Lab-created diamond debate heats up

"While I can't get into too many specifics as to the reasons for my decision to leave, it is fair to conclude that the joy of building something special with the growing sales of the lab-created diamonds has been overshadowed by the other 'distractions,’" Lux told JCK. "The internal situation had made it difficult to focus on the long-term objectives of the company."

The distractions included the inference made by De Beers' Diamond Trading Company (DTC) that Gemesis may have been behind the circulation of a sample of undisclosed synthetic diamonds that was discovered by an IGI laboratory in Antwerp in May 2012. This discovery came at a time when Gemesis was celebrating outstanding test results for its colourless diamonds at the Gemological Institute of America (GIA).

It was March 2012 when Gemesis began marketing in earnest its lab-created colourless diamonds using CVD, a less expensive technology than the high-pressure, high-temperature (HPHT) method the company uses to manufacture fancy-coloured diamonds.

Prior to this, the GIA purchased 16 of these CVD-created, round-brilliant, colourless diamonds for testing in sizes ranging from 0.24 carats to 0.86 carats. The ensuing report, titled 2012: The Year Synthetic Diamonds Made Their Mark ruled that the stones were "comparable to top natural diamonds".

"Most were near colourless and were graded F-G on the GIA 4Cs D-Z scale for diamond colour," the report specifies. "Three were graded I-J and the largest, 0.90 carat, was a rectangle cut graded L. All of the stones were high clarity, VVS or VS. One was graded internally flawless."

Lux said back in October that the result was not unexpected: "We were ecstatic with GIA's findings but not surprised, although we were surprised that they were so candid about the high quality. We were particularly happy with the way the report was phrased because it truly told the consumer that what we're creating is the same as what comes out of the ground."

Testing concerns

The ability of colourless lab-created diamonds to pass as mined diamonds raises all manners of ethical concerns, mainly what would happen if they are ever sold as naturally-formed diamonds and introduced into the market undetected?

Such concerns were tested in May 2012 when the IGI laboratory in Antwerp, Belgium, received a package of around 1,000 stones marked as natural, polished diamonds and fully priced as such. Subsequent testing showed more than 600 of the diamonds to be lab-created and also of a high-quality (VVS-VS clarity with "excellent" and "very good" polish and symmetry).

Furthermore, IGI determined that the presence of impurities such as feathers, pinpoints and small dark crystals were "intentionally introduced" and that the diamonds appeared to be "created to defraud".

Leading global diamond expert Chaim Even-Zohar remarked in a report on the Israeli Diamond Industry website titled Synthetics 'Specifically Made To Defraud' that the sample came from a stock selection "many times larger", meaning it was possible that the number of undisclosed synthetics already released into the market "may run into many thousands of stones worth many millions of dollars".

In a letter written to Even-Zohar at the time, Lux stated "with 100 per cent certainty" that the undisclosed CVD diamonds did not come from his company and that other companies exist that are capable of supplying quantities of CVD diamonds equal to the amount discovered in Antwerp. Lux also dismissed claims that Gemesis CVD diamonds were more recognisable than CVD diamonds created in other laboratories.

"CVD diamonds, whether made by Gemesis or others, will be indistinguishable from each other," he wrote, adding, "Just because an unscrupulous supplier may have CVD diamonds that demonstrate the high quality of Gemesis does not mean they are Gemesis."

The issue intensified further with news reported in January 2013 that Steven Lux didn't resign but was terminated from his position. Lux is now suing his former employer for wrongful termination. The legal papers carry the revelation that "100 per cent of Gemesis was acquired by Power Capital Ventures Ltd (PCV) on 31 October 2012".

Previously, it has been reported that Gemesis was owned by Jatin R. Mehta, the principal of India's Winsome Diamonds (formerly Su-Raj Diamonds). Mehta is reported to have invested US$8.4m in return for 50.1 per cent of the group when Gemesis was approaching bankruptcy in 2010, and later acquired the remaining shareholders by October 2012.

Under Mehta, The Gemesis Corporation changed names to Gemesis Diamond Company and shifted its diamond manufacturing operations from Florida to Malaysia in a bid to lower production costs and better protect the company's intellectual property, according to a May 2012 report by Even-Zohar titled The Mystery Of Two Gemesis Companies Under One Hat.

E-commerce sales model

The company also flagged ambitions to move to a direct-to-public e-commerce sales model, something that eventuated in 2012 with the launch of Gemesis.com.

Adding further intrigue, the true origin of the 600 or so lab-created but undisclosed gems that arrived in Antwerp remains inconclusive but Even-Zohar reported that the trail of invoices involved in the transaction led back to the New York office of Mehta's own Su-Raj Diamonds and Jewellery USA (now Winsome Diamonds).

This does not guarantee that the diamonds are in any way associated with Gemesis and any connection between the two companies remains opaque if existent at all.

More confusion

A further source of much industry confusion came with the emergence of a second Gemesis company based in Singapore that features an entirely different board to that of Gemesis' American operations.

