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[Long] Thaigem.com: Honest Shipping Mistake Or Intent to Deceive?


#1

Thaigem.com of Chanthaburi, Thailand, has lately come under
increased scrutiny by the gemstone trade for its marketing practices.
It has been accused of overusing flowery adjectives in its verbal
descriptions, of tampering with digital images to enhance the
appearance of the gems it sells, of inaccurately describing the
clarity of the gems it sells, and of selling stones that are not what
they are purported to be. Two well known cases already documented in
the press ( JCK 6/01 and Colored Stone 10/01) are Treasures of the
Earth, Los Gatos, California and Turmali and Herschede Inc., Sanibel,
Florida. In both cases, subsequent to the buyers’ complaints of
receiving gems that were not what they thought they were purchasing,
Thaigem.com changed the product descriptions on its website and
claimed the discrepancies were a mistake. They blamed the errors on
growing pains and attacked the buyers as being unable to compete in
the internet marketplace. Recently, we saw a dossier of gemstones
that were sold to a private by Thaigem.com with Chanthaburi
Gemological Research Institute grading reports. The stones were later
graded by an internationally respected gemstone laboratory (AGL). It
was obvious that these Thaigem.com gemstones were inaccurately sold.
Some examples of discrepancies include Thai rubies being sold as
Burma rubies and heated stones being sold as unheated. The question
in our minds was, are they simply incompetent or is this a pattern,
meant to deceive? We decided to purchase gems from Thaigem.
Thaigem.com Claims

Thaigem.com makes many claims about its business. Recently, it
claimed to sell $1.5 million of gemstones per month and to ship about
200 packages per day; this means the average sale is approximately
$250. According to Don Kogen, CEO, Thaigem.com, “Given our continued
rapid growth, this figure is no longer accurate. Thaigem.com’s board
of directors has made a decision not to issue any current revenue
statements…the number of packages we ship has increased. The
current average is around 300 per day. This represents approximately
2,000 individual products.”

The company claims that its success springs from pricing its goods
50 to 75 percent lower than all competitors. All transactions
transpire through Escrow.com’s on-line payment system and the Federal
Express 24-72 hour global express delivery service. The company
claims a product return rate of only 3 percent. The average for
television gemstone shopping channels is approximately 30 percent.

According to Kogen, =93We actually claim to control more than 90
percent of the international online gemstone trade.=94 They base this
statement on an Information Memorandum of November, 2000, by New Thai
Equity Partners Limited, Singapore. According to Douglas W. Clayton,
chairman, =93A more accurate description would be that Thaigem
controlled over 90 percent of gemstone listings on internet auction
sites.=94

In replicating New Thai Equity Partners Limited’s methodology, we
found on ebay 329,247 listings for jewelry, gems and watches, and
32,869 for loose Thaigem.com had 10,475 items on-line.
Whatever the numbers, this hardly translates into market share.
According to Carrie Johnson’s September, 2001 report, =93Auctions Gain
On Retail Sales=94(Forrester Research, Cambridge, Massachusetts),
on-line jewelry auction sales will reach $1.4 billion in 2001.
Clearly, Thaigem.com is basically a high-volume, low-end,
mass-marketing operation and a small player in the international
gemstone market.

The Buy

Thaigem.com claims to have over one million gems and jewelry items
on-line. Scrolling through the Thaigem.com website is an almost
mind-numbing experience. When searching for carat-sized rubies, we
found 3,600 rubies, with 822 oval =93Burma=94 rubies between 1.00 and
1.99 and 825 =93Burma=94 rubies above 2 carats. In a nutshell, the sto=
nes
on the website appeared to be either red or pinkish in color.
Although most were called pigeon-blood red, we specifically sought
out the stones that appeared red, not pink. We also wanted to
purchase the cleanest stones available.

