De Beers' advertising slogan, "A Diamond Is Forever," embodied an essential concept of the diamond invention. It suggested that the value of a diamond never diminishes and that therefore a diamond never need be sold or exchanged. This precept, of course, is self-fulfilling: As long as no one attempts to sell his diamonds, they retain their value ( assuming the cartel controls the supply of new diamonds). When, however, an individual is forced to defy this principle by attempting to sell diamonds, the results can prove illuminating. Consider, for example, the case of Rifkin's Russian diamonds.

In the fall of 1978, a thirty-two-year-old Californian computer wizard named Stanley Mark Rifkin discovered an ingenious way to become a multimillionaire overnight. While working as a consultant for the Security Pacific National bank in Los Angeles, he had learned the secret computer code that the bank used to transfer funds to other banks telegraphically at the end of each business day. With this information and his mastery of the bank's computer, he realized that he could transfer tens of millions of dollars to any bank account in America. The problem would be withdraw the money from the system. In early October, he devised a plan for siphoning this money out of the bank and converting it into Russian diamonds.

The first step was establishing an alias identity. Under the pseudonym "Mike Hanson," Rifkin opened a bank account at the Irving Trust Company in New York, arranged a phony passport and other. documentation and retained a respected diamond broker, Lou Stein, to acquire for him a multimillion dollar consignment of diamonds from Russia. The Russian diamond organization, Russ Almaz, agreed to sell "Hanson" at its fixed wholesale price 115,000 perfectly cut, round, brilliant stones for $8,145,000. For arranging this low price, the broker took a standard 2 percent commission, or $162,000. For the deal to be consummated, Rifkin only had to wire the money to Zurich.

On October 25, Rifkin coolly entered the bank's transfer room under the pretext of inspecting the computer. He picked up a telephone connected to the computer and dialed in the necessary digits. Instantly, the computer withdrew $10,200,000 from a non-existent account and transferred it to the account of "Mike Hanson" at the Irving Trust Company in New York. Rifkin then had the New York bank transfer $8,300,000 to the Zurich account of Russ Almaz.

A few days later, using his phony passport, Rifkin flew to Switzerland, took delivery of the diamonds, which weighed under five pounds, and smuggled them through customs into the United States. He then began contacting dealers in Los Angeles, but none was willing to buy the diamonds.

Meanwhile, the Security Pacific National Bank discovered that more than ten million dollars was missing. It was one of the largest bank robbery in history. The FBI, investigating the loss, received a tip about Rifkin, and arrested him in Carlsbad, California and found on him the Russian diamonds, as well as the remaining cash.

Initially, bank officials assumed that most of stolen money prudently invested in diamonds would be easily converted back to money. Only a few weeks earlier Newsweek had reported in a cover story, "The Diamond Boom," that diamonds were "the ideal asset" and that quality diamonds were soaring in price. While the diamonds that Rifkin had bought were commercial-grade stones used in jewelry. the London-based Economist Intelligence Unit had such diamonds, which had increased by at least 50 percent that year, were still increasing in price. Independent appraisers estimated that the diamonds, which Rifkin had bought at a low price, were worth at least $13 million at the retail level, and so the I bank foresaw that it might make a profit of some $5 million with the reported appreciation in value of the diamonds. In anticipation of this windfall, they agreed to pay the ten percent custom tax on the diamonds which Rifkin had evaded, as well as part of the cost of the FBI investigation. Before this expected profit could be realized, the bank had to await the outcome of the trial, since the diamonds were important evidence.

Finally, in September 1978, the bank announced that it would sell its hoard of diamonds to the highest bidder. Twelve major dealers were invited to the bank's vault to inspect Russian diamonds. They were instructed to submit sealed bids by the end of the business day on September 18. A minimum price Of $7.5 million was established to encourage high bids, though independent appraisers assured the bank that the diamonds would fetch far more.

