Last November, amid a fanfare of international publicity, Sotheby's achieved a world record $83 million for a pink diamond auctioned in Geneva. Four months later, on February 27, Sotheby's disclosed that they were forced to take the diamond, they then valued at $73 million, into their inventory when the consortium of investors led by Isaac Wolf, a New York diamond cutter, defaulted.
There is a lot about this story that doesn't add up; key questions remain unanswered leading to the suspicion of a cover-up.
A brief, but significant new "Risk Factor" included in Sotheby's Form 10-K Annual Report on February 27, 2014, may offer a clue to this turn of events. It warns: "Sotheby's could be exposed to reputational harm as a result of wrongful actions by certain third parties. Sotheby's is involved in various business arrangements and ventures with unaffiliated third parties. Wrongful actions by such parties could harm Sotheby's brand and reputation."
Sotheby's has not explained why they felt it necessary to include this previously unreported risk factor.
According to numerous media reports Sotheby's claimed the buyer of the pink diamond "couldn't pay and defaulted". Isaac Wolf has not given any interviews or responded publicly since the news broke at the end of February.
When asked by JCK magazine why the diamond wasn't sold to one of three under bidders, Sotheby's "declined to comment".
It is difficult to believe that the investors - "financial people" according to Wolf - would have pursued such a high-profile target without having sufficient funds or credit available to complete the deal.
The consortium would, presumably, have researched and carefully planned their strategy prior to participating in what was certain to be a highly publicised auction. We know from a televised interview given by Wolf after the auction that the investors valued the diamond, which was crafted by the Steinmetz Diamond Group - a Beny Steinmetz Group Resources (BSGR) company - at $150 million. The consortium would, therefore, have known how much they could bid and how much each member needed to contribute and still "make a big profit", as alluded to by Wolf.
According to their own calculations, the consortium stood to make a profit of $67 million. If financing the deal was the problem, why couldn't these "financial people" raise the funds or get another investor to partake in such a potentially lucrative transaction?
Given that three under bidders competed to acquire this unique diamond, forcing the price well beyond it pre-auction $60 million estimate, why did none of them step in to acquire the diamond?
The lack of a more detailed explanation from Sotheby's, Wolf and the other bidders raises the question - have investors been spooked by information in the public domain linking BSGR with Israeli human-rights violations, information that leads many people to believe BSGR diamonds are de-facto blood diamonds?
Diamonds that are associated with gross human-rights violations would not be a good "hedge against inflation and devaluation of currencies" which is what the investors sought. Wolf described the diamond, originally known as the Steinmetz Pink, as "a fantastic hedge".
It is likely that the inclusion of the previously unreported risk factor in Sotheby's Securities and Exchange Commission (SEC) Form 10-K filing was spurred by information published in 2013 and detailed in a letter and email sent to Sotheby's for the attention of William F. Ruprecht, President and Chief Executive Officer, and members of the Board of Directors in January 2013.
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