About 14 months ago, New Orleans Saints quarterback Drew Brees filed a lawsuit against a San Diego jeweler, CJ Charles Jewelers, who he claimed sold him lower-grade colored diamonds. Now, according to CBSNews.com, the San Diego court granted Brees a $6.1 million judgment against the jeweler.
According to the original complaint, Brees and his wife Brittany claimed that the jewelry store owner Vahid Moradi continually sold them colored diamonds as an investment. A variety of sales took place throughout a four-year period from 2012 to 2016. In 2017, though, Brees had the diamonds appraised and was told that their value had been over-estimated, with some of the stones being sold to Brees for anywhere from about 40 percent to a few hundred percent markup.
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In an article published by JCK Magazine (a jewelry industry trade publication), among the stones that Moradi had purchased and then marked up significantly to sell to Brees was a Harry Winston diamond ring. Moradi had paid $565,000 for it at a Sotheby’s auction and sold it a month later to Brees for $1.6 million.
Brees filed suit, with his attorney stating that the jeweler intentionally misled Brees and his wife about the value of the stones. In total, according to Fox 5 San Diego, Brees had paid about $15 million for diamonds that were appraised at $6 million. Throughout the court case, Moradi argued his right to mark up jewelry and said his markups were not extreme. Still, the court found that Brees prevailed in the four main causes of action: breach of contract, breach of fiduciary duty and two counts of fraud. Moradi’s lawyer said he intends to file an appeal.
The case is sticky for the jewelry industry in a host of ways. For instance, Brees’ case states that because the jeweler was advising Brees on which stones to buy, he went beyond his role as a jeweler and became an investment advisor—a role with ethics and trust at stake. There are a host of reputable retailers out there who are also advising their clients on which stones would be a great investment. Does this need to end?
According to Roberto Chiapelloni, owner of Manfredi Jewels in Connecticut, “Using the word investment when selling a diamond puts you on a very shaky limb. We have no idea how the market for diamonds will go. We are selling something that will always have intrinsic value –but honestly we can’t predict the market. In my humble opinion it is unethical to sell a diamond as an investment because you can’t guarantee its future value. ”
In fact, just like the stock market, diamonds have an up-and-down cycle, especially given today’s growth of lab-grown diamonds that are disrupting the diamond market and their retail prices. Says Chiapelloni, “
When we sell a diamond, there is not one word about investment; it is a jewel that will give you a lifetime of pleasure and a retention of a good portion of its value.”
Additionally, the case calls into question the methods of appraising stones and the concept of markups by jewelers, raising questions such as “is there a cap and can a cap be enforced?” In a host of “off-the-record” interviews with retail jewelers, we came back with a single word : subjective. Appraisals are done for a host of reasons ranging needing to get insurance to wanting a “feel good” sense about the purchase, or because of a desire to resell the piece of jewelry or the stone. The end result of the appraisal is often predetermined by the question, “what do you want the appraisal for?” Appraisals vary, despite there being guidelines.
As to markups, this is another subjective area. There is freedom for the jewelers to mark up any item and generally, a person knows walking into a store (or buying on line) that a markup is involved thanks to our capitalist system. While some brands or companies suggest a retail price, the jeweler can set the prices he wants.
“I am not suggesting that we set prices, but there has to be some rationale when doing so. And customers have to do research and expect differences in pricing,” says Chiapelloni. “The exact same GIA-certified diamond coming out of Tiffany, for example, or coming out of Manfredi, if you remove the blue box or the yellow box, they are the same diamond in quality and clarity and other facts. But Tiffany has bigger prestige than my store, so realistically they can charge more.”
As to the case, it is expected that if an appeal is filed, this could be in the courts for another year.
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