On the day of the auction, bank officials anxiously waited to see how much profit they would garner from the diamonds. However, only a single bid had been submitted, and when it was opened, it was for several million dollars less than the minimum. The bank officials were disappointed at this turn of events. Even though the diamonds had been purchased through a reputable broker at wholesale price, no American dealer would pay anywhere near this price nearly a year later.

The bank offered to sell the Russians back their own diamonds at the original 1978 Price. But they refused to buy the diamonds back at any price.

The bankers learned that two Israeli banks were also trying to sell large quantities of diamonds received as collateral from Tel Aviv dealers; and this might make it far more difficult, if not impossible, for the Security Pacific Bank to unload its 115,000 diamonds. So they decided not to wait any longer.

Walter S. Fisher, the vice-president of Security Pacific, was charged with the responsibility of selling the 115000 diamonds. He realized that diamonds were not a standardized, or fungible commodity, as were gold, silver and platinum. Different appraisals of the same diamonds varied widely dependent on what the prospective buyer thought he could sell them for. And, though all the bank's diamonds were commercial stones for the mass market, Fisher found that it was extraordinarily difficult to find a buyer. None of the dealers in the United States were willing to buy such a large consignment of diamonds. Fisher found it necessary to deal through De Beers' main broker in London, I. Hennig. Finally and accept the terms dictated by the buyer, if he wanted to sell the diamonds. He then had to deliver the diamonds to an unknown corporation in Liechtenstein, G. S. G. Investments, without receiving any money for them for eighteen months. These were terms that the bank probably would not have accepted in selling any other commodity. With a flourish of understatement, the banker concluded, "Selling diamonds is far more difficult than I had anticipated."

While the Security Pacific National Bank's problem was made worse because it had to dispose of the diamonds quickly, even when diamonds are held over long periods of time, selling them at a profit can prove difficult. For example, in 1970, the British magazine Money Which tested diamonds as a decade-long investment. It bought two gem-quality diamonds, weighing approximately one-half carat apiece, from one of London's most reputable diamond dealers for $1,000. For eight years, it kept these diamonds in its vault, inflation ran As high as 25 percent a year. For the diamonds to have kept pace with this inflationary spiral, they would have had to increase in value at least 300 percent. When the magazine's attempted to sell the diamonds, the highest bid that received was $1500 pounds, which led the publication to conclude "As an eight-year investment the diamonds that we bought have proved to be very poor."

In 1976, the Dutch Consumer Association also attempted to test the price appreciation of diamonds. They bought a perfect, over-one carat diamond in Amsterdam, held it for eight months, and then offered it for sale to the twenty leading dealers in Amsterdam. Nineteen refused to purchase it, and the twentieth dealer offered only a fraction of the purchase price.

In 1972, financial speculators in California had a very expensive lesson in the value of diamonds. In January, the West Coast Commodity Exchange began trading diamond contracts. Each contract contained twenty carats of cut and polished diamonds that were certified by diamond appraisers to be in flawless condition. On the first day of trading, speculators, assuming that the value of diamonds would increase with inflation, paid $660 a carat for the diamonds, or $13,200 per contract. Immediately thereafter, diamond dealers began selling contracts on the exchange, and the price plummeted down to the limit allowed by the exchange for the next six days. The following week, the price was down more than 40 percent. The diamond dealers, who had offered the packets for sale at more than $600 a carat, made a vast profit within days on the falling prices. The speculators, who could not afford to keep putting up cash to meet the collapsing prices, lost everything. By the end of the second week, the West Coast Exchange ended trading in diamond futures. The value of diamonds, it turned out, could not be established through an open market.

Even among experts, the valuation of a diamond depends on highly subjective criteria. In 1979, for example, New York Diamond Club president William Goldberg, the president of the in New York City, was offered a six carat diamond in my presence by a reputable New York dealer. Both Goldberg and the dealer agreed that the diamond had excellent clarity, with no defects visible under a ten power magnifying glass, a highly desirable blue-white color, and had been expertly cut. The only disagreement was, in fact, over the price of the diamond. The dealer believed it was worth $24,000,. Goldberg, after consulting another dealer, believed it was not worth $8,000. The value was in the eye of the beholder ultimately.

