Category Archives: US Banking Crisis

An offer no reasonable man could refuse.

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I’d gotten to that Red-Star table by positioning myself early and ugly in that regard. As a Master Gemologist Appraiser—one of 41 in the U.S.—I understood the physics and optics of gemstones as well as any in the South Hampton Roads Area, and what constituted value in a gemstone. I’d apprehended early what true added value was, and, more important still, how to achieve it. As a marketer, I saw and deeply felt how important a personality-driven brand could be at the local level, and how that brand could be affirmed, reaffirmed, and then reaffirmed again not only in my showcases and displays but outside the stores as well, by my position in my community. My concept of of the “personality-driven local brand” rested on my worldview that a business must not only make a profit for the stakeholders, but be a blessing to the community, much as what financial guru Jim Collins has written, filling the unfillable hole in a market, which he referenced in his book, Good to Great (one I highly recommend.)

Diamonds, one of the jeweler’s two great income-streams (timepieces are the other), had always been sold as a commodity. Now these chips of crystallized carbon were undergoing a branding themselves, with premiums going to jewelers, cutters, and manufacturers able to differentiate their stones not only from the guy down the road but from the WalMart out by the interstate: Believe it or not, WalMart has been the world’s No. 1 diamond merchant for almost two decades: At the height of our expansion, for example, December 2005, our regional market share had reached seven percent. WalMart, which had already begun to lose share to online merchants such as Blue Nile, was down to eight percent of diamond sales, nationally. That sales volume of WalMart and the other Big Boxes by itself crippled many an independent jeweler throughout the late-20th Century downturns.

Their market share owed as much to their reach as buyers as to their omnipresence in the American mall. A jeweler’s trade is as dependent upon his relationship with his suppliers as his relationship with his customers. There was no competing with them on price, volume, or credit-terms. More crucially, however, we couldn’t compete for the supply of diamonds typically sold. Ninety percent of the vendors I would fight to get a parcel of one-carat diamonds from would have spent five, ten years simply to get in the door at a Vendors Day in Bentonville, AR.

The only solution was to sell different and demonstrably better stones, and to use my expertise in branding, and my personal local brand to outrun the big guys. It was a slippery slope: As a client of two of the first national diamond branders, Boston, MA’s Hearts on Fire and northern California’s Eight-Star, I understood the benefits but also the inevitable shortcomings of a retailer’s relationship with such companies, and had begun my own “private-label” diamond and diamond-jewelry lines. Those private-label brands—and I soon added David Nygaard timepieces as well—could at times be a logistical nightmare, but they helped guide a path to the most visible, accountable, and margin-enhancing sweet spots of the supply chain. It was a path that would take me from being yet another buyer of goods from national manufacturers, yet another guy walking the aisles at trade-shows, to being a local private-labeler, and, inevitably, an overseas manufacturer, and top notch jewelry designer  myself.

An Offer No REasonable Man Could Refuse

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It was an ordinary business lunch at an ordinary restaurant in the Town Center in Virginia Beach, mid-August 2006. For me, it was the closest a man gets to walking on air while eating a BBQ pork sandwich and onion rings at a Red-Star Tavern.

Wachovia, in the form of a loan officer named Tom Mitchell, was wining and dining me and my thriving jewelry chain, which I’d grown to six doors in three years. He’d been sent to me by the worldwide banking giant’s regional president, Jeff Dykman, who not only wanted to take my business from the smaller regional chain of BB&T, but to have me open Store No. 7 proximate to what was to have been the “Wachovia Center” in downtown Norfolk. No one had ever asked me to open another store, and that really fed my ego.

No. 7 was to be fully funded with a Five Year Note, stocked like none of the other six doors, a crowning achievement for our business. It was also something of a personal laurel-wreath: The Five Year Note Tom offered was non-demand—the best kind of note. Unlike a demand note, which a bank can place into default any time they wished, this couldn’t be “called” so long as we made the monthly payments.

As a student of the diamond and jewelry trade, I was deeply aware of what that Note symbolized. On the surface, Tom was just your typical mid-America loan officer, a former jock who’d probably gotten his job because he connected easily and naturally with people, a type more friendly than bright, who from mid-school on was used to people wanting him in their corner, if only to look cooler than they were. I suppose I too was a typical, if aggressive, mid-Americas retailer. No one in their right mind has ever accused me of being cool.

