caught in the largest consumer fraud ever perpetrated in the diamond business. But the DDC itself must have had the names of some of the fraudulent parties by their own admission in the arbitration.

What did the leaders of the DDC do? Did they warn the other members in the Club not to purchase large goods from either the DTC sightholder or from K.? Did they inform K. and G. that the bourse would not arbitrate such a case because it might involve criminal issues? Did they expel these criminal members from the bourse? Did they warn other bourses? Did they inform the GIA management that they discovered a suspected bribery scheme? No, they didn’t.

Could or should bourse members expect “better protection” and different conduct from their leadership? That’s for them to decide. Because G. was in financial trouble, and he owed money to several parties, he eventually declared himself bankrupt. My DDC sources were correct when they said that there was a court case at some point – yes, K. tried to collect through court proceedings the money that was awarded to him in the DDC verdict.

But this is just one anecdote from my DDC file. There are more stories, but we’ll leave these for another occasion.

If a diamond club wants to remain relevant, if its wants to continue to provide a meaningful trading platform for its members, it needs the wisdom and the vision to avoid arbitrating issues which shouldn’t be arbitrateable. Without good governance, high ethical standards and professional decency, the diamonds traded through such a bourse “will lose value.”

Eliminating leadership term limits will probably spell the beginning of the end of the DDC. The exodus of good and respected members will continue. On the other hand, one also might argue that any diamond bourse that protects (even if not knowingly) some members that represent the scum of the industry may neither have a right nor a reason to remain in business.

Maybe it is better for the diamond industry at large if we just let the DDC’s term limits be abolished – without adding any further comment.

Have a nice weekend – in New York and elsewhere.