Selling diamonds can also be particularly frustrating for individuals. One wealthy woman living in New York city decided to sell back a diamond ring that she had bought from Tiffany two years earlier for $100,000, and use the proceeds to buy a necklace of matched pearls that she fancied. She had read about the "diamond boom" in news magazines, and hoped that she might make a profit on the diamond. Instead, the sales executive with whom she dealt explained, with a touch of embarrassment, that Tiffany had "a strict policy against repurchasing diamonds." He assured her, however, that the diamond was extremely valuable and suggested another jewelry store. The woman went from one leading jeweler to another, trying to sell her diamond. One store offered her the opportunity to swap it for another jewel, and two other jewelers offered to accept the diamond "on consignment," and pay her a percentage of what they sold it for, but none of the half-dozen jewelers she visited that day offered her cash for her $100,000 diamond. She finally gave up and kept it.

Retail jewelers generally prefer not to buy back diamonds from customers because the offer they would make most likely would be considered ridiculously low. The "keystone," or markup, on a diamond and setting may range from 100 to 200 percent, depending on the policy of the store. If they bought diamonds back from customers, they would have to buy them back at the wholesale price. Most jewelers would prefer not make a customer an offer that not only might be deemed insulting but would also undercut the widely-held notion that diamonds hold their value. Moreover, since retailers generally receive their diamonds from wholesalers on consignment and need not pay for them until they are sold, they would not readily risk their own cash to buy diamonds from customers. Rather than offer customers a fraction of what they paid for diamonds, retail jewelers usually recommend their clients to other firms

One frequently recommended is Empire Diamonds, on the 66th floor of the Empire State Building in midtown Manhattan. Empire's reception room, which resembles a doctor's office, is usually crowded with elderly women who sit nervously in plastic chairs waiting for their name to be called. One by one, they are ushered into a small examining room where an appraiser scrutinizes their diamonds and makes a cash offer. "We usually can't pay more than 60 percent of the current wholesale price," Jack Braud, the president of Empire Diamonds, explained. "In most cases, we have to pay less since the setting has to be discarded and we have to leave a margin for error in our evaluation [especially if the diamond is mounted in a setting]." Empire removes the diamonds from their settings, which are sold as scrap, and resells them to wholesalers. Because of the steep markup on diamonds between the wholesale and retail levels, individuals who buy retail and, ;n effect, sell wholesale often suffer enormous losses on the transaction. For example, Braud estimated that a half-carat diamond ring that might cost $2,000 at a retail jewelry store could only be sold for $600 at Empire.

The appraisers at Empire Diamonds examine thousands Of diamonds a month but only rarely turn up a diamond of extraordinary quality. Almost all the diamonds found in Jewelry are slightly flawed, off-color, commercial-grade diamonds. The chief appraiser explained, "When most of these diamonds were purchased, American women were concerned with the size of the diamond, not its intrinsic quality." He pointed out that the flaws were commonly concealed by the setting, and added, "The sort of flawless, investment-grade diamond one reads about is almost never found in jewelry."

Many of the elderly women who bring their Jewelry to Empire Diamonds and other buying services have been the recent victims of burglaries or muggings and fear further attempts. Thieves, however, have an even more difficult time selling diamonds than their victims. When suspicious-looking characters turn up at Empire Diamonds, for instance, they are asked to wait in the reception room, and the police are called in. In 1980, for example, a disheveled youth came into Empire with a bag full of jewelry that he called "family heirlooms." When Brand pointed out that a few pieces were imitations, the young man casually tossed them in the wastepaper basket. Braud buzzed for the police.

