As a joint initiative between the London Diamond Bourse and the Insolvency Service this document deals with the issue of companies purporting to offer diamonds as an investment.
This consumer advice seeks to outline the working practices of companies that miss sell diamond investments and highlight that London Diamond Bourse members are subject to regulation and as such consumers are covered by redress through our arbitration services.
Over the last few years, the incidences of people being missold diamonds and precious stones have risen. In virtually all cases, the sale of such stones are part of a sophisticated “Boiler House” scam where either the stones do not exist or are being sold at hugely inflated prices – it is not uncommon for prices in excess of 15 times the correct value being charged. The customer is often persuaded to house the non existent diamonds in a Swiss bank vault in order that the sale is not subject to UK VAT.
In a more recent development, there are now companies offering to help those affected by offering recovery services to attempt to recoup previously sold diamonds or monies. These offers can often be an extension of the scam. The companies in question will likely seek an upfront payment or require the purchase of other diamonds, or other alternative investment products before they will act. In such a cases members of the public would be advised to treat such companies with suspicion.
The LDB has well documented evidence of consumers who have been the victims of such scams where customers have been duped out of tens of thousands and sometimes hundreds of thousands of pounds, believing they have made a sound investment – until such time they fail to get access to the diamonds or come to the sad realisation that the resale value is nowhere near the original purchase price.
As diamonds are an unregulated form of investment, diamond brokers do not have to be registered with the regulator of the Financial Conduct Authority. To date, the LDB has not received a complaint regarding one of our members acting as above and implore members of the public to ensure that they complete as much due diligence as necessary to protect themselves against these practices and look for our membership mark when considering diamond purchases and checkwith us that the mark is valid.
Firstly, we will explain how the scam works. Sometimes customers can be defrauded more than once, so sophisticated and polished is the fraudster’s sales pitch.
- Investment diamond dealers will preferably target those who have a public record of owning investments – easily found by searching through PLC share ownership records. They will most likely target widows or widowers.
- Initial contact will invariably be by telephone encouraging potential customers to make their pension pots, or savings work harder for them. If you have previously been sold diamonds or other alternative investments it is very likely you may be contacted subsequently by other companies as customer details are often passed around.
- Fraudsters will use mock web sites, company names and use technical jargon to appear credible.
- This may well be followed up by numerous phone calls and the mailing of a glossy brochure outlining the benefits of diamond investment.
- The fraudsters may also contact the customer and advise spending more money in a larger stone, stating that they will be able to transfer the value of the existing stone to complete the purchase.
- Potential customers will be invited to luxury offices for the deal to be completed – these are invariably office suites rented on a short term lease. Scam companies will often use prestigious addresses, but which are in fact virtual offices at which the company has no real presence, but from which it simply collects mail.
- Do not respond to callers trying to sell you investments. Simply hang up the telephone.
- Do not let the fraudsters pressure you into buying because they say the offer won’t be there tomorrow. Hang up and take a day or two to consider your options.
- Exercise considerable caution when investing money, especially in precious stones and metals (similar scams exist for the vintage wine).
- Always seek independent/legal advice before committing to any investment.
The LDB would always encourage potential customers to ask as many questions as possible, including the names of directors of these companies – as simple 5 minute internet search could easily confirm suspicions of potential fraud. A post code search through Google Earth is also another handy tool to use, particularly if the company address looks to be residential.
- If you are looking to buy a diamond then LDB should be your first call. LDB is a trade association have over 75 years’ experience in the diamond industry with extensive lists of reputable diamond dealers throughout the UK.
- If you are unsure of how much to pay for a diamond or have been quoted a price you are not sure of, LDB will be able to give you a good price band indication (there are several factors to be taken into account here). Note that fraudsters will often try and sell coloured diamonds or fancy cuts which are often outside the remit of internet diamond pricing sites. Again, LDB should your first point of contact.
If you believe that you have been missold a diamond, you can visit Action Fraud http://www.actionfraud.police.uk/ to register your report. In 2013 alone, Action Fraud recorded 250 reports of diamond fraud. Make sure you follow the tips above to prevent becoming another statistic!