As Scams Go, This Is a Gem

Those not in the diamond trade might find it hard to understand why Emile Chayto, a Geneva dealer with more than 40 years of experience, gave $14 million worth of gems to a stranger who claimed to be the wife of the deceased president of the Congo -- before she had paid him one penny.

Unfortunately for Chayto, she was not the widow of Mobutu Sese Seko. And her wire transfer never arrived.

As it turned out, the handoff of the stones triggered a series of transactions -- detailed in lawsuits in Los Angeles and Israel -- illuminating a strange and glamorous trade in which millions of dollars’ worth of merchandise crisscrosses the globe on the strength of spoken promises.

Since the Middle Ages, when it was one of the few areas of commerce open to them in Europe, the diamond business has been dominated by Jews, and even today, though traders from India are increasingly moving into the industry, deals around the world are sealed with the traditional Yiddish phrase mazel und brocha, which means “luck and a blessing.”

Hebrew is spoken along Hill Street in Los Angeles, the country’s second-largest diamond market after New York, where some of the parties involved with Chayto in the disputed trades have offices. Every day at lunchtime, deliverymen bearing kosher food pour into the downtown jewelry exchange, a glittering, bustling hive filled with tiny offices and storefronts.

David Marcus, president of the West Coast Diamond Club, a guild that arbitrates disputes among dealers and has its offices on the 16th floor of the exchange, said he knew, or knew of, most of the parties named in the lawsuits but that he hadn’t heard much talk about the dispute itself.

That did not surprise him, he added. It was easy to see why all parties involved -- many of whom have excellent reputations in the diamond world -- would not want to broadcast details of such a fight, especially in a business in which reputation counts for so much.

“Look, I make a deal for millions, and all I do is shake hands. I don’t even give a check. I give my word,” he said. “Cases like this are very rare,” he added.

According to court papers, the intrigue began a year ago, in February 2005, when Chayto was contacted by Albert Shamash, a resident of Marbella, Spain, a seaside playground of the rich on the fabled Costa del Sol.

Shamash told Chayto that he was calling on behalf of a woman who said she was Mrs. Mobutu Sese Seko, the widow of the ex-president of Zaire, now known as the Democratic Republic of Congo. Shamash said she “had a collection of uncut diamonds that she wished to sell,” according to court papers. The war-torn African state is known for its diamonds, and Mobutu was infamous for plundering his country’s assets, so it was plausible that his widow might have quite a nice collection.

In April, Chayto accepted Shamash’s invitation for an all-expenses-paid trip to Marbella, according to court papers.

No deal happened on that trip. In fact, Chayto didn’t even meet the woman. But a few weeks later, Shamash called Chayto again and told him that the purported Mrs. Mobutu wanted to throw a huge party for Congolese leaders and hand out precious watches and jewelry as party favors.

Court filings provide no explanation why the woman would buy diamonds when she first appeared as a seller. Through his Los Angeles attorney, Chayto declined to comment.

But according to court papers, Chayto began putting together a collection of gems to offer for sale. Most were owned by other people, but that is not unusual in the diamond trade. One was a 23.8-carat diamond, which Chayto claimed in court papers was worth $1.8 million.

That stone belonged to a New York diamond dealer named Ishaia Gol. And there was a 16.62-carat diamond worth $900,000, owned by Chayto and another New York dealer. There was also a 43-carat Burmese sapphire, along with a ruby-and-diamond necklace, diamond-encrusted Harry Winston watches, Bulgari watches with emeralds and a long list of other gold, platinum and diamond jewelry, according to court papers.

A 23.8-carat diamond is big, but not among the largest diamonds in the world. The Hope Diamond, for example, is 45 carats. That stone, on display in the Smithsonian Institution in Washington, D.C., once belonged to King Louis XIV, and legend says it brings bad luck to its owners. Even bigger is the 530-carat Star of Africa, one of the British crown jewels.

With permission from the various owners around the world to negotiate a sale, Chayto delivered all the gems to Shamash in Marbella in May and June to show to the woman, according to court papers.

In June, Shamash told Chayto that she wanted to buy them all. She would pay him 12.2 million euros ($14 million) and a 2.8-million euro commission -- totaling about $17.8 million at the current rate of exchange.

As payment, a man claiming to be an English lawyer named Eduardo Martin gave Chayto a bank transfer document allegedly showing that the money would arrive in Chayto’s Geneva bank account on June 7, according to court papers.

But the money never arrived.

“I complained to Shamash that I had been defrauded,” he said in a court affidavit. “Shamash assured me that the problem was related to the embargo on Mrs. Mobutu’s funds imposed by the Congolese government. Shamash counseled me to wait.”

Shamash also gave Chayto two personal checks totaling 12.2 million euros signed by his wife. The checks were post-dated to July 7, but Chayto accepted them anyway.

Several days later, the woman claiming to be Mrs. Mobutu summoned Chayto from Switzerland to a London hotel, where she had reserved “the royal suite,” according to court papers.

