Diamond traders and police are warning that gem stones scams are on the increase – and in most cases the precious stones do not exist or are on sale up to 15 times their value.
The most common scam is for cold-calling fraudsters to persuade their victims to part with cash for diamonds in a Swiss bank vault to avoid VAT in Britain.
After paying for the investment, the victims then find they are the prey in a sophisticated fraud and the bank never held the diamonds.
Other common frauds involve companies selling poor quality diamonds and other gems at up to 1500% of their market value.
Some investors have lost hundreds of thousands of pounds to scammers, says the bourse.
£7m misselling scandal
In a recent case, Heritage FA Ltd, was wound up by the High Court for misselling diamonds to investors.
Insolvency Service investigators who closed the company revealed director John Crowder ran four web sites selling coloured diamonds. The company made £2.5 million profit from a turnover of more than £7 million.
The company sold coloured diamonds, rough diamonds, gold, fine art and oil wells at inflated prices.
Chris Mayhew, of the Insolvency Service, said: “The company offered spectacular investment returns and claimed to make only 1.5% commission on diamond trades.
“The only profit in this investment was made by the company. This was a bogus investment scheme and if consumers are approached with these offers, put them straight in the bin.”
Beating the fraudsters
The London Diamond Bourse regulates trading gems in the UK and consumers can claim compensation if a deal goes wrong through an independent dispute process.
Firms involved in scams are not regulated by the bourse and the only redress available for victims is through the civil courts.
The bourse revealed victims are targeted because they are on public records of share ownership held by plc companies.
Fraudsters make contact with unsolicited phone calls and mailshots directing consumers to mock web sites.
Many scammers invite their victims to prestigious offices to complete their deals, but these are generally meeting rooms hired for the day.
“Anyone who wants to invest in diamonds or precious stones can contact a bona fide dealer who is regulated by the bourse through our web site,” said a bourse spokesman.
“We have never had a complaint about one of our members defrauding a customer in 75 years of regulating the industry.”
