Lugano Diamonds files for bankruptcy, seeks buyer in wake of CEO’s alleged fraud
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Lugano Diamonds & Jewelry has filed for bankruptcy and is seeking a buyer, following lawsuit allegations earlier this year that its founder and former chief executive, Mordechai “Moti Ferder, fraudulently brokered third-party diamond sales with wealthy clients and fled with their investments.
The Newport Beach-based company announced in a news release Sunday that Lugano and its affiliates have filed for Chapter 11 relief in the U.S. Bankruptcy Court for the District of Delaware, where parent company Lugano Holding, LLC. is based.
The company asks the court to approve the sale of “substantially all of its assets” through an arrangement that will allow it to continue doing retail business as it seeks approval of $12 million in debtor-in-possession financing that would provide roughly $10 million of liquidity, the release states.
Lugano has secured an undisclosed offer from Boston-based Enhanced Retail Funding, an investment firm focused on acquiring assets with an expertise in the jewelry sector, which will serve as a baseline, or “stalking horse,” bid at auction open to potentially higher and better offers.
Josh Gaynor, appointed interim chief executive of Lugano, after parent company Compass Diversified announced Ferder’s May 7 resignation, said the company was “deeply grateful” to Lugano’s employees, clients, partners and community for their ongoing support.
“As this process is underway and we approach the holiday season, we look forward to continuing to provide our valued clients with unique, timeless pieces for themselves and their loved ones,” Gaynor stated in Sunday’s release.
The bankruptcy proceedings follow roughly a dozen lawsuits filed in Orange County Superior and U.S. District courts this summer alleging Ferder, who opened Lugano Diamonds & Jewelry in 2005 with his wife Idit, entered into unpermitted outside contracts with wealthy individuals to either acquire interest in or, with additional Lugano funds, purchase costly gems, promising the parties would split the profits.
Ferder is accused of falsely recording the money received from these transactions as revenues for the Newport Beach business, concealing the repayment obligation from the company, attorneys for Lugano claimed in a separate lawsuit against Ferder.
Mordechai “Moti” Ferder, founder of Newport Beach’s Lugano Diamonds & Jewelry, resigned from his position May 7 and, according to one lawsuit, is living abroad and transferring his assets out of California as legal threats mount.
Lugano officials reportedly heard from nearly 60 individuals with “substantial claims” relating to the transactions, according to one bankruptcy court declaration filed Sunday.
The scheme caused the company to misrepresent its finances, with Lugano suggesting in a court filing Sunday it believed its 2024 revenues and operating income were $470 million and $180 million, respectively.
“Unfortunately, the company’s performance appears to have been overstated,” a court declaration states.
The company’s Chapter 11 petition, submitted to the court Sunday by independent Chief Restructuring Officer J. Michael Issa, paints a decidedly different picture.
Lugano lists between $100 million and $500 million in assets, and from $500 million to $1 billion in liabilities. A separate court filing places the aggregate cost value of Lugano’s merchandise between $147.8 million and $175 million.
Gaynor told the Orange County Business Journal in June the company was actively engaged with potential buyers and looking to downsize its workforce by 25%.
While Lugano once comprised a network of ten retail boutiques, “strategically located in wealthy regions or near popular vacation and upscale shopping destinations,” according to one court filing, its London store has since shuttered, while two locations in Greenwich, Conn., and Washington, D.C, are in the process of closing.
Issa declared in Sunday’s filing the proposed debtor-in-process financing will enable Lugano Holding to maximize the value of its assets, adding that without the $12-million pledge, the company would “unlikely be able to continue operations for more than a few weeks in chapter 11.
“Pending approval of the agency agreement (with Enhanced Retail Funding) or a higher or better offer, the debtors anticipate the continuing of their retail business and look forward to maintaining retail sales efforts through the holiday season,” Issa stated.
