Lugano Diamonds & Jewelry has filed for Chapter 11 bankruptcy protection and is seeking a buyer after a series of lawsuits accused founder Mordechai “Moti” Ferder of defrauding clients and disappearing with their money, the Los Angeles Times reports.
The company and several affiliates submitted the bankruptcy petition Sunday in the U.S. Bankruptcy Court for the District of Delaware, according to a news release.
Lugano is asking the court to approve the sale of most of its assets while keeping stores open during the restructuring, the LA Times said. It is also seeking authorization for $12 million in financing, which would give the business roughly $10 million in immediate liquidity.
A Boston-based investment firm, Enhanced Retail Funding, has offered to serve as the initial “stalking horse” bidder in an auction that will remain open to competing offers, according to the LA Times.
Bankruptcy follows wave of lawsuits
The Chapter 11 filing comes after about a dozen lawsuits were lodged this summer.
The suits claim Ferder, who founded Lugano with his wife Idit in 2005, struck unapproved side deals with wealthy individuals to purchase gems and promised to share profits, the LA Times said.
According to another lawsuit filed by Lugano attorneys, Ferder recorded money from those transactions as company revenue while hiding the obligation to repay investors.
A court declaration filed Sunday said Lugano officials have been contacted by nearly 60 people with “substantial claims” related to the alleged scheme. The situation caused the company to misrepresent its financial health. Although Lugano believed it generated $470 million in 2024 revenue with an operating income of $180 million, the filing says “the company’s performance appears to have been overstated.”
Company lists up to $1 billion in liabilities
The Chapter 11 petition, submitted by Chief Restructuring Officer J. Michael Issa, lists assets between $100 million and $500 million and liabilities between $500 million and $1 billion, according to the LA Times. Lugano’s merchandise is valued between $147.8 million and $175 million.
The jeweler has already started cutting back, closing its London location and planning to shutter stores in Greenwich, Connecticut, and Washington, D.C.
In June, interim CEO Josh Gaynor told the Orange County Business Journal the company would trim its workforce by 25%, the LA Times said. He was appointed after Ferder resigned May 7.
“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,” Gaynor said in a news release.
Issa warned in court filings that without the proposed financing, Lugano would “unlikely be able to continue operations for more than a few weeks in chapter 11.”
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