Following is an article I wrote for New York Diamonds regarding the
current status of the antitrust lawsuit against De Beers.
On February 6, 2007, the DMIA (Diamond Manufacturers and Importers
Association) held a meeting for its members to bring them up to date
on the proposed settlement of the antitrust litigation between
resellers and De Beers and its affiliates. Ronnie Friedman, president
of DMIA, introduced the lead lawyers who have been negotiating on
behalf of the industry in the case. They summarized the facts of the
case, to date, and described the process by which members of the
trade can file claims against De Beers. In opening up the meeting,
Mr. Friedman said, "This is one of a series of meetings we are
holding with key industry figures. All of us share a passion for this
business. These meetings are for everyone's benefit.
The key figures presenting the details of the case were Joseph
Tabacco, lead counsel for the indirect reseller subclass (anyone in
the trade that does not buy diamonds directly form De beers) and
Jared Stamell, lead counsel for the direct purchaser class (those who
purchased diamonds directly from De Beers). Both attorneys had
experience working in the United States Department of Justice before
turning to private practice.
The case, briefly, concerns a conspiracy to maintain diamond prices
and to maintain a monopoly on the supply of diamonds. In the past, De
Beers always claimed that they do not do business in the United
States and would not answer any case brought in the United States. In
a turnabout, recently, DeBeers agreed to be subject to the laws of
the United States, specifically agreeing to the jurisdiction of the
Federal Court in New Jersey. On March 31, 2006, the Court granted
preliminary approval to the settlement which has two major
components: it provides for cash payments totaling $295 million and
"broad injunctive relief prohibiting certain future conduct by De
Beers."This sum is divided into two portions: $272.5 million is
placed in the indirect settlement fund with $22.5 million designated
for the direct settlement.
All of the money for the settlement has been set aside and is earning
interest. During the course of the evening's presentation, it became
clear that both of these components were fraught with uncertainties
and did not come close to satisfying the members of the trade.
Members of the audience, including some of New York's most important
diamond firms, found the dollar amount to be very small considering
the large number of claims that could be made against De Beers. It
appeared that De Beers had purchased a very inexpensive insurance
policy against all future antitrust claims in the United States.
The matter of injunctive relief, in particular, was disputed by
Martin Rapaport who described himself as a member of all the classes
involved in the suit. The injunctive relief is said to prevent De
Beers from entering into an agreement to be the exclusive purchaser
or distributor of a third party producer' s rough diamonds with
significant exceptions. De Beers cannot set or fix price of rough
diamonds; cannot determine quality or quantity of the producers'
rough diamonds, it cannot tell people how to sell or what the price
should be. De Beers shall not agree with sightholders to set or fix
the resale price and may not restrict sales area.
However, since the European Commission ultimately approved De Beers
Supplier of Choice initiative, many of these provisions are weakened
in the extreme or virtually negated. In addition, existing
arrangements such as those between De Beers and Botswana (Debswana)
and De Beers and Namibia (NamDeb) are allowed to go forward. These
called "safe harbors." There is a cap on purchases made from Alrosa,
BHP Billiton and Rio Tinto. The Alrosa agreement is set to end by
Diamond buyers who wish to make claims as part of the class action
must choose their two best years of business between 1997 and 2006.
This includes anyone who purchased from De Beers other than
sightholders who are excluded from the agreement. It includes anyone
and everyone who purchased a diamond including consumers who bought
diamonds or diamond jewelry. The case is now moving toward the
claiming point. By the end of April 2007, a report on the proposed
plan class notice and subclasses will be in the hands of Judge
Chesler. He is to give notice to class members by early July.
Final approval hearings will be held in the early Fall of 2007 with
the claim period ending by late Fall 2007. The processing of claims
will take place in 2008. Anyone who wishes to opt out of the claiming
process, in order to pursue an individual claim, may do so in writing
within the 60-day period between July and early Fall.
It is expected that the legal fees will eat up anywhere from 15-25%
of the settlement amount with expenses added to that sum. If there
are a lot of claims filed, claimants in the indirect portion could
see a return of less than 1% on the overcharge they are alleging. The
attorneys pointed out that in most of the states in the United
States, including New York State, an individual cannot bring an
indirect antitrust action. Such injunctive relief was designed to be
granted to governments, not private parties.
In spite of the amounts involved, some merchants have already
received solicitations from firms that have offered to "assist" class
members in filing claims. They have indicated a fee of one-third of
any moneys secured through the claim. The attorneys strongly advised
the diamond dealers and manufacturers against using such firms
pointing out that the claims forms will be very simple and that the
claimant would have to gather up all the to make the
claim anyway. That is where most of the work is involved.
Documentation is needed to substantiate the purchases.
In the direct seller class, diamonds would be indicated by carats
and dollar value, by size and quality. The claim amount will be based
on the weighted value of the diamond content. Purchases would have to
be made for distribution in the United States. It is estimated that a
couple of hundredpeople would be in this category. The reseller class
is much larger and will more claims.