Exposing Overgrading at European Gemological Laboratory (EGL)
On September 9, 2014, the Rapaport Group issued a press release stating, ‘Effective October 1, 2014, EGL will no longer be listed as a diamond grading report on RapNet. This notice applies to all EGL grading reports including EGL International as stated in our previous notice.’
This press release followed investigations, media coverage, and lawsuits that exposed rampant and prolonged overgrading of diamonds and misrepresentations of diamond quality by EGL labs. Martin Rapaport, chairman of Rapaport Group and founder of Rapaport Diamond Report, further explained the impending threats overgrading posed to the diamond industry in his report ‘Honest Grading’.
In his report, Martin Rapaport blasted the European Gemological Laboratory for utilizing GIA (Gemological Institute of America) diamond grading terminology, but not utilizing the same GIA diamond grading standards. He explained this results in overgrading and a misrepresentation of the diamond’s quality. He defined overgrading as a diamond graded using GIA terminology, but when verified by GIA, is more than one color grade or more than one clarity grade lower than the original grade. He backed GIA’s diamond grading language and its diamond grading standard as it is employed by the entire industry.
However, EGL issued a rebuttal statement to Rapaport Group on September 18, 2014 stating, ‘the use of the term “standard” suggests that such a standard EXISTS. However, at this point in time, there is no single, international standard for diamond grading that has national or international status or acceptance. In general, gemological laboratories that issue diamond grading reports will consistently state that the results of diamond grading are, to a certain extent, subjective.’
Rapaport expressed his concern over what he called, “gemological anarchy” if EGL’s claim of no grading standards is accepted by the industry. He stated the demise of the globally accepted GIA grading standard, the language of the trade, will result in the collapse of diamond prices as dealers, retailers and consumers no longer have a benchmark upon which to differentiate quality and price. He says, ‘The GIA is the global diamond grading standard accepted by the international trade and the legal systems of the United States and other countries.’
He also questions EGL’s use of GIA terminology for grading diamonds on their reports while disregarding GIA’s standard of grading. The EGL diamond grading system employs all aspects of GIA’s terminology when describing color grade, clarity grade, cut, and carat weight. These are the ‘4 Cs’ created by GIA in 1953 and known world-wide. If there are no standards, as stated by EGL, then any lab can call a diamond any color or clarity grade they want.
On EGL’s statement that there is no standard because diamond grading is subjective, Rapaport pointed out that trained gemologists are usually within one color grade and clarity grade of each other. He also stated that 100 out of 100 gemologists can differentiate between a G color grade and a J color grade. Therefore, there is no reason to be more than one color or clarity grade off, as is consistently the case with EGL graded diamonds.
Rapaport also pointed out that diamonds with EGL reports are traded on RapNet at prices lower than non-certed diamonds. He feels the lower price was a consolation maneuver by dealers who wanted to profit, but didn’t want to outright lie about the diamond’s lower quality.
He also stated that while overgrading starts with the lab and is perpetuated by diamond dealers, the ones who will pay the ultimate price are the retailers. According to US law, there are different rules for transactions between “experts” and transactions between experts and consumers. Diamond dealers and retailers are considered experts and can make an educated evaluation of the diamond’s quality in reference to its price while the retail diamond customer cannot. While the customer thought he was buying a G color grade diamond, with an EGL report stating this, he actually purchased a J color grade diamond. The customer could demand his money back, and then some. Profits stand to be lost if all outraged customers storm the stores. If money is not refunded, reputations stand to be lost as well.
The consequences of overgrading are catastrophic and extend beyond fraudulent transactions, according to Rapaport. An ethical jeweler selling a correctly graded diamond with a GIA report cannot compete with an unethical jeweler selling an incorrectly graded diamond with an EGL report showing the same color and clarity for thousands of dollars less. Many ethical jewelers stand to lose their businesses or, worse, they may also decide to also sell overgraded diamonds in an effort to compete, perpetuating the problem.