The first stone we chose was a =931.55 Best Ravishing Oval Facet Blood
Red Ruby from Burma.=94 The millimeter measurements were =937.5 x 5=94=
and
the stone was =93clean.=94 We paid $125.15 per carat or $193.99. The
second stone purchased was a =931.90 Best Ravishing Oval Facet Blood
Red Ruby from Burma.=94 The millimeter measurements were =937.7 x 5.5=94
and the clarity was =93clean.=94 We paid $125.26 per carat or $237.99.
Both were to come with grading reports from the Chanthaburi
Gemological Research Institute of Thailand. When checking out our
purchases, we realized we had bought two different stones illustrated
by the same exact photograph! According to Kogen, =93Thaigem.com has
never been secretive about the fact that digital images are used for
more than one stone when those stones are visually identical.=94
Although it took two weeks for the gems to arrive, not the 24 to 72
hours promised by the website, some time was lost by the fact that
Escrow.com wanted verbal confirmation from our “mole” that she indeed
wanted the stones. However, even after confirmation, the shipping
still took longer than the 72 hours. When the stones arrived, they
looked nothing like the universal photograph which was used to sell
us the

The Labs

Who is the Chanthaburi Gemological Research Institute (CGRI) of
Thailand? According to Kogen, =93The CGRI is a small local gemological
assessment and appraisal institute. Given our location in Chanthaburi
and in line with our policy to contribute to the local community, we
made the decision to utilize the services of this institute. Whilst
we are not affiliated with this lab, we are their largest customer
and they sub-lease space in the Gem Center, a building leased by our
sister company, the NCS Group, Co., Ltd. (formerly known as Nuntiya
Care Stone, Co. Ltd.). Given our rapid growth, perhaps we have relied
more on them than we should have. In consideration of recent events,
we are currently in discussions with both the EGL and the AIGS to
establish a local alternative to the CGRI.=94

EGL does not have a lab in Thailand, and sources close to the lab
deny that Thai.gem has ever contacted EGL regarding the grading of
colored It is well known that 90 percent of EGL’s business
is grading diamonds. AIGS of Thailand did not respond to our
inquiries.

Our stones were sent to Gubelin Gem Lab (GGL) in Switzerland, the
AGTA Gemological Testing Center (AGTA) in New York, and the American
Gemological Laboratories (AGL) in New York for grading reports. All
three of these independent labs concur on the basic about
these stones. Sizes and Measurements

The most obvious fact that jumps out is that the weights are wrong.
They are both incorrect to Thaigem.com’s advantage. The 1.55 we
purchased is actually a 1.54. This can possibly be explained by
inaccurate scales at the Chanthaburi Gemological Research Institute
of Thailand. According to Thaigem.com, the 1.55’s millimeter size was
7.5 x 5. According to the three labs, the millimeter measurements
were 7.60-7.61 x 5.17-5.18. The 1.90, on the other hand, weighed in
at 1.70. This is a dramatic difference of 11 percent. Instead of
paying $125.26 per carat for a 1.90, in reality, we paid almost $140
per carat, giving Thaigem.com a windfall profit. According to
Thaigem.com, the millimeter measurements of the 1.90 were 7.7 x 5.
According to the three labs, the true measurements ranged from
8.60-8.62 x 6.37-6.38. Country of Origin

We purchased both stones as Burma rubies. According to the AGL, GGL,
and AGTA, the stones are from Tanzania. Of course, Burma is deemed to
be the best source of rubies in the world, and Tanzanian ruby is near
the bottom. This would be analogous to buying a sapphire as Kashmir,
only to discover it was Australian.

Color

Remember, our rubies were described by Thaigem.com as =93Best
Ravishing Blood Red Ruby=94 color. The Gubelin gem lab described the
stones as brownish-red. The AGTA described the rubies as red. The
most comprehensive color description can be seen in the AGL Colored
Stone Grading Report. The AGL describes the 1.54’s color and tone as
5/90 (90-95). Although the ruby is 65 percent red, it is miles away
from being =93Best Ravishing Blood Red Ruby.=94 The 90-95 tone means t=
he
stone =93blacks-out,=94 or is way too dark. The color scan also shows
significant amounts of grey and brown, negative colors in the gem
world and seldom seen in Burma goods. The 1.70 is actually less red
(Red 60 percent) than the 1.54. This is the reason it grades lower
at 6/90 (90-95). The 1.70 also has significant amounts of brown and
grey and a too-dark 90-95 tone.

