Lugano Diamonds & Jewelry Inc. has filed for bankruptcy protection as the luxury jeweler tries to recover from the impact of financial misconduct, revealed in May.
Lugano, once considered a star performer of parent company Compass Diversified, on Nov. 16 voluntarily filed for Chapter 11 relief in the U.S. Bankruptcy Court for the District of Delaware “to facilitate a value-maximizing sale transaction.”
Interim Chief Executive Josh Gaynor, who succeeded founder Moti Ferder upon his exit in May, disclosed in June that the company was “actively engaged” in talks with potential buyers.
Lugano is commencing the sale process for all of its assets.
The company reached an agreement with Enhanced Retail Funding, an investment firm in the jewelry sector. Enhanced will “support the smooth continuation of retail sales and operations through the court-supervised sale process,” Lugano said in a statement.
It added that the proposed transaction remains subject to higher and better offers and other customary conditions. If any other bids come in, Enhanced will set the minimum for competing offers.
To fund operations, such as employee wages and benefits, during the Chapter 11 cases, Lugano has received interim approval of a $12 million debtor-in-possession financing facility that could provide up to $10 million in new liquidity to the company.
Lugano said it continues to operate in the ordinary course of business at this time. Lugano’s estimated assets are between $100 million and $500 million, according to the bankruptcy filing.
According to the Nov. 16 filing, the estimated number of creditors is between 200 and 1,000. The document also lists the 30 largest unsecured creditors. Claims range from $1.5 million to $56.4 million. The latter top figure is the unsecured claim of the diamond import and export firm Champion Force Industrial, based in Hong Kong.
Other creditors listed are Aronoff Capital Inc. in Costa Mesa, Raymond Cohen, the Arvielo Family Trust, a Bank of America in Newport Beach and redacted clients represented by the Costa Mesa law firm Theodora Oringher PC.
A Break for Compass
Compass, while officially headquartered in Connecticut, has several top officials who live in Orange County. In a separate statement, it said the jeweler will no longer be included in its quarterly results starting in the fourth quarter of 2025 (NYSE: CODI).
Lugano was by far the most profitable unit at Compass, which reported operating income of $230.1 million on $2.1 billion in sales in 2024. Those financial statements are now considered unreliable, along with reports from 2022 and 2023, according to Compass.
“We support the Lugano board’s decision to file for Chapter 11 as the best choice for maximizing value from Lugano’s assets,” Compass CEO Elias Sabo said in a statement.
“With Lugano’s decision in place, there is now a defined and orderly process to bring the Lugano matter toward resolution.”
The Last Few Chapters
On May 7, Compass revealed that Lugano was under internal investigation following concerns about the jeweler’s inventory financing methods. The Westport, Connecticut-based operator had initially purchased a 60% stake in the business in 2021.
The probe’s preliminary findings uncovered “irregularities” tied to Lugano’s financing, accounting and inventory practices.
The shares fell 62% after Compass’ announcement, wiping out about $700 million of the company’s market cap.
By no longer including Lugano in its quarterly results, Compass also said it can focus on completing the restatement of its prior financial statements. Compass’s eight other subsidiaries include Costa Mesa-based 5.11 Tactical.
On Nov. 17, after the Lugano bankruptcy announcement, Compass shares climbed 2.3% to $5.88. At press time, it traded at $5.75, with a market cap of $432 million.
In June, Lugano officially filed a complaint in the Superior Court of Orange County, accusing its founder and former chief executive of fraud, including leaving the company exposed to more than $100 million in liabilities.
The Lugano complaint also said that Ferder, who lived in Corona del Mar, had relocated to Tel Aviv and was moving his assets out of the U.S. In early May, before the scandal surfaced, a Lugano marketing representative told the Business Journal that Ferder was “traveling” and could not be reached to discuss an unrelated issue.
Ferder’s wife, Idit, who co-founded the company, has also left Lugano.
Moti Ferder Refutes Allegations: Lawyer
ÂMoti Ferder is denying the allegations made against him by the company he founded, Lugano, according to his lawyer, Jeffrey Reeves of Reeves & Weiss LLP.
“The legal proceedings will provide a forum for Mr. Ferder to correct the record regarding certain inaccurate statements made about him,” Reeves told the Business Journal. “Mr. Ferder is confident that the judicial process will bring the full truth to light and that he will be vindicated.”
Reeves is an Irvine-based attorney who has represented executives at well-known OC companies like CoreLogic, Microsemi and Mobix Labs.
Lugano alleged in a June complaint that Ferder stole millions of dollars and exposed the jeweler to significant “reputational harm” by making unauthorized side deals with wealthy clients and then manipulating Lugano’s internal accounting records. These so-called “outside contracts” created potential liabilities for Lugano, but Moti disguised them as direct sales, according to the suit.
The defense of Ferder, who remains in Israel, “is grounded in a clear set of facts,” Reeves said.
“First, the evidence will establish that the proceeds from the contracts at issue all went directly to Lugano. No funds were directed to Mr. Ferder or any entity under his control.
“Second, the evidence will show that both Lugano’s management and members of management of its majority shareholder, Compass Diversified, were fully aware of these contracts activities and knowingly accepted the financial benefits from them.
“In light of these facts, the allegations made against Mr. Ferder are made in a clear effort to divert attention and misdirect accountability for Lugano’s and Compass’s actions, performance, and ultimate failure, which occurred after Mr. Ferder’s departure from leadership.”
