Since November, an estimated 20 or more diamond vendors from across the country have been contacted by phone – in many cases with repeated calls – by what a number of industry members and authorities suspect is an organized group of individuals submitting fake memo orders for sizable diamonds to be shipped to a predetermined pick up address. At press time, impacted trade members have reported estimated diamond losses of more than $1 million. Local police departments, the FBI, industry trade associations and even shipping companies have been alerted to this latest diamond scam.
As with most scams perpetrated on the gem and jewelry industry, from wholesalers to retailers, this one began in mid-November at the start of the busy holiday season. The scam has evolved since November and up until press time. The basics of the swindle is contacting diamond wholesalers posing as other diamond wholesalers or retail jewelers and asking for GIA graded, larger sized diamonds (usually two carats on up) to be sent on memorandum to a certain address.
Posing as industry members, typically the shipping addresses are to vacant houses, homes for sale or places of residence or business that are set up as part of the scam. In cases when the diamond wholesaler agrees to send a diamond or diamonds on memorandum to a designated address as part of this scam, the suspected organized ring has various ways of intercepting the shipment and securing the diamonds sent. In some cases the scammers will call the diamond vendor after the memo is approved and change the address before it’s shipped.
Most often, once the diamond is shipped the scammers contact shipping companies (in many cases for this scam the shipping companies have been Federal Express or UPS and in one case Brink’s) and ask that the shipment be sent to a particular address. Armed with a tracking number, the shipping company is told to reroute the package to a scam-friendly address. The usual reasons for the reroute are provided to the shipping company, ranging from scheduling conflicts to added convenience.
Often people involved in the scam are paid to wait at the designated address, watch for a delivery truck and sign for the package. (Sting operations by police have resulted in arrests of those involved with the scams at these levels.) Another variation of the scheme is scheduling a Saturday pickup when the business is closed, and having packages signed for at a shipping company’s transfer or holding station.
By all accounts, this diamond shipping scam began in Atlanta, Georgia. Daryl Pinsky, president and CEO of Atlanta-based Crown Diamond Company, believes he was one of the first to be involved in the scheme back in mid-November. After repeated attempts at using his company’s good name to surreptitiously secure diamonds, Daryl amassed a database of mainly diamond wholesalers and retail jeweler contacts then began sending out periodic alerts about the scheme starting in early December.
“To my knowledge Crown Diamond was one of the first [diamond wholesalers] to be connected to this elaborate scam,” says Daryl. “Georgia Diamond, a diamond wholesaler in the Atlanta area, called and said we were approved to receive certain diamonds that we had supposedly ordered on memo. I place all the orders and I did not place such an order at that time with this wholesaler. That’s when the red flags started going up for us.”
According to Daryl and other diamond wholesalers, the leader or leaders of this diamond shipping scam ring and some of their accomplices have detailed knowledge of diamonds, the diamond industry and most likely has access to RapNet or even Polygon’s online trading networks.
“It’s my belief that these criminals have detailed knowledge of diamonds and the diamond industry and likely RapNet and Polygon access login information because they’re asking for very specific GIA-graded, larger diamonds in very specific details that perfectly match goods posted on these online trading networks,” says Roger Frysh, president of Atlanta-based Georgia Diamond Corp, that has also been harassed with dozens of scam-related phone call requests for memo diamonds.
Nico Palmieri, senior executive manager at Rochester, New York-based diamond wholesaler RDI Diamonds, agrees: “When these guys call, and they call a lot, they’re asking for very specific weights and specs of GIA graded diamonds. It’s always GIA-graded diamonds as they’re the gold standard in our industry. If they do successfully scam a diamond wholesaler they won’t have the diamond grading document, but will have the diamond’s essential specifications from GIA which can help them unload the goods.”
Georgia Diamond was contacted around mid-November, much like Crown Diamond and RDI. On the receiving end of literally dozens of scam-related phone calls since that time, Roger contacted the local police department to file a complaint, the first such action taken to alert authorities of the scheme.
According Roger, Daryl and Nico, the scam begins as a fishing expedition for basic company information by phone, from hours of operation to office or mailing addresses. The scammers then attempt to drill down with a series of seemingly innocuous questions that can eventually give the bad guys enough company information to build a basic company profile.
The diamond scam has evolved over time, according to Roger. “The scammers don’t use the same method every time, but rather change their tactics a little, presumably to avoid detection. Usually they ask diamond vendors to ship to a different address, and sometimes they ask the vendor for the tracking number and re-route it early the next morning, or late at night the day of shipping. Saturday delivery is also utilized because diamond vendors are typically closed and are therefore not aware of what is happening.”
And, in iconic Apple speak, there’s even an app for helping these diamond scammers pose as legitimate diamond wholesalers. Using mainly prepaid cell phones at every level of the scam, a spoofing app can be used to show the number of a certain person or business even though the actual number is completely different.
“We started running in to this aspect of the diamond shipping scam in late January and early February,” says Nico of RDI. Even though RDI has been peppered with dozens scam-related calls – sometimes several in a given day or week – the company’s established policies and procedures for shipping memo diamonds has allowed them to remain unscathed at press time.
“Our sales staff works with dedicated accounts,” says Nico. “These salespeople have been working with their accounts for several years, know the people who regularly place the orders, and call back to verify the diamond memo requests. And, changes in shipping addresses must be verified beforehand with a letter requesting the change on the company’s letterhead sent by fax. No fax. No shipment.”
Not all diamond wholesale companies are so lucky. Anxious to make a big sale in time for a customer event, the scammers’ persistence ultimately pays off. Companies considered by many industry members as leading diamond wholesalers, from New York and Southern states to Dallas and Los Angeles, have been stung by this scam with losses at press time conservatively estimated to be more than $1 million.
“We estimate that roughly 20 or more diamond vendors have been impacted by this ring in some form or another,” says a representative from a Dallas-based diamond wholesale company. “These people are very determined and speak the language of the diamond trade like old hands. And, they’re very clever and very determined.”
Both Roger of Georgia Diamond and Daryl of Crown Diamond have either filed reports or spoken with local and federal authorities. Given Roger’s jurisdiction, he filed a police report with the Sandy Springs, GA police department. Roger and his staff worked with local police to set up a sting operation using diamond simulants such as CZs. But many of the ring operatives are low-level people, often paid to simply sign and pick up packages for delivery.
“The person arrested when signing for the package was detained, questioned and ultimately released,” says Roger.
Daryl and other diamond wholesalers affected by the scam in some form or another have spoken with the FBI. “It’s frustrating,” says Daryl. “According to the FBI, this scam is spread over too many states and involves too many addresses. They say they don’t have the resources to shut these guys down for good.”
“The FBI is attempting to determine the scope of the scheme,” says Special Agent Bill Gant, Media Coordinator for the FBI’s Atlanta office. “Individual dealers have made complaints to local departments. There is no one local or state law enforcement agency compiling a list of victims. The FBI is working with the Jewelers Security Alliance [JSA] and the Jewelers Board of Trade [JBT] to identify victims and determine if an organized group or individuals are behind the scheme.”