Lugano Diamonds Lawsuit: Ferder Fraud, Bankruptcy, and FBI Probe

The Lugano Diamonds lawsuit most people are searching for is the fraud case the Newport Beach jeweler filed against its own co-founder and former CEO, Mordechai “Moti” Ferder, alleging he ran an undisclosed diamond-investment scheme that generated roughly $184 million in hidden debt and helped push the company into Chapter 11 bankruptcy. That case is now one piece of a much wider legal picture that includes about two dozen investor and vendor suits, a shareholder securities class action against parent company Compass Diversified, and an FBI investigation.¹

What Ferder Is Accused of Doing

At the center of the litigation are what court filings call “investment diamond transactions” or “outside contracts.” According to Lugano’s complaint, Ferder entered into financing arrangements with high-net-worth individuals in which an investor contributed money to co-invest in a loose diamond, supposedly for resale at a significant profit. The investor was promised a share of the eventual sale proceeds and, in some cases, monthly interest on the principal. One investor was promised 10% per month.¹

Lugano’s Chief Restructuring Officer, J. Michael Issa, said the contracts were “outside Lugano Diamonds’ ordinary course of business.”² The company alleges Ferder disguised these arrangements as legitimate retail sales by forging invoices and shipping documents, sending “empty box shipments” to create false delivery records, recording incoming investor funds as revenue instead of debt, and hiding the repayment obligations from Lugano’s books.³ Nearly 60 people eventually identified themselves as parties to these contracts, and internal investigators concluded the arrangements created about $184 million in debt that had never appeared on the company’s balance sheet.¹ The shareholder class action later described the scheme as “Ponzi-like.”⁴

The problems came to light in April 2025 after a tip about Lugano’s inventory financing prompted Compass Diversified to launch a forensic accounting investigation. The probe revealed what Compass described as “irregularities” in financing, accounting, and inventory practices, and found that Lugano’s revenue and operating income had been materially overstated.⁵ Ferder resigned on May 7, 2025 without severance and returned to Israel shortly afterward.⁶

Lugano’s Fraud Suit Against Ferder

On June 24, 2025, Lugano sued Ferder and the Haim Family Trust, a trust for which Ferder serves as trustee, in Orange County Superior Court. The complaint was amended on November 26, 2025, and asserts ten causes of action, including fraud, concealment, constructive fraud, and breach of fiduciary duty.³

Beyond the investment scheme, the complaint alleges Ferder embezzled company funds by authorizing fraudulent wire transfers from Lugano’s accounts to the Haim Family Trust while falsifying beneficiary information — for example, listing “Charles Schwab & Co. Inc.” as the recipient. Lugano identified at least $2.3 million in such transfers between January and February 2024 alone. The lawsuit alleges the scheme exposed the company to more than $100 million in potential liability and states that after the accounting problems came to light, Ferder moved assets out of the United States to Tel Aviv to avoid U.S. court jurisdiction.³

After Lugano’s November 2025 bankruptcy filing, the case was removed to federal court and is now pending in the U.S. District Court for the Central District of California. Ferder has filed a motion in the Delaware bankruptcy court asking for relief from the automatic stay so he can assert counterclaims, and has simultaneously moved to remand the case back to state court. No trial date or substantive ruling has been reported as of mid-2026.⁷

Investor and Vendor Suits

Around two dozen diamond investors have claimed Lugano owes them money, with individual claims of $1.5 million or more. Roughly a dozen lawsuits were filed against Lugano, Ferder, and related parties during the summer of 2025 in Orange County Superior Court and in federal courts.⁸

One plaintiff, Kristoffer Winters, alleges he paid Ferder $3 million for a 50% stake in three diamonds and was promised 10% monthly interest while Ferder found buyers. Winters says he received only one interest payment and now suspects Ferder may not have owned the diamonds at all. He is seeking $9 million. His federal case in the Central District of California (No. 8:25-cv-01202) was stayed as of May 2026.⁹ Other plaintiffs are trying to freeze proceeds from the $7 million sale of Ferder’s Corona del Mar home.¹

The Missing Blue Diamond

The most striking vendor case involves Scarselli Diamonds, a New York firm that in January 2025 consigned a pear-shaped, 6.43-carat fancy intense blue diamond, internally flawless and set in a ring, to Lugano’s Miami salon for display to a potential buyer. The consignment agreement required the stone, valued at nearly $11 million, to be returned on demand.¹

When Scarselli asked for the diamond back in late February 2025, Ferder stalled, telling the company by WhatsApp that he was “still working on this one.” By May 2025, Lugano admitted it did not know where the diamond was. Scarselli then filed a $13.5 million lawsuit in Orange County Superior Court against Lugano, Compass, and Lloyd’s of London, describing the stone as “a gemstone that may not see its equal for decades.”¹

Bankruptcy and Sale to Gordon Brothers

On November 16, 2025, Lugano and certain affiliates filed for Chapter 11 protection in the U.S. Bankruptcy Court for the District of Delaware (Case No. 25-12055) before Judge Brendan Linehan Shannon. The filings listed estimated assets of $100 million to $500 million against liabilities of $500 million to $1 billion, with more than $680 million in reported debt.¹⁰ The company obtained $12 million in debtor-in-possession financing from Compass to fund operations through the holiday season.¹¹

