B of A Assessed $14 Million in Diamond Suit
A federal jury has decided that Bank of America should pay a Los Angeles diamond merchant $14.2 million in damages for wrongfully cutting off his credit and ruining his diamond trade.
The July 5 verdict calls for the bank to pay Shimon Yakira $4.2 million in actual damages and $10 million in punitive damages. Yakira contended that Bank of America forced him out of business to prevent bank losses from another dealer’s bad debts.
The bank declared that it was “shocked” by the award and said that it planned to appeal.
“We feel that the verdict is not supported by the facts presented to the jury,” the bank said in a statement. “In addition, the amount of actual damages awarded is grossly excessive, and no award of punitive damages in any amount is warranted.”
Intricate Credit Network
The case arose from the bank’s role in the intricate credit network linking the small Los Angeles community of diamond dealers. Yakira, an Israeli citizen, was one of the city’s leading diamond traders until B of A cut off his line of credit early last year.
The diamond trade is based on trust and instant credit, backed by a handful of major banks who honor the merchants’ IOUs on a system of revolving credit. Bank of America’s Pershing Square office, in the heart of Los Angeles’ jewelry center, is a key institution in the network.
Yakira charged that in late 1983 Bank of America induced him to accept the IOUs of a fellow dealer, Ervin Pfefferman & Son, whom it knew was facing bankruptcy and soon would be unable to pay its debts.
Encouraged to Accept
“They encouraged my client to accept the notes of another merchant when they knew that merchant was financially infirm and going under. And they did that in order to foist off on Yakira a portion of the loss they were going to suffer,” said Yakira’s attorney, Rafael Chodos.
When the Pfefferman firm failed in December, 1983, after suffering a $5-million gem robbery, Chodos said, Bank of America refused to pay on the Pfefferman notes that Yakira was holding and denied him access to his own $2-million line of credit.
Forced to sell his inventory to pay other creditors and refused further bank advances, Yakira’s $10-million-a-year diamond trade collapsed.