When thieves bring diamonds to underworld fences, they usually get a pittance for them. In 1979, for example, New York City police recovered stolen diamonds with an insured value Of $50,000 that had been sold to a fence for only $200. According to the assistant district attorney that handled this particular case, the fence was unable to dispose of the diamonds on 47th Street, and was eventually turned in by one of the diamond dealers whom he had contacted.

While those who actually attempt to sell diamonds often experience disappointment at the low price they are offered, the stories circulated in the press by N. W. Ayer continue to suggest that diamonds are resold at enormous profits. Consider, the legend created around the so-called "Elizabeth Taylor" diamond. This pear-shaped diamond, which weighed 69.42 carats after it had been cut and polished, was the fifty-sixth largest diamond in the world, and one of the few large cut diamonds in private hands. Except for the fact that it was a diamond, it had little in common with the millions of small stones that are mass-marketed each year in engagement rings and other jewelry. When Harry Winston originally bought the diamond from De Beers, it weighed over 100 carats. Winston had it cut into a fifty-eight-faceted jewel, which he sold in 1967 to Harriet Annenberg Ames, the daughter of publisher Moses Annenberg, for $500,000. Mrs. Ames found it, however, extremely costly to maintain: the insurance premium just for keeping it in her safe was $30,000 a year. After keeping it for two years, she decided to resell it and brought it back to Harry Winston.

Winston advised Mrs. Ames that he could not buy it back for the price for which she had purchased it from him. She then called Ward Landrigan, the head of Parke-Bernet's jewelry department, and explained that because she did not want any publicity, the diamond should be auctioned without her family's name attached to it.

This caveat gave the publicist that Parke-Bernet retained for the auction the idea for a brilliant gambit. The huge diamond, which would appear on the cover of the catalogue, would be called "The No Name Diamond," and the buyer would have the right to re-christen it. In August of 1969, Ward Landrigan brought the diamond to Elizabeth Taylor's chalet in Gstaad, Switzerland, and assured her that it was the finest diamond then available on the market. She expressed interest in it, and shortly thereafter items were planted in gossip columns suggesting that Elizabeth Taylor planned to bid up to a million dollars for the No Name Diamond.

At that point, Robert H. Kenmore, whose conglomerate had just acquired Cartier in New York, saw the possibility of gaining considerable publicity for Cartier by buying the No Name Diamond, renaming it the Cartier Diamond and reselling it to Elizabeth Taylor. He preferred to pay a million dollars for it, so that the sale would be indelibly impressed on the public's mind as the most expensive diamond ever purchased. He arranged to borrow the million dollars from a bank, and took the $60,000 interest cost on the loan out of his conglomerate's public relations budget.

The auction was held on October 2 3, 1969, and after sixty seconds of excited bidding, the diamond was sold to Cartier for $1,050,000. Harriet Ames received from Parke-Bernet, after paying their commission and sales tax, $868,600, and Cartier received the diamond. Four days later, Elizabeth Taylor and her husband, Richard Burton, bought the diamond from Cartier for $1,100,000 (which meant that Cartier took a slight loss on the interest charge), and a few days later the diamond was transferred to Elizabeth Taylor's representative on an international airliner flying over the Mediterranean to avoid any further sales tax on the diamond.

Some ten years later, when she was married to John Warner, the United States senator from Virginia, Elizabeth Taylor decided to sell this well-publicized diamond. She announced that the minimum price was four million dollars, and to cover the insurance costs for showing it to prospective buyers, she further asked to be paid $2,000 for each viewing of the diamond. At this price, however, there were no buyers. Finally in 1980 she agreed to sell the diamond for a reported $2 million to a New York diamond dealer named Henry Lambert who, in turn, planned to sell the stone to an Arabian client. The profit Miss Taylor received from the transaction, after paying sales taxes and other charges, was barely enough to cover the eleven years of insurance premiums on it.