However, what could happen when customers figure out the diamond they thought was a G color grade, according to the accompanying EGL report, is really a J color grade could cause unethical jewelers to lose out too. Many could demand their money back; many could demand their money back in addition to damages; others could resort to social media to blast the industry and jewelers. Even if money is refunded, lawsuits can still be filed on fraud charges.
Rapaport recognized that some EGL labs are more consistent with GIA grading than others, but the problem is that the EGL brand lacks common standards. The EGL name umbrellas numerous labs across the world, each with individual and independent ownership. For example, EGL USA is widely considered by jewelers to be the most accurate while EGL International and EGL Israel are known to be flagrant violators of GIA’s standard of diamond grading, often overstating color by 4 grades and clarity by 2. The problem is that EGL International can trade on EGL USA’s better reputation. Rapaport axed all EGLs as a result.
Rapaport did have a discrepancy with GIA’s grading where the SI3 clarity grade is concerned. RapNet lists diamonds clarity graded with a non-GIA term of ‘SI3’. Rapaport relayed that the disparity between SI2 and I1 was too great in GIA’s grading and that most in the industry used the SI3 term. He stated he was not changing the GIA grading system, but was adding to the diamond’s description in order for it to be fairly traded on the internet without being seen. The Rapaport Group has appealed to GIA for the need to add SI3 to its clarity grading nomenclature.
Rapaport stated, “We recognize that while the GIA grading system is not perfect or all-inclusive, it is the standard that must be used when using GIA terminology.”
Rapaport recognized that while GIA originated diamond grading terminology, there should be healthy competition among labs that employ it. RapNet lists diamonds graded by GIA, AGS, HRD, and IGI labs. Rapaport also surmised that there could eventually be other labs that create their own grading system to rival GIA’s.
Rapaport also offered solutions to combat the overgrading “poison”, as he called it. He proposed that all dealers and retailers stand behind what they sell and offer their customers a grace period in order to get their diamonds graded by a third party lab before they commit to the actual sale. Also, sellers can disclose the possible inaccuracy of the accompanying EGL report and allow the buyer to knowingly assume responsibility. He also recommended that all gemological labs operate under similar grading standards.
He also called out all industry leaders to rally around the GIA standards and offset the threat overgrading poses to the industry. ‘Hundreds of thousands of consumers have purchased more than one billion dollars of overgraded diamonds.’ Consumer confidence is worth more than profits to be had from misrepresented diamonds. He also implored trade organizations to get involved and keep sellers accountable for the quality of the diamonds they sell.
The delisting of EGL reports from RapNet was spurred by an investigation a local Nashville, TN news company did on one of their area’s largest jewelers and also from the impending lawsuits resulting from the expose. Channel 5 news in Nashville went undercover in May 2014 and revealed in two news segments that Genesis Diamonds sold customers incorrectly graded diamonds with EGL reports. When customers tried to re-sell the diamonds at different jewelry stores, they were offered prices far below what they paid due to the lower color grade and lower clarity grade of the diamond. One Genesis customer was sold a 2.68 carat diamond EGL graded as an H VS1 only to have a trained gemologist at another store grade it as an L SI1. She lost thousands of dollars.
By July, the news segments resulted in four lawsuits filed against Genesis Diamonds for fraud and for violating the Consumer Protection Act. The one lawsuit named not only the owner of Genesis Diamonds, Boaz Ramon, but the sales associate who sold the diamond.
Many jewelry stores have not experienced questioning customers yet, but are taking still preventative measures in light of the overgrading upheaval. A fourth generation jewelry store in Pittsburgh, PA quit buying EGL diamonds and now strictly sells GIA or non-certed diamonds.
Many gemologists, jewelers, and trade experts agree that action in retaliation to years of EGL’s overgrading techniques was needed. However, the consequences of overgrading maybe just be starting to surface and the industry may see further action taken.