In fact, Even-Zohar reported no connection at all between the two companies except for the involvement of investor Mehta, and who does not occupy a board seat  Recruitment advertisements placed by each firm suggest Singapore specialises in CVD technology for the purposes of growing rectangular crystals for industrial use and gems for jewellery use, while Malaysia (Gemesis' US operations) specialises in gems created using HPHT technology.

It's all a little confusing as well as inconclusive, and Jeweller stresses that none of this is any proof that the company has been acting improperly. What is clearer is that the mere allegation of Gemesis' involvement in the IGI scandal has unequivocally undermined the group's big 2012 developments – colourless gems and a new online website – both of which had the power to dramatically boost Gemesis' reputation and sales.

Could the company have been tarred with the wrong brush by an industry nervous about the emergence of the GIA report? The group's production levels are comparably low, suggesting any such paranoia would be misplaced, and Gemesis' penetration of the global consumer diamond markets remains modest at best, and almost non-existent here in Australia.

How many diamonds?

But the question remains: just how many diamonds does Gemesis have? Lux was quick to point out that Gemesis production levels as of October 2012 presented no threat to the natural diamond sector: "This is not going to threaten the mined diamond industry; it will be generations before there are such quantities."

During his tenure, Lux remained determined to assure the industry that Gemesis had a non-negotiable policy utmost transparency.

"Full disclosure has been and will continue to be one of our very basic tenants," Lux said in October. "We inscribe all of our diamonds to ensure they are unmistakably Gemesis, and every diamond on our website carries a PDF certificate that can be viewed immediately."

In consumer terms, what the GIA report really says is that lab-created diamonds can now achieve a comparable quality to natural diamonds. It also throws into question nomenclature surrounding lab-created diamonds and, specifically, the industry's insistence upon the term "synthetic", which is correctly applied here if referring to a diamond "not of natural origin" but not necessarily correctly applied here if intended to mean "artificial".

Furthermore, the Gemesis group's consistent achievement of VVS and VS type-IIa diamonds within the 0.40-carat to 1.30-carat range sends a clear message to the industry that the company can now comfortably and confidently provide direct competition in the young bridal market "sweet spot" of 40 points to 1 carat.

For the first time, consumers, retailers and designers present within this range now have a legitimate choice between two types of colourless diamond products – natural and lab-created – at two fairly different price-points.

Not cheaper

Throughout the interview, Lux worked hard to play down suggestions that the price of lab-created gems was not significantly cheaper than their mined counterparts, claiming instead that the complex processes of lab-creation kept prices up, and that the ecological and ethical benefits of HPHT diamonds injected value that was accurately reflected in the price.

"These diamonds are never going to be cheap to produce because we're re-creating what was done in nature, and it has to be done the same way for a consumer to appreciate the beauty that comes out," Lux said. "We can't use price as the only offering to the customer and we haven't had to do that anyway because people now recognise multiple benefits when looking at our diamonds – the process is far more energy-efficient that what it takes to move tonnes of earth, and the origin of each diamond is absolutely known."

Before leaving the company, Lux listed Gemesis' central 2013 goal as boosting consumer education, stating that the aim in the coming year was to inform consumers that lab-created diamonds were indeed real diamonds.

"Gemesis consumers know they come away with a diamond – it's not a question that it is a diamond and that it is conflict-free. They also have the assurance of a diamond certificate, our generous return policy, eco-friendly comfort and an attractive price. Ultimately, it's hard for someone to sit there and say they disagree with all those points."

The future of Gemesis Diamond Company remains unclear, but recent company statements have denied rumours of instability, ignored questions about ownership and assured the industry that it is "business as usual".

While the company may not currently have the production capacity to impact the industry, 95,000 fans on the group's Facebook page exist as solid proof that the word is spreading.

Synthetic diamonds make their mark

GIA dubbed 2012 "the year that synthetic diamonds made their mark" after the lab's own test results further dismantled the industry's long-held (and anecdotal) argument that lab-created diamonds must be inferior in clarity, carat, cut and colour, but there are many more issues to be overcome.

If nothing else, GIA's report heralds a fundamental message: the technology has arrived, irrespective of who is around to control it.

Indeed, amidst the hullabaloo surrounding Gemesis, another company, Washington Diamonds, threw its hat into the ring in September 2012, claiming it would produce 150 one-carat stones per month for a total production run of more than 2,200 diamonds a year, and sell the diamonds directly to the public online for about 25 per cent less than comparable mined diamonds.

Consumer reluctance

And the sale of Boston-based Apollo Diamonds to Scio Diamond Technologies in September 2011 would suggest that more companies will follow.

It seems the barriers to any increase in the popularity and longevity of lab-created diamonds in the open marketplace are no longer technological, but related to the prohibitive cost and difficulty of large-scale production, and a general consumer reluctance to adopt lab-created diamonds as equals.

In the meantime, whatever moves the industry can make to encourage or enforce transparency remain of utmost importance.