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[ diamond scam ]
diamond jewelry
LOS ANGELES — 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.
A gem of a scam. Shady deal rocks insular
diamond trade
By JESSICA GARRISON , Los Angeles Times found at www.southcoasttoday.com
April 03, 2006
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 wife 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 for why the woman would be buying diamonds
when she'd 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-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-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.
With permission from the various owners around the world to negotiate a sale,
Chayto delivered 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) along with 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 alleged Mrs. Mobutu. 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-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 and a member of the
Israel Diamond Exchange, 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-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 — all of which had been among the
jewels Chayto had delivered to Shamash. Many of the other jewels Chayto gave to
Shamash have disappeared, according to Chayto's Los Angeles attorneys.
Anter and Shifman sold part ownership in the 23-carat stone, known in court
papers as the "Ishaia diamond," 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 the history of the stone, tried to sell the stone 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 and refused to enter into it.
They maintain that Anter and Shifman paid about a $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. In late February 2006, 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 New York
partner. "We are going to fight this all the way to end."
Last month, Anter countersued Chayto and his New York partners, accusing the
dealers of negligence in their handling of the sale of the diamonds to Shamash,
resulting in Anter's and Shifman's being defrauded. That lawsuit also accuses
Chayto and Gol of slandering Anter's and Shifman's good names. It seeks punitive
damages. Lawyer's for Chayto and Gol deny those allegations and say they intend
to fight them "vigorously."
As the court filings continue to pile up, there is at least one thing both sides
agree on: Even in the diamond business, where fabulous locales and exotic
stories are part of the trade, they've never been involved in anything quite as
unusual as this lawsuit.
"I've been in the business 30 years. I've never had such a strange thing
happen to me," Shalom Wieder, Shifman's partner, said.
"Never in my life," agreed Gol, the New York diamond dealer whose
23-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," he said.
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