Rapaport Magazine

Ralph Esmerian Arrested for Fraud

JA asks Congress to consider jewelers’ interests, SEC charges Dalton with fraud.

By Rapaport
Ralph Esmerian, the former owner of Fred Leighton in New York City, was arrested by U.S. postal inspectors on charges of fraud in connection with approximately $217 million in loans. The Wall Street Journal reported that charges included bankruptcy fraud, concealment of assets and wire fraud stemming

from the loans he took out to purchase Fred Leighton Holdings, Inc. and lying during the company’s bankruptcy proceedings. Known as “the jeweler to the stars,” Esmerian frequently loaned Fred Leighton jewels to celebrities for red carpet events. A fourth-generation jeweler, Esmerian financed the purchase of Fred Leighton in 2006 with $177 million from Merrill Lynch Mortgage

Capital — now part of Bank of America Merrill Lynch — securing the loan with Fred Leighton’s inventory and

his own jewelry and art collection. According to the criminal complaint, very soon after he received that loan, he is believed to have “double-pledged” that collateral to obtain other loans, including a $40 million loan from Acorn Capital Group LLC. He allegedly never notified Merrill Lynch that he was using collateral that had already been pledged.

In 2008, Merrill Lynch, seeking repayment of its loan, wanted to set up an auction with Christie’s for Esmerian’s personal collection. The auction was halted when Fred Leighton filed for Chapter 11 bankruptcy in April 2008.

“Ralph Esmerian allegedly lied and looted to maintain his personal and financial status by tricking his lenders, stealing from investors and deceiving the bankruptcy court,” said U.S. attorney Preet Bharara in an article in Women’s Wear Daily. Bharara noted that Esmerian “secretly sold” a butterfly brooch for $2.5 million and then wired $1 million of the proceeds to his personal bank account. According to the complaint, the brooch had been designated

as debtor property and, as cash collateral, could not be sold. In September 2008, after Merrill Lynch learned that the item was to be auctioned in Hong Kong, Esmerian was required to return it, leading him to sell other inventory he didn’t own to buy back the brooch. Esmerian’s attorney did not issue any comments at press time. If convicted of all the charges, Esmerian, 70, could face up to 40 years in prison.

SEC Charges Dalton With Fraud

The U.S. Securities and Exchange Commission (SEC) filed an emergency civil action in the U.S. District Court for the District of Colorado against Richard Dalton and his Universal Consulting Resources LLC (UCR). Dalton stands accused of raising $17 million from 130 investors from March 2007 through June 2010 under a Ponzi scheme, which solicited investors for “two fraudulent offerings that were generally referred to as the ‘Trading Program’ and the ‘Diamond Program’ and promised returns of between 48 percent to 120 percent per year,” according to the SEC. While investors in both programs received monthly payments, the majority of his payouts were in fact from new investors.

The SEC concluded that Dalton and UCR falsely claimed the diamond program would generate profits from the trade of rough or polished diamonds; that UCR would distribute profits for at least one completed transaction per month; that the funds would be used to purchase diamonds abroad for the purpose of re-selling them in the U.S.; that the diamonds were insured; and that this fund carried “extremely low risk.”

In addition to seeking an immediate asset freeze and temporary restraining order, the SEC will seek permanent injunctions, disgorgement plus pre-judgment interest and financial penalties against Dalton and UCR. 

JA Asks Congress to Consider Jewelers’ Interests

In a letter to members of Congress, Matthew A. Runci, the president of Jewelers of America (JA), urged lawmakers to “keep jewelry businesses top-of-mind” as they decide on measures that could have lasting impacts on their business. Runci highlighted several key issues for Congress to consider, including an extension of the Bush tax cuts and a repeal of the estate tax. He also wrote that legislators should allow businesses to continue using the last in, first out (LIFO) accounting method, which would “hurt many jewelry businesses if it were repealed.”

Another key component of JA’s expanded efforts to influence legislation is the Jewelers of America Political Action Committee (JAPAC), which contributed to the campaigns of 28 “pro-business” candidates in tight races during the recent midterm elections. Of these, 22 candidates went on to win on November 2.

Article from the Rapaport Magazine - December 2010. To subscribe click here.

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