FORMER OWNER OF FRED LEIGHTON SENTENCED TO SIX YEARS IN PRISON FOR MASSIVE FRAUD IN CONNECTION WITH OVER $210 MILLION IN LOANS

United States Attorney
Southern District of New York
FOR IMMEDIATE RELEASE CONTACT: U.S. ATTORNEY’S OFFICE
JULY 22, 2011 ELLEN DAVIS,
Defendant Embezzled Rare Jewelry And Artifacts Valued At More
Than $48 Million
PREET BHARARA, the United States Attorney for the
Southern District of New York, announced that RALPH ESMERIAN, the
former owner and chairman of Fred Leighton Holdings Inc. (“Fred
Leighton”), the Manhattan-based luxury jewelry retailer, was
sentenced today in Manhattan federal court to six years in prison
for wire fraud, bankruptcy fraud, and concealment of assets in
connection with a scheme to embezzle and double-pledge collateral
that ESMERIAN estimated to be worth tens of millions of dollars.
That collateral partially secured over $210 million in loans
ESMERIAN used to finance his business operations and to purchase
Fred Leighton. United States District Judge DENISE L. COTE
imposed today’s sentence.
Manhattan U.S. Attorney PREET BHARARA said: “Ralph
Esmerian tried to game the financial system and the bankruptcy
process for years to finance his businesses. As a result of his
frauds, the lenders who trusted him have lost tens of millions of
dollars. Now Esmerian will pay a steep price for his crimes.”
According to the Criminal Information, the Criminal
Complaint, court papers filed in U.S. Bankruptcy Court for the
Southern District of New York, and statements made in court:
ESMERIAN was a dealer in museum-quality jewelry,
antiquities, and rare artifacts. He operated his business
primarily through R. Esmerian, Inc. (“REI”), a privately held
corporation of which he was the sole operator and majority owner.
Beginning in at least 2005, ESMERIAN sought to expand his
business operations by purchasing Fred Leighton, the luxury
jeweler, as a retail outlet for REI’s valuable inventory, which
he estimated to be worth approximately $192.3 million as of
December 2006. ESMERIAN financed the purchase of Fred Leighton
and REI’s business operations by obtaining at least $217 million
in loans from Merrill Lynch Mortgage Capital, Inc. (“Merrill
Lynch”), Acorn Capital Group, LLC (“Acorn”), and other sources.
In particular, in 2005 and 2006, ESMERIAN borrowed,
through entities he owned and controlled, approximately $177
million from Merrill Lynch in two loans. The loans were secured
by the inventory of Fred Leighton and a collection of rare
jewelry, artifacts and antiquities that ESMERIAN pledged to
Merrill Lynch. However, unbeknownst to Merrill Lynch, at the
time ESMERIAN entered into the 2006 loan agreements, he had
already sold some of the pledged collateral which he estimated to
be worth over $3.4 million. Soon thereafter, without informing
Merrill Lynch, and in violation of the loan agreements, ESMERIAN
sold an additional $1.6 million worth of Merrill Lynch’s
collateral to a third party, and double-pledged over $6 million
worth of additional collateral to help secure a $40 million loan
from Acorn.
In January 2008, following the commencement of
litigation between Merrill Lynch and ESMERIAN, the New York State
Supreme Court issued a temporary restraining order, which
ESMERIAN repeatedly violated by secretly selling additional
Merrill Lynch collateral and converting the proceeds to his own
use.
On April 15, 2008, ESMERIAN caused Fred Leighton and
related entities to file a voluntary petition for relief under
Title 11 of the United States Bankruptcy Code in the U.S.
Bankruptcy Court for the Southern District of New York (“the
Bankruptcy Court”), in a matter captioned In re: Old Delaware
Jewels, Inc., No. 08-11363 (RDD). In the course of the
bankruptcy proceeding, and despite orders of the Bankruptcy
Court, ESMERIAN repeatedly and systematically embezzled tens of
millions of dollars worth of property of Fred Leighton and
related debtor entities, sold that property, and kept the
proceeds for himself or to pay off other debts.
For example, in the summer of 2008, ESMERIAN secretly
sold, for $2 million, one of the most valuable items of Merrill
Lynch’s collateral, a 13-carat Burma ruby and diamond ring with
an estimated worth of $2.94 million. He had the proceeds wired
into his personal bank account.
In another instance, in May 2008, ESMERIAN secretly
sold another item of Merrill Lynch collateral, a rare butterfly
-2-
brooch consisting of hundreds of virtually flawless colored
diamonds valued at approximately $2.45 million. He had $1
million of the proceeds wired to his personal bank account.
After ESMERIAN’s theft of the brooch was discovered by Merrill
Lynch, ESMERIAN quickly raised the funds required to secure the
return of the brooch by stealing valuable jewelry from a client,
identified as “Individual-3” in the Information, and additional
debtor property that he valued at approximately $10 million, and
selling the stolen jewelry for substantially less than that
value. At or about the same time, ESMERIAN took additional
valuable jewelry from Individual-3, sold the jewelry, and
secretly had $1.2 million of the proceeds from the sale to be
diverted, for his personal use or other improper use, to a bank
account that he controlled.
In the course of the Fred Leighton bankruptcy
proceeding, ESMERIAN repeatedly lied to the Bankruptcy Court and
his creditors in sworn deposition testimony, sworn affidavits,
and other documents concerning his embezzlement of debtor
property, his double-pledging of collateral, and the location of
millions of dollars’ worth of assets of the bankruptcy estate.
* * *
In addition to the prison term, Judge COTE sentenced
ESMERIAN, 71, of New York, New York, to three years of supervised
release. ESMERIAN was also ordered to perform 1800 hours of
community service and forfeit $20 million. Restitution is
pending.
In imposing the sentence, Judge COTE said that,
beginning in 2008, ESMERIAN “lived a life of fraud and deceit on
a massive scale” and noted that this sentence shows that “you
cannot defraud your creditors, you cannot lie to the court, [and]
you cannot undermine the litigation system.”
Mr. BHARARA thanked the United States Postal Inspection
Service for its outstanding work on the investigation. He also
thanked the Office of the United States Bankruptcy Trustee for
the Southern District of New York.
This matter is being handled by the Office’s Complex
Frauds Unit. Assistant U.S. Attorneys DAVID B. MASSEY and NICOLE
FRIEDLANDER are in charge of the prosecution.
11-217 ###
-3-

Scroll to Top