Most knowledgeable diamond dealers believe that the value of extraordinarily large diamonds, such as the one bought and sold by Elizabeth Taylor, depends more on cunning publicity than the intrinsic quality of the stone. An extreme example of this is the seventy-carat diamond given to the Emperor Bokassa in 1977 by Albert Jolis, the president of Diamond Distributors, Inc. The Jolis family first negotiated a concession to mine diamonds in 1947 in what was then the French colony of Ubangi. Jolis's father, Jac Jolis, had made the case to the State Department that an American company should have the mining rights for diamonds in French Central Africa, thus ensuring the United States a supply of industrial diamonds. He even hired William Donovan, the wartime head of the OSS, to represent his firm in the negotiations. According to a declassified memorandum from the American embassy in Paris, State Department officials were persuaded that it was important for the United States to gain "direct access to strategic materials such as industrial diamonds." Eventually, with the assistance of Donovan, Jolis's firm gained control over the alluvial deposits of diamonds in Ubangi. In 1966, Bokassa, then a colonel in the provisional gendarmes, seized power in a military coup d'etat and proclaimed himself president of what was then the Central African Republic. President Bokassa agreed to continue the Jolis concession in return for the government receiving a share of a profit. A decade later, however, when Bokassa decided to become emperor and re-christened the country the Central African Empire, Jolis was given to understand that he was expected to provide a "very large diamond" for the coronation.

As the coronation date approached, Jolis found himself caught in a difficult situation. His firm could not afford to spend millions of dollars to acquire the sort of supervised diamond that would put the emperor-to-be in a league with the shah of Iran or the British royal family; yet if he presented him with a small diamond, Bokassa might well withdraw his firm's diamond concessions. Finally, Jolis hit upon a possible solution to this dilemma. One of his assistants had found a large chunk of industrial diamond boart, weighing nearly seventy carats, which curiously resembled Africa in shape. This piece of black, poorly crystallized diamond would ordinarily have been crushed into abrasive powder, and as such would have been worth about $2 a carat, or $140. Jolis instead ordered that this large diamond be polished and mounted on a large ring. He then had one of his workmen set a one-quarter carat white diamond at the point in the black stone that would coincide with the location of the capital of the Central African Empire. Finally, Jolis placed the ring in a presentation box with a certificate staring that this diamond, which resembled the continent of Africa, was unique in all the world.

The following week, though understandably nervous about how it would be received by the mercurial Bokassa, Jolis flew to the Central African capital of Bangui and presented the ring. Bokassa took it out of the box, examined it carefully for a moment, and took Jolis by the hand and led him into a room where his entire cabinet was assembled. He paraded around the table, jubilantly displaying to each and every one of his ministers this huge black diamond. He proudly slipped it onto his ring finger. Jolis's mining concession was secure, at least temporarily secure in the Central African Empire.

A few days later, the emperor proudly wore the black diamond during the coronation ceremony. The world press reported that this seventy-carat diamond, which had cost Jolis less than $500, was worth over $500,000. A piece of industrial boart was thus elevated to being one of the most celebrated crown jewels in the world. When the Emperor of Central Africa met Giscard D'Estaing, the president of France, he extended his black diamond to him as proof of his royalty.

The Bokassa empire ended in 1979 when French paratroopers, on orders from Paris, staged a bloodless coup d'etat and put the former emperor and his retinue on a jet headed for France. From there, Bokassa went into exile on the Ivory Coast with his prize diamond ring.& When Jolis heard that he retained among his crown Jewels the industrial diamond he had presented him two years earlier, he commented, "It's a priceless diamond as long as he doesn't try to sell it."

The value of the Emperor's diamond, like that of most other diamonds, depends heavily on the perception of the buyer. If it is accepted as a unique gem and a crown jewel, it could be auctioned off for a million dollars. If, on the other hand, it is seen as a piece of industrial boart, it will be sold for $140 and used as grinding powder. It is, as Jolis observed, "a two-tier market."