Clarity

Due to intense trade criticism of the misuse of the term =93flawless,=94
Thaigem.com in July, 2001 decided to remove the term from its verbal
descriptions of the clarity of its They created eight
levels of clarity from =93clean,=94 which represents stones that are f=
ree
from inclusions to =93translucent,=94 stones that allow light to pass
through them, but the light is somewhat diffused. We purchased our
stones in August, 2001 and they were purported to be =93clean,=94 or f=
ree
of inclusions. According to the AGL Colored Stone Grading Report,
both of these stones are Moderately Included 2 (MI2). What this means
is both stones have eye-visible inclusions and we did not receive
"Clean" or “free from inclusions” stones as they were described on
Thaigem.com’s website.

Price

According to the Thaigem.com website, =93All gemstones and jewelry
sold on Thaigem.com are guaranteed to appraise up to 15 times their
listed price in North American and European markets. At Thaigem.com,
you don’t buy, you invest!=94 According to our calculations, the
=93Burma=94 rubies for which we paid $431.98 (not including shipping),
should be worth up to $6,479.70. According to Analytics Research and
Development, Inc., a division of American Gemological Laboratories
(AGL), the 1.54 was worth between $100 and $130, with an average of
$115. We paid $193.99 for the stone. The 1.70 was worth between $140
and $170, with an average of $155.

Treatment

Although it is very difficult to find the section regarding
treatment within its website, if you search, you can find that
Thaigem.com advises you to assume all rubies are heated. According to
the labs, the stones were heated, and they contained inorganic or
glass residues (filling). These residues/ fillings were never
mentioned nor disclosed on Thaigem.com’s website. Thaigem.com=92s
Response

Kogen states, =93Clearly you received the wrong merchandise. Whilst
regrettable, when you’re dealing with a back office inventory of
over 2 million gemstones and shipping around 2,000 products a day,
honest slip-ups do occur.=94

Kogen denies this is an ongoing problem with Thaigem.com. =93Like any
small to medium corporation that employs over 300 people…a few
isolated instances of human or technical error are regrettably
inevitable.=94 Further, =93I could highlight how challenging it has be=
en
teaching a green workforce English and computer skills while
operating such a rapidly growing business in rural Thailand. I could
also talk about our dedicated quality control department for all
online listings and how we now operate four levels of product QA.=94
Kogen claims, =93No ‘Big Story’ here, just an honest shipping
mistake.=94 International Colored Gemstone Association (ICA) The
Thaigem.com home page displays membership in the International
Colored Gemstone Association (ICA), as well as several other trade
organizations. According to Joseph Menzie, vice president of ICA, New
York, =93There was a great deal of discussion about whether to give
Thaigem.com membership into ICA. They were granted membership in
June, 2001, however, they were instructed not to display the ICA logo
on their web page until after they had met with the Industry Rules
Committee to discuss approved language and specific disclosure.
Despite the fact that Thaigem.com and this committee have not met,
Thaigem.com has chosen to display the ICA logo contrary to ICA’s
instructions. I now fear Thaigem.com’s marketing practices may be
hurting ICA and eventually the entire gem business.=94

The FTC

In October, 2001, the Federal Trade Commission (FTC) doubled to 60
the number of investigators to combat on-line fraud. However, the FTC
will not confirm nor deny whether Thaigem.com is under investigation,
because it is the FTC’s policy not to comment. According to Robin
Rosen Spector, of the Division of Enforcement, Federal Trade
Commission, =93The FTC has international jurisdiction and enforcement
authority if a company markets to Americans, despite the company=92s
residing outside the United States. The FTC has published jewelry
guides that are fairly specific and substantive regarding gemstone
claims that protect U.S. consumers and provide guidance to both U.S.
and international marketers on how to avoid deceptive practices and
comply with U.S. law.=94 These guides can be located on the web at:
http://www.ftc.gov/os/statutes/jewelryjump.htm. The FTC also advices
that complaints regarding any gemstone or jewelry dealers be reported
online at: https://www.ftc.gov/ or by calling 1-877-FTC-HELP
(382-4357).