The Federal Trade Commission issued warning letters Tuesday to lab-grown diamond companies, including one backed by Leonardo DiCaprio, for advertising practices it says misleads consumers.
The FTC said it found instances in which Diamond Foundry and seven other companies advertised its lab-grown diamonds in a way that might misrepresent “that a lab-created diamond is a mined diamond, or where required disclosures about the source of the diamonds are not proximate to the individual product descriptions.”
As Ada Diamonds co-founder Jason Payne explained on Yahoo Finance’s YFi PM, asking companies to be more careful about advertisements is not a net negative for the industry or for consumers looking for alternatives to mined diamonds. Ada Diamonds, which strictly sells laboratory-grown diamond jewelry, was among the companies that received a letter from the FTC.
“I think it’s fantastic that the FTC has clarified their position,” Payne said, adding that the agency took issue with three ads his company ran featuring a lab diamond hashtag that was not deemed to be a significant enough disclosure.
Payne said that he does see evidence that consumers continue to be misled by companies selling diamond simulants. Roughly 37% of the inquiries he gets through his lab-grown diamond buyback program are from people who mistakenly purchased diamond simulants like cubic zirconia or moissanite, thinking they were purchasing a lab-grown diamond.
Lab-grown startups say they are transparent
The FTC also took issue with other instances in which lab-grown diamond companies were advertising lab-grown diamonds as “eco-friendly” without clearly substantiating the claim. Diamond Foundry, however, clearly states on its website that it uses solar power to fuel the process in which carbon atoms are subjected to extreme heat and pressure to form a diamond.
“We pride ourselves on our transparent marketing of non-mined diamonds,” Diamond Foundry CEO Martin Roscheisen told Yahoo Finance in an emailed statement. “We have received an inquiry from the FTC that we intend to respond to in thorough detail.”
Diamond Foundry, a San Francisco-based lab-grown jewelry startup that boasts DiCaprio as an investor, sells man-made diamond rings through its website and markets its wares as sustainable alternatives to mined diamonds.
The Diamond Producers Association, which represents mining companies like Anglo American-owned De Beers and Rio Tinto, was also quick to applaud the FTC’s warning.
“The DPA welcomes the FTC’s warning to synthetic diamond manufacturers against misleading consumers with their marketing tactics,” it said in a statement. “This warning is an important step toward transparency and consumer protection.”
MiaDonna, which offers what it markets as a “diamond hybrid” simulant., also received a letter from the FTC. The FTC warned it “encourages companies selling simulated diamonds to avoid describing their products in a way that may falsely imply that they have the same optical, physical, and chemical properties of mined diamonds.”
FTC warnings ‘bolster the mining companies’ interests’
Alex Weindling, founder of lab-grown diamond company Clean Origin, which had not received a warning letter at the time of publication, took issue with the FTC’s decision.
“I happen to believe that when you dig a crater that is visible from space that it is less environmentally thoughtful than growing a diamond — just my opinion,” he said, adding that the warnings would bolster the mining companies’ interests to denigrate lab-grown diamonds. “We are about 1% of the [diamond] industry, but we are about 90% of their focus.”
Lab-grown diamonds are generally about 30% cheaper than their mined equivalents, though some industry analysts have pointed to a widening price gap between the products. Both Payne and Weindling denied seeing evidence of such price changes.
Companies receiving FTC warning letters have 10 days to address how they will change their advertising practices to comply with new guidelines.
Zack Guzman is the host of YFi PM as well as a senior writer and on-air reporter covering entrepreneurship, startups, and breaking news at Yahoo Finance. Follow him on Twitter @zGuz.
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