Litigation Costs to Jewelers for Lab Report Errors

Litigation Costs to Jewelers for Lab Report Errors

Last week this newsletter brought you information on the Legal Facts of Gem Lab Reports. As a result, I received many responses voicing appalling dismay that the major gem labs operate in such a legal void. Of particular note was how much the major gem labs tout themselves as the experts on lab reports, then simply walk away when they make grievous and costly errors, leaving home-town, independent retail jewelers to pay for the errors that they never committed.

This week I want to fully bring this situation to light and give you further facts of the litigation costs of the two cases we discussed last week.

Hilou -v- Heritage Auctions

In  this case the Gemological Institute of America made a grievous and costly error that involved either a failure to identify HPHT treatment of a diamond, or else a clerical error that totally changed the color grade of a diamond graded by the GIA grading lab. The GIA blamed the situation on a clerical error only after being called to task on the matter. The case involved a seller and buyer of the diamond in question. The seller used the original GIA Report #16175691 Dated May 30, 2007. When the diamond was resubmitted by the buyer for reconfirmation, the diamond suddenly became HPHT treated and the GIA issued the same certificate, same number, and same date, but this time put in the HPHT treated condition on the diamond. The actual reports are seen below from court documents.

On December 30, 2013, after litigation between the buyer and seller ensued over the error, the GIA issued a letter admitting to the mistake but refused to take any responsibility for the costs of the error.

The GIA refused to appear for the binding arbitration hearing.

The GIA refused to pay any error-generated litigation costs of the buyer or seller who relied on the accuracy of the GIA grading report.

The GIA was never held legally or financially responsible although the entire litigation was caused by their error for which they admitted.

Legal Fees and Costs to Buyer and Jeweler: US$105,000.00

Legal Fees and Costs to the Gemological Institute of America for causing the litigation: US$0

Direct Shopping Network -v- Robert James, Colored Stone Magazine

Yes, I was a party to this litigation that involved not just the GIA, but also the now closed American Gem Trade Association gem lab, the Asian Institute of Gemological Science, and Professional Gem Sciences. (among others). I wrote a report on the fraud perpetrated by a Chinese company helped by certain television shopping channels that was then published in Colored Stone magazine. For our efforts Direct Shopping Network filed a lawsuit for Trade Libel, Tortious Interference with Business and other accusations. DSN President, Art Garabedian loudly proclaimed that he had sued me and was “going to bankrupt Robert James and throw him out of the jewelry business”. More on that in a minute. First, the elements of the case.


The case involved a Chinese company, Andegem Inc., who developed a method for artificially infusing copper into large crystals of labradorite feldspar that they imported to China from the Casa Grande Mine in Mexico. Andegem then sold this treated gemstone, now known as “Tibet andesine,” as all natural, fraudulently claiming it as coming from a remote mine in Tibet. The façade was completed with the marketing and sales help of Jewelry Television and Direct Shopping Network, along with a myriad of major gem labs who issued bogus identification reports confirming the fake story of Andegem.

At left one of the AGTA GTC certificates signed by John Koivula and Dr. Lore Kiefert.

It is unknown just how much the labs knew about this new Tibet andesine material, but when confronted all claimed they had no prior knowledge of a copper bearing feldspar from Tibet, and issued the certificates without a clue as to the authenticity of the claim by Andegem.

Which begs the question: Why would the GIA, AGTA, Professional Gem Sciences, AIGS, etc.…issue certificates calling the material “Natural” and untreated when, in fact, they did not know if it was or not? Regardless of this, as new research was brought forward and the litigation ensued, the truth was finally revealed that the Tibet andesine was fake. There was no “copper-bearing andesine” mine in Tibet. 

The hoax was given a last effort when Jewelry Television and Andegem, along with the help of the GIA, sent representatives to the supposed Tibet andesine mine to document the mine. These included Richard W. Hughes and E. Billie Hughes of Lotus Gemology, and Brendan Laurs of the GIA (at the time but with the Gem-A now). These folks made a huge show of the supposed mine trip, showing pictures of them romping around the claimed location of the Tibet andesine mine.

At left, Brendan Laurs, formerly of the GIA but now with the Gem-A, shaking hands with fellow perpetrator Li Tong of Andegem.

In the background: This is the claimed mine that supposedly produced over $135 million in rough andesine. From where? I don’t know. The ground is undisturbed. Rj

However, a follow up visit by the National Gem Testing Center of China exposed the expedition story to be a hoax. The NGTC visit revealed a warehouse full of artificially treated feldspar and no evidence that a feldspar mine existed at the location. Further research by members of the independent scientific community further proved the mine claims to be the result of a very costly hoax perpetrated by these players.

The litigation case went as high as the California Supreme Court with an anti-Slapp motion filed by my attorneys and Colored Stone Magazine’s attorneys.

We prevailed. We won the case and were awarded litigation costs. For the record, shortly thereafter DSN President Art Garabedian declared bankruptcy and left the jewelry industry.

Once again, neither the AGTA Gem Trade Laboratory, the Gemological Institute of America, the AIGS or any of the other labs involved were held accountable, despite proof that the whole story was a hoax.

Additionally, neither Richard W. Hughes, E. Billie Hughes, Brendan Laurs, or any of the other perpetrators of the expedition hoax were held accountable. In fact, just the opposite. All are being treated like rock stars by the Gem-A, the GIA, the AGTA, and others.

Not one of the major labs has been held accountable.

Here are the approximate litigation costs as a result of Direct Shopping Network -v- Robert James, Colored Stone Magazine, et al.:

Approximate Cost of Litigation to Colored Stone Magazine: US$125,000.00

Approximate Cost of Litigation to Robert James: US$115,000.00

Litigation Cost awarded by the California Appeals Court: $240,000.00

Legal fees collected by Robert James and Colored Stone Magazine from Direct Shopping Network: $0


What jewelers need to know

The retail jewelry industry and consumers need to know the inherent flaws in the major lab report system. As we saw last week, the labs tout themselves as the industry authorities in gemstone identification and grading. When they make costly errors, (and there are many out there) they hide faint-print disclaimers on the back of their documents absolving themselves of any responsibility for the errors.

Clearly, the GIA and others take advantage of these disclaimers. Case study reveals just how wanton is the effort by the GIA and other labs to quickly deflect any financial responsibility for their errors…even to the point to helping create fake mines and expedition reports to protect themselves.

Given the current situation, I do not believe that any government or industry oversight is on the horizon. Indeed, in the jewelry industry the fox is in the hen house. The very perpetrators of the Tibet andesine hoax are the major players in the big name labs and organizations. How can we expect a fair hearing on these issues when the one holding the hearing would be the one creating the hoax?

Litigation is the only key to finally holding the labs accountable. It is neither fair or just to expect hometown, independent retail jewelers to bear the financial brunt of the costly errors created by gem lab inaccuracy and chicanery.

The GIA alone generates over US$300,000,000.00 in tax free revenue a year, with only about 11 percent generated by education efforts. The rest is tax free revenue from their lab reports that they tout as being the best in the industry, until they make a mistake.

Then…the GIA and other lab’s mistakes becomes your mistake. You pay for it. They will not. 

Before you rely on any GIA, AIGS, IGI, EGL, PGS or any other lab report, you should be prepared.

If they make an error, you pay for it.

And there is nothing you can do about it, well almost nothing.

I have one more follow up to this story next week. Don’t miss this.

Robert James FGA, GG

President, International School of Gemology

Property and Casualty Adjuster, Texas Department of Insurance #1300433

Global Jewelry Claims Associates

Member: National Association of Independent Insurance Adjusters