Lugano Diamonds Files for Bankruptcy, Looking for Buyer

Newport Beach, Calif.—Lugano Diamonds & Jewelry Inc. filed for Chapter 11 bankruptcy protection Sunday and is seeking a buyer.

The bankruptcy filing follows the departure of the high-end jewelry manufacturer and retailer’s CEO and co-founder Mordechai “Moti” Ferder in May.

Ferder resigned after a preliminary investigation by parent company Compass Diversified revealed “irregularities” in its financing, accounting, and inventory practices, announced in an 8-K filing.

Compass, a private equity firm, acquired a majority interest in the retailer in 2021 for $256 million, with Ferder retaining 40 percent of Lugano Diamonds.

In documents filed Sunday in bankruptcy court, Lugano’s Chief Restructuring Officer J. Michael Issa said the company appeared to be “a highly profitable and rapidly growing business” up until early spring 2025 when Compass started looking into its books.

Its revenue and operating income appear to have been overstated, he said, and the amounts are being revised to reflect “substantially lower” numbers.

Issa stated that within weeks of Compass’ 8-K filing, Lugano Diamonds heard from nearly 60 individuals who said they were involved in “investment contracts” with Ferder that were “outside Lugano Diamonds’ ordinary course of business.”

In most cases, these contracts were joint investment agreements in which a third party would co-invest in a loose diamond, ostensibly for resale at a “significant profit.”

Since the summer, around a dozen parties have filed lawsuits against Lugano Diamonds, Ferder, and other related parties, Issa said in the filing.

On June 24, Lugano Diamonds sued Ferder alleging fraud, concealment, constructive fraud, and breach of fiduciary duty.

Ferder is accused of concealing and misrepresenting the nature of the above-mentioned financial transactions. Lugano said these contracts created liabilities for the company, with Ferder allegedly disguising them as direct sales.

“He forged invoices and sale documents, sent out empty box shipments, falsely recorded the money from the third-party individuals as revenue for Lugano [Diamonds], and concealed the payment obligations from Lugano [Diamonds’] books,” stated Issa.

In a statement emailed to National Jeweler, Ferder’s attorney, Jeffrey Reeves of Reeves & Weiss LLP, said that Ferder denies the allegations made against him and is “profoundly disappointed” that the company he founded has filed for bankruptcy.

Reeves said the evidence will show that the proceeds from the investment contracts went directly to Lugano and that no funds were directed to Ferder or any entity under his control.

He added that Lugano’s management and Compass Diversified were “fully aware of these activities and knowingly accepted the financial benefits from them.”

The lawsuit is “a clear effort to misdirect accountability for the company’s action, performance, and ultimate failure, which occurred after Mr. Ferder’s departure from leadership,” said Reeves. 

“Mr. Ferder is confident that the judicial process will bring the full truth to light and that he will be vindicated.”

According to court documents, the jewelry retailer’s assets are valued at an estimated $100 million to $500 million, while its liabilities range from $500 million to $1 billion, owed to between 200 and 999 creditors.

The retailer has reached an agreement with investment firm Enhanced Retail Funding to help continue operations during the sale process.

Lugano Diamonds said its stores will remain open during the bankruptcy process.

Enhanced Retail Funding also will serve as the stalking-horse bidder, meaning its bid will serve as the baseline during the sale process and other higher offers will be considered.

To further fund its operations through the bankruptcy process, Lugano filed a motion seeking approval of a $12 million debtor-in-possession financing facility that would provide up to $10 million of new liquidity.

Upon court approval, the money will be used to continue to pay employee wages and benefits, maintain customer programs, and fulfill obligations to vendors and partners.

“We are deeply grateful to our dedicated employees, clients, partners, and community for their ongoing support,” said Josh Gaynor, interim CEO of Lugano. 

“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.”

Founded in 2004 by Ferder and his wife, Idit, Lugano Diamonds, operates seven stores in affluent cities including Aspen, Colorado, and Palm Beach, Florida.

Lugano recently closed its London boutique, as per court documents, and is in the process of closing its Greenwich, Connecticut, and Washington, D.C. stores. 

The next hearing in the retailer’s bankruptcy case is scheduled for Wednesday morning at the U.S. Bankruptcy Court for the District of Delaware in Wilmington.