Lugano Diamonds & Jewelry Inc. — which for 21 years used megawatt diamonds and no small amount of retail savvy to attract well-heeled shoppers and investors — succumbed to bankruptcy late Sunday.
While the nine-store retailer was in the midst of a significant expansion with new stores and a private club, it was brought down by a spiraling fraud scandal that has shined a harsh light on its founder and former chief executive officer, Mordechai Ferder.
Now Lugano is going through Chapter 11 proceedings with jewelry specialist Enhanced Retail Funding standing as the stalking horse bidder to own the business afterward. The company went into court with $12 million in debt-in-possession financing to keep the lights on during the process.
But the jeweler’s majority owner and sole lender, Compass Diversified Holding, says it is owed $701 million for a credit agreement and people who invested in multimillion-dollar diamonds that were to be turned into jewelry are lining up with claims.
That marks, at least for now, the end of what has been the company’s dramatic arc in the rarefied world of ultra high-end jewelry.
Ferder founded the Newport Beach-based company with his wife Idit in 2004, building enough of a presence to successfully sell a 60 percent stake in the business to private equity company Compass for $256 million in 2021. The founder stayed on as CEO and continued to grow the business.
How the jeweler went from believing it had revenues of $470 million last year to bankruptcy court is a story sketched out now in court filings.
According to J. Michael Issa, now Lugano’s chief restructuring officer, the first outward hint of trouble came in May, when Compass disclosed that Ferder resigned and that it was investigating “the financing, accounting, and inventory practices” of its Lugano subsidiary.
Within weeks Compass “heard from close to 60 persons asserting substantial claims relating to alleged transactions entered into by Mr. Ferder.”
“The investment contracts, which were outside Lugano Diamonds’ ordinary course of business, were generally joint investment agreements in which a third party would co-invest in a loose diamond, ostensibly for resale at a significant profit,” Issa said. “Since the summer of 2025, approximately a dozen parties have commenced lawsuits against Lugano Diamonds, Mr. Ferder, and/or other parties, and several plaintiffs unsuccessfully sought prejudgment attachments against Lugano Diamonds.”
Among the investors crying foul is Kristoffer Winters, who filed a federal suit against the company in June.
The suit claimed: “Mr. Winters and Lugano Diamonds entered into a written agreement regarding Mr. Winters’ investment of $3,075,000 in certain diamonds to be held by Lugano Diamonds. Lugano Diamonds agreed to make custom jewelry from the diamonds and thereafter sell the custom jewelry for a profit, which was to be split equally between Lugano Diamonds and Winters.”
The day after Ferder resigned, Winters exercised his “put right” to be repaid a minimum return, but it never materialized.
Winters claims to be owned “at least $8.8 million.”
In June, Lugano sued Ferder, claiming fraud, concealment, constructive fraud and breach of fiduciary duty.
With the bankruptcy, Compass and its CEO, Elias Sabo, seem ready to move on, having already seen its stock fall from over $17 a share in May to under $6 on Monday.
“The filing does not involve our other eight subsidiaries, which collectively continue to generate strong cash flow and perform well in their respective markets,” Sabo said. “With Lugano’s decision in place, there is now a defined and orderly process to bring the Lugano matter toward resolution. CODI remains focused on completing our restatement and advancing our long-term strategy for the benefit of all of our stakeholders.”
Shortly after Compass bought the business, Frederic Cumenal, a former president and CEO of Tiffany & Co., joined the board of directors, as did David Arnold, who at the time was vice chairman of Robb Report, which like WWD is owned by Penske Media Corp.
Upon joining, Cumenal said the company’s management team was staying in place and would have access to capital to expand.
“They’re state-of-the-art and different from any competitors,” Cumenal said. “Everything is at least $50,000. It is a company focusing exclusively on high-end, one-of-a-kind jewelry. Looking at the competition, you don’t have anyone in the jewelry sector focusing on this level of exclusivity.
“It’s a relationship strategy that drives a lot of business,” he said. “The founder and his wife and the team at Lugano are really in love with their clients.”
Issa, who’s now responsible for keeping the company running through the bankruptcy process, said that, after the acquisition, “Lugano added additional locations and opened a private social club — Lugano Privé — for its clients. By 2025, Lugano expanded to operate nine retail locations — eight in the United States and one in London, U.K. — as well as an equestrian division and pop-up showrooms.”
The company focused heavily on philanthropic endeavors, meeting the wealthy where they are.
At Lugano Privé, the company’s private club, Issa said, “individuals committed to philanthropic endeavors and giving back to and supporting the community can socialize and take part in specialized programming centered around food, wine, art, music, and world affairs. While the club is located adjacent to Lugano’s Newport Beach boutique, Lugano Privé is focused on the experience and Lugano does not sell jewelry…
“Lugano is attentive to the preferences of its sophisticated, high-net-worth clientele,” he said. “These individuals tend to highly value unique or exclusive jewelry and a personalized sales approach involving long-standing relationships. Thus, Lugano’s approach focuses on building lasting relationships and the creation of jewelry to tell a story.”
But the story of Lugano became a cautionary tale.
When Ferder left, president Joshua Gaynor became interim CEO and Armory Securities was hired to look into a possible restructuring or sale of the business.
Over 100 interested parties were identified and 50 signed nondisclosure agreements to take a closer look at the business. Five players submitted indications of interest and Enhanced Retail Funding won out with a deal that started in bankruptcy court.