Beyond that Red-Star Tavern, however, lay a banker-jeweler relationship dating back to 15th-Century Venice—roughly the time when diamond merchants in the small Belgian towns of Bruges and Antwerp first learned the secret of cutting a diamond, the world’s hardest substance. Scratch two diamonds against each other to create diamond dust, collect that dust, use it to “impregnate” a stone wheel, similar to one used in pottery, and you’ve created a diamond surface capable of polishing facets onto a rough stone. These merchants had a new and immensely profitable trade. Located principally in Venice for its central position on waterways connecting northern Europe and India (source not only of diamonds but other precious stones, metals, spices, and other commodities), they were the repositories of a new kind of transportable wealth, one capable of funding not only other merchants but the doges of Venice and soon much of Europe’s royalty. It’s a gross oversimplification, but they in essence became the first private bankers, and a powerful, if secretive connection between the banking and jewelry trades was born. It continued: through the growth of nation-states, of the great cities and population centers, the transformation from monarchies to democracy, and with it, the democratization of wealth and the growth of a retailer class, embodied in that Red-Star Tavern by none other than myself.

It was a heady but also perilous time to be a jeweler. The 21st Century had brought a sea-change to the now $85-billion jewelry trade. Globalism, the massive flow of free information and competition at the top of the supply chain had, for the first time, forced a truly free market upon us, rather than the supply-side cartel put in place by the monolithic diamond miner De Beers at the turn of the 20th Century. Supply-chain visibility, accountability, best-business practices, vertical integration, branding, private-labeling, and added value were, almost overnight, becoming hallmarks of a trade that for centuries had been the provenances of kings, criminals, and shadowy monopolies. Those changes brought less proactive jewelers, designers, manufacturers, and even sightholders—the top diamond cutters who received goods directly from De Beers and the other miners—to their knees, and it made millions for those at the vanguard of those changes. The dividing line was pretty clear: The first, losing group were participants who had long relied and profited on price-competition. With prices already sky-high—the dot.com boom had seen to that—the new metric no longer lay in the black numbers artificially embossed on price-stickers and bar-codes, however. With a spiraling growth of the jewelry-buying public’s ability to educate itself (and compete for buying power) on the internet, the secret to margins and growth now lay in adding value to one’s merchandise.

How I Became a Toxic Asset and Survived!

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My story was a harbinger of the destruction of the American capital system as it’s been known since the Reform Acts of 1933.  Local and trade magazines have profiled my overnight descent from pillar of the community to toxic asset when the banking crisis imploded last year.

I owned a fast-grown chain of high-end jewelry shops in the Virginia Beach area, with the civic status and awards expected of a high-profile entrepreneur, and then some. In 2006, I was Virginia Business Magazine’s Success Story of the Year and I had grown my company from one to six stores in three years. Wachovia, America’s quickest-growing bank in  2007, pitched me to replace our prior bank, with an offer no reasonable man could refuse, enabling and encouraging further expansion—even to an overseas factory—with a five year note.

My personal banker faced a failed engagement and demanded a full $15,000 refund on a custom ring we made for him some 18 months before, “or else…”   In April 2008, months before the rest of the country would become aware of the self-destruction of the American banking system, Wachovia invoked what is known as a “nervous clause” to retroactively place my loans into default the prior July, despite the fact they were current. A meeting with their “closeout” men took ten minutes, and I was suddenly standing at the edge of an abyss. My house and personal finances were tied to those notes.

I hired an industry liquidation company to raise cash, and closed two stores, but I was cutting off fingers to save the hand. In June, Wachovia requested a “collateral inspection” as a means to seize $1.7 million still in inventory, though they failed to do it properly by all accounts.   All our accounts were frozen, hard assets locked up, and my chain was extinct. We had been named the 5th “Best Place to Work,” in our region, but were unable to make final payroll for some 35 employees. I became persona non grata in the highly sequestered worldwide diamond chain—much of my inventory was “mine” on credit, and the dealers had no recourse to their goods. One did try—hiring a hit man who threatened me and my family, and placing us on the FBI Victim Assistance list. I injured my back carrying out records and saw my office of seven years for the last time on an ambulance-stretcher.

Wachovia, Wells Fargo,  placed my home into foreclosure, and the local media reported the auction last August.  No bidder showed up—temporary limbo—though federal TARP money did enable Wachovia to pay off my first mortgage and acquired my home in early June this year; they then sold it in a “closed door deal” to the prime suspect in our embezzlement case, dubbed the “largest jewel heist in Virginia Beach history,” by the local NBC affiliate.

This blog is in part the story behind the story reported by the local and trade press.  It is the story of survival and how God can use the most difficult challenges to grow our character.  I’m writing a book but in the meantime, enjoy the blog.  Don’t worry, I’ll add some other things too.