The woman apologized to Chayto for the delay in payment. But she had good news: Her relations were improving with the new president of the Congo, and the money would be coming soon. And in the event it didn’t, she said, she had 20 million euros stashed in Morocco.

Chayto never got his money (the checks did not clear), nor did the other owners of the diamonds, according to court papers. Spanish police, meanwhile, say they are investigating a man named Shamash for theft of the diamonds and for other crimes.

But where were the stones? According to the court documents, they had entered the worldwide rapids of large-carat diamond trading.

“Traditionally, the diamond trade has been ... a small group that operates in a circle of trust,” said Russell Shor, a senior diamond industry analyst with the Gemological Institute of America. “Everybody knows somebody who knows somebody, so if you violate that trust, you become a pariah, and you can’t make a living.”

Across the globe, there are relatively few people who deal in large diamonds; Shor estimates maybe a few hundred. They buy and sell with stunning speed, making a small margin of profit on each deal.

“You keep your ear to the ground,” Shor said. “You know who’s got the goods. You go get them. You seize the moment.”

That is exactly what Ouri Shifman did when he heard through his brother-in-law in Casablanca about some large diamonds for sale last spring, according to court papers.

Shifman, a dealer whose company has offices in Los Angeles, New York and Israel, flew to Marbella on May 26, a week before Chayto completed his deal with Shamash and the woman. In a later court paper, Shifman said he met there with a diamond broker named Ali, who claimed to be acting on behalf of the wife of “a very wealthy man from one of the Persian Gulf emirates.” She wanted to sell a 23.8-carat diamond, among other jewels.

Shifman and a business associate went to a heavily guarded home in Marbella and looked at the stone. A third-generation diamond dealer, Shifman did not usually deal in large diamonds, so he approached an old friend from Los Angeles, Oved Anter, for help with financing.

By May 31, he and Anter had put together $900,000 for the 23.8-carat diamond, and Shifman had taken the diamond to Las Vegas to give to Anter. (Shifman said he eventually paid a total of $1.38 million for the diamond; the other side says it appears that he paid less, according to court papers.) Later, Shifman also bought two other diamonds and a sapphire that had been among the jewels Chayto had delivered to Shamash. Many of the others have disappeared, according to Chayto’s attorneys.

Anter and Shifman sold part ownership in the 23.8-carat stone to a New York dealer. Within days, according to court papers, a representative of that dealer met one of Chayto’s partners and, not knowing about the stone, tried to sell it to him. That’s when the lawsuits started flying.

Chayto and his partners say Anter and Shifman ought to have known it was a shady deal.

They maintain that Anter and Shifman paid about $1 million less than market value for the diamonds, which should have tipped them that something wasn’t right. But even without the low price, they say, the “convoluted story ... would have put even an ordinary person on notice that the wealthy Arabian matron may not have had clear ownership of the jewels.”

But as Shifman countered in his deposition, the diamond market is full of “brokers and middlemen, and the identity of the principal is often unknown.” There was no way to he could have known he was part of a scam, he said.

Ali seemed to be well known in Marbella. He had a house. He knew lots of people. And all of the meetings took place in restaurants and cafes (where Ali insisted upon picking up the check).

“These transactions were not carried out in the shadows,” Shifman said in his declaration. He added: “The last thing I could imagine was that when I arrived with the diamond in Las Vegas and proudly showed it ... that several months later I would find myself being summoned to a police interrogation regarding the circumstances of how the diamond came to be in my possession.”

Now the stones bought by Anter and Shifman, which last year jetted from New York to Geneva to Marbella to Las Vegas, back to New York, then to Israel and finally to Los Angeles, are grounded. Late last month, a Los Angeles judge issued an injunction forbidding Anter and his diamond company, First International Diamond Inc., from selling them while both sides fight it out.

Anter and Shifman say they paid for the diamonds fair and square and that the suits are tarnishing their reputations, built up over decades in the business.

“We bought goods in good faith,” said Sam Wieder, Shifman’s partner. “We are going to fight this all the way to end.”

Earlier this month, Anter countersued Chayto and his New York partners, accusing them of negligence in the sale to Shamash, resulting in Anter’s and Shifman’s being defrauded. That suit also accuses Chayto and Ishaia Gol of slandering Anter’s and Shifman’s names. It seeks punitive damages. Lawyers for Chayto and Gol deny the allegations.

As the court filings continue to pile up, there is at least one thing both sides agree on: They’ve never been involved in anything as unusual as this suit.

“I’ve been in the business 30 years. I’ve never had such a strange thing happen to me,” Wieder said.

“Never in my life,” agreed Gol, the New York diamond dealer whose 23.8-carat diamond is at the heart of the dispute.

Now, Gol said, it is up to the courts. “Somewhere, somehow, somebody will have to decide who is honest and who is not.”

Times special correspondent Cristina Mateo-Yanguas in Madrid contributed to this report.