John Stafford

Julius Klein Diamonds insists the pink diamond it allegedly stole from an Ohio jeweler never existed. But the mysterious gem was real enough to a federal jury, which awarded John Stafford $3.8 million for his loss.

The case opened a window into the secretive world of diamond trading, pitting Stafford, who operates a retail jewelry store in Miami Township, Ohio, against JKD, an industry giant which is one of only nine Diamond Trading Company “sightholders” in the U.S.

JKD argued that Stafford failed to prove the 5.56 carat pink diamond existed or, if it did, that he ever shipped it to JKD's New York office in February 2006 with the Brink's security company. When the package allegedly containing the diamond arrived in New York, JKD said, there was nothing in it.

But an investigation by Brink's showed the package had not been opened or tampered with before it was delivered. And a jury in Dayton last month rejected JKD's theory that Stafford lied about the shipment of the diamond as part of an insurance scam.

“The jury sent a strong, strong message that this kind of conduct absolutely will not be tolerated in our society,” Stafford attorney Dianne F. Marx said.

The verdict totaled $3.8 million in compensatory damages -- $8,400 for unjust enrichment, $1.7 million for conversion, and $2.3 million on a claim of civil liability for the criminal act of theft.

In a proposed judgment, Marx contends that Stafford is entitled to treble damages on the civil liability claim, which would bring the total award up to $8.6 million. However, defense counsel Stephen E. Chappelear says he can recover no more than $2.3 million since all three claims were based on a single event.

[Editor's note: Based upon information released by Marx, On Point initially reported that the jury awarded Stafford $6.9 million -- reflecting treble damages for civil liability.]

JKD, which was founded in 1948 and has offices in five countries, intends to appeal. “Prior to this case, in its entire 60 year history, Julius Klein Diamonds LLC has never been accused of taking any diamond,” the company said in a court document.

According to Stafford, he bought the “fancy,” “intense” pink diamond from a German man during a trip to Las Vegas in 2005, paying only $8,000 in cash. The man, who said his mother considered the stone to be bad luck, disappeared before Stafford could give him a receipt.

Before deciding whether to buy the diamond, JKD needed to see it first. So, as alleged in his complaint, Stafford took it from his safe, packaged it in a UPS box placed inside a Brink's shipping bag and handed it over to Brink's on Feb. 13, 2006 after insuring it for $1.5 million.

The package arrived in New York the following day, but JKD called Stafford to say “there was no Pink Diamond.” Stafford was “shocked” and, after Brink's completed its investigation, “was left with the disconcerting conclusion that his trust in JKD was woefully misplaced.”

JKD came to its own conclusion about Stafford, accusing him in a counterclaim for fraud of “a pattern of conduct which involves scamming shipping carriers and insurance companies by alleging lost shipments pursuant to an insurance fraud scheme.”

“Stafford's testimony only establishes that he allegedly purchased the Pink Diamond from a ghost,” the company argued in a court brief, referring to the enigmatic German, and “plaintiffs have not introduced any substantial evidence that the Pink Diamond exists.”

But Stafford emphasized the testimony of Brink's that "JKD received and accepted the Brink's package containing the Pink Diamond 'in good order.'” He has also questioned whether JKD could have “accidentally or inadvertently deleted” the original surveillance video showing the opening of his package at its premises in New York.

"Mr. Stafford unequivocally testified that he placed a $1.7 million Pink Diamond in [a] box and that neither the Pink Diamond box nor the Brink’s bag containing the Pink Diamond box contained any hole," Marx said.

By Matthew Heller
12/14/08