Southern District of New York
NOVEMBER 22, 2010 ELLEN DAVIS,
Defendant Embezzled And Double-Pledged Rare Jewelry And Other
Collateral Valued At More Than $40 Million
PREET BHARARA, the United States Attorney for the
Southern District of New York, and RONALD J. VERROCHIO, the
Inspector-in-Charge of the New York Office of the United States
Postal Inspection Service (“USPIS”), announced today the arrest
of RALPH ESMERIAN, the former owner and chairman of Fred Leighton
Holdings Inc. (“Fred Leighton”), the Manhattan-based luxury
jewelry retailer, on charges that he embezzled and double-pledged
more than $40 million in collateral in connection with more than
$210 million in loans ESMERIAN used to finance his business
operations and to purchase Fred Leighton. ESMERIAN was also
charged with committing bankruptcy fraud by deceiving and making
false statements in proceedings relating to Fred Leighton’s
Chapter 11 bankruptcy.
Manhattan U.S. Attorney PREET BHARARA said: “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. With the
assistance of our partners at the USPIS, as well as the
invaluable support of the U.S. Bankruptcy Trustee’s Office, we
will vigorously prosecute anyone who defrauds creditors and
financial institutions for personal gain.”
According to the Criminal Complaint filed today in
Manhattan federal court, court papers filed in U.S. Bankruptcy
Court for the Southern District of New York, and statements made
ESMERIAN is a dealer and collector of high-value
jewelry, artwork, and other objects, much of it museum-quality.
ESMERIAN operated his jewelry business primarily through R.
Esmerian, Inc. (“REI”), a privately held corporation that
ESMERIAN controlled through majority ownership.
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
ESMERIAN estimated to be worth approximately $192.3 million as of
in or about December 2006. ESMERIAN financed the purchase of
Fred Leighton and REI’s business operations by obtaining at least
approximately $217 million in loans from financial institutions
and other sources, including auction houses, other jewelry
dealers, and private individuals.
In particular, in 2005 and 2006, in order to finance
the purchase of Fred Leighton, ESMERIAN caused entities that he
owned and controlled to borrow approximately $177 million in two
loans from Merrill Lynch Mortgage Capital, Inc. (“Merrill
Lynch”). The Merrill Lynch loans were secured by the inventory
of Fred Leighton and a collection of rare jewelry, antiquities
and other valuable objects that ESMERIAN pledged to Merrill
Lynch. However, less than three months after obtaining the
second Merrill Lynch loan, and without informing Merrill Lynch,
ESMERIAN sold over $1.6 million worth of Merrill Lynch’s
collateral to a third party. Soon thereafter, ESMERIAN doublepledged
more than $6 million worth of Merrill Lynch’s collateral
to obtain other loans, including a $40 million loan from Acorn
Capital Group, LLC.
In 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, ESMERIAN repeatedly and systematically
embezzled property of Fred Leighton and related debtor entities,
sold that property, and kept the proceeds for himself or to pay
off other debts.
For instance, in or about May 2008, ESMERIAN secretly
sold one of the most valuable items of Merrill Lynch’s
collateral, a diamond brooch valued at approximately $2.45
million, and caused $1 million of the proceeds to be 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
additional debtor property valued at approximately $10 million
and selling it for substantially less than that value. In other
instances, ESMERIAN took valuable jewelry from an individual,
identified as “Individual 2” in the Complaint, sold it, and
fraudulently kept proceeds from the sale, resulting in millions
of dollars in losses to Individual 2.
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
tens of millions of dollars worth of assets of the bankruptcy
* * *
The Complaint charges ESMERIAN with bankruptcy fraud,
concealment of assets in connection a bankruptcy proceeding, and
wire fraud. These charges are punishable by sentences of
imprisonment of up to five years, five years, and 30 years,
ESMERIAN, 70, was arrested this morning in New York,
New York, and will be presented in Manhattan federal court before
U.S. Magistrate Judge KATZ later today.
Mr. BHARARA thanked the USPIS for its outstanding work
in the investigation of the case announced today. Mr. BHARARA
also thanked the Office of the United States Bankruptcy Trustee
for the Southern District of New York. He added that the
investigation is continuing.
This matter is being handled by the Office’s Complex
Frauds Unit. Assistant U.S. Attorneys DAVID B. MASSEY and NICOLE
W. FRIEDLANDER are in charge of the prosecution.
The charge and allegations contained in the Complaint
are merely accusations, and the defendant is presumed innocent
unless and until proven guilty.