Enhanced Retail Funding, a division of the liquidation firm Gordon Brothers, was designated as the stalking-horse bidder. No competing bid qualified, and the court approved the sale on December 31, 2025. The price was not publicly disclosed but was reported to be less than $200 million.¹² Lugano shut its London boutique and announced plans to close its Greenwich, Connecticut and Washington, D.C. locations, keeping six showrooms open, including the Newport Beach flagship, along with a traveling equestrian boutique.¹ The bankruptcy case is still active, with an omnibus hearing scheduled for June 22, 2026.¹³

The Compass Diversified Shareholder Class Action

Compass Diversified, which acquired a 60% controlling stake in Lugano in September 2021 in a deal valued at $256 million,¹⁴ is itself the defendant in a securities class action, In re Compass Diversified Holdings Securities Litigation (Case No. 3:25-cv-00758), pending in the U.S. District Court for the District of Connecticut. The lead plaintiffs are the Eastern Atlantic States Carpenters Pension Fund and Annuity Fund. Named defendants include Compass CEO Elias Sabo, current and former CFOs, a former COO, and Compass’s auditor, Grant Thornton LLP.⁴

The amended complaint, filed February 6, 2026, alleges that Compass misstated its net income by more than $750 million between 2022 and 2024 and omitted at least $318 million in unrecorded debt from its financial statements. It further claims the company failed to implement adequate internal controls, operated in a culture of “nepotism and conflicts of interest,” and that executives were motivated by management fees tied to adjusted net assets. The complaint accuses Grant Thornton of issuing clean audit opinions despite identifying systemic deficiencies, and says defendants ignored multiple whistleblower reports.¹⁵ The class period runs from February 24, 2022 through December 4, 2025. Compass has said it has “no reason to believe the fraud extended beyond Lugano” and denies participating in, condoning, or benefiting from Ferder’s conduct.¹

FBI Investigation

In December 2025, Bloomberg reported that the FBI was investigating Ferder’s off-balance-sheet diamond transactions. Agents have interviewed individuals who did diamond deals with Ferder, and Compass has confirmed it is cooperating. The investigation focuses on allegations that Ferder misrepresented diamond investments, entered off-balance-sheet financing arrangements in violation of company policies, misrepresented inventory values, and caused fictitious sales to be recorded.¹⁶ No criminal charges against Ferder have been reported.

Ferder’s Response

Ferder’s attorney, Jeffrey Reeves, has denied the fraud allegations. Reeves has said that proceeds from the investment contracts went directly to Lugano, that no money was diverted to Ferder or his family, and that both Lugano’s management and Compass were “fully aware of these activities and knowingly accepted the financial benefits from them.”² Ferder has called himself a “scapegoat” and indicated he intends to file counterclaims. His counsel has also said Ferder faces no criminal charges.¹⁶

Where Things Stand

As of mid-2026, Lugano’s Chapter 11 case remains pending in Delaware, with the remaining salons operating under Gordon Brothers’ Enhanced Retail Funding division.¹³ Lugano’s fraud lawsuit against Ferder is tied up in procedural motions over whether it will proceed in federal court or be remanded to state court, and Ferder is asking the bankruptcy court for permission to file counterclaims.⁷ The Compass shareholder class action is active in Connecticut federal court following the February 2026 amended complaint. The FBI investigation continues with no public charges. Ferder is reported to be living in Tel Aviv, and no extradition request or international enforcement action has been disclosed.¹

1
Forbes. Theft, Fraud, Scandal: Inside the Collapse of Lugano Diamonds
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National Jeweler. Lugano Diamonds Files for Bankruptcy, Looking for Buyer
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Omni Agent Solutions. Lugano Diamonds First Amended Complaint Against Ferder
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Cohen Milstein. In Re Compass Diversified Holdings Securities Litigation
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PR Newswire. Compass Diversified Plunges 59% as Lugano Unit Probe Reveals Deep Accounting Problems
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National Jeweler. Lugano Diamonds CEO Resigns Amid Internal Investigation
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Omni Agent Solutions. Lugano Diamonds Motion Regarding Ferder Litigation
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Los Angeles Times. Lugano Diamonds Files Bankruptcy, Seeks Buyer After CEO Fraud Scheme
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CourtListener. Kristoffer Winters v. Lugano Diamonds & Jewelry Inc.
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Law360. Diamond Co. Lugano Hits Ch. 11 With $500M Debt, Sale Plans
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Yahoo Finance. Lugano Diamonds & Jewelry Initiates Voluntary Chapter 11 Filing
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National Jeweler. Lugano Diamonds Finds a Buyer
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Omni Agent Solutions. Lugano Diamonds & Jewelry Inc. Bankruptcy Case Information
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National Jeweler. Investment Company Acquires Lugano Diamonds for $256M
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Cohen Milstein. Compass Diversified Amended Complaint
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JCK Online. FBI Probing Lugano’s Diamond Deals