Lugano Diamonds & Jewelry Inc., which has accused its founder and former chief executive of fraud, is vowing to remain a viable business, has laid off 25% of its work force and disclosed it’s in talks with potential buyers.
“We are fully focused and committed to steering Lugano through this difficult time and are actively working to ensure the company’s long-term success,” Interim Chief Executive Josh Gaynor told the Business Journal in an exclusive interview.
“Despite recent challenges, Lugano remains a strong and viable business. Our team is working tirelessly to navigate this period with integrity, creating exceptional one-of-a-kind pieces of jewelry every day, and continuing to deliver exceptional service to our clients.”
Gaynor’s comments last week coincided with Lugano officially filing a complaint in the Superior Court for Orange County, accusing founder Moti Ferder of fraud, including leaving the company to be exposed to more than $100 million in liabilities.
“The financial impact stemming from the misconduct of the former CEO is significant and far-reaching,” Gaynor said in an email response. “It has affected our employees, clients, partners, and the broader Lugano community. It’s painful to witness the harm inflicted on the brand we love and have worked so hard to build. With that said, we remain focused on stability and continuity, and we’re confident in the strength of our business, our people, and our ability to move forward with purpose.”
The lawsuit is the latest chapter in the surprising downfall of a person who was once a stalwart of the Orange County business community, often attending a variety of nonprofit galas to sell jewelry that could top $1 million each.
Since the accounting irregularities probe was revealed on May 7, the market cap of Lugano parent Compass Diversified has fallen by about $700 million. Compass announced in late May that it has restricted investment in its Lugano unit — which was the star in its portfolio — to focus on the eight other companies in its portfolio.
Compass also announced it suspended its dividend “to preserve cash and protect long-term value” and it also entered into a forbearance agreement with its lender group to provide sufficient liquidity to maintain normal operations. The company ended Dec. 31 with $59.7 million in cash.
While Compass is technically headquartered in Westport, Connecticut, several of its top executives work out of its offices in Costa Mesa. Since the May 7 announcement, shares have fallen 64% to $6.26 and a $471 million market cap (NYSE: CODI).
Lugano is “actively engaged” with potential buyers as it downsizes its workforce by 25%, the interim CEO said.
“Early signs are extremely encouraging, with a number of serious inquiries coming from institutional investors as well as some of our amazing clients who are interested in deeper review,” Gaynor said. “Ultimately, we hope to find a partner that will support the company’s growth and help strengthen our position in the market.”
Parent Compass “has been an incredible partner through this challenging period. Like us they are committed to maximizing Lugano’s value as we navigate the path forward together,” he said.
A Company of Artists
Moti Ferder and his wife Idit established their jewelry business in 2005 in Newport Beach. According to its 2024 annual report, Compass in 2021 paid $265.1 million for a 60% controlling stake in the company. Compass executives called Lugano a “company of real artists.”
Lugano was purportedly the most profitable unit last year at Compass. The company’s sales jumped 53% to $470.7 million in 2024 while its operating income surged by 83% to $183 million.
Once the probe was underway, Compass postponed filing its first quarter results and said 2024 financial statements shouldn’t be relied upon. Last week, Compass went even further, stating that its 2022 and 2023 financial statements were unreliable as well.
Efforts to reach Ferder were unsuccessful. The Lugano complaint said Ferder, who lived in Corona del Mar, had relocated to Tel Aviv and was moving his assets out of the U.S.
Lugano has reduced its workforce by 25% to 140 employed in the U.S. and the U.K. The company’s design team, renowned for its jewelry, remains intact, Gaynor said.
“We are fortunate to have an incredibly talented team that brings our vision to life through exceptional designs and craftsmanship. They are actively creating new, one-of-a-kind pieces that reflect the artistry, elegance, and innovation our clients have come to expect from Lugano,” he said.
The company was unable to say whether sales in the past two months have changed significantly from a year ago because “much of the historical financials provided by the former CEO were inflated and unreliable,” Gaynor said.
However, he added a preliminary revised analysis shows sales for May and June appear to have remained steady or slightly above the prior period.
All Lugano stores remain open; Gaynor said it hasn’t been determined if its previous plans to open three stores this year are still in play.
“At this time, our focus is on ensuring the stability and strength of our existing operations,” Gaynor said. “While growth remains part of our long-term vision, we believe it’s important to prioritize the health of the business before pursuing further expansion. “
Its private club at Fashion Island, called Privé, is being assessed as part of its cost structure and long-term strategy, he said.
Holding Ferder Accountable
While Lugano is facing a handful of legal actions, the majority of the individuals affected by the former CEO’s actions have chosen not to pursue legal action, Gaynor said.
Lugano is pursuing a lawsuit against Ferder to hold him “accountable for his misconduct that has caused such significant harm to the company, not to mention many individuals in our community.
“Our ultimate goal is recovery, to be able to resolve the outstanding and previously unknown liabilities created by the former CEO. Our goal is not only to recover but to emerge stronger than before,” Gaynor said.
Lugano’s customers have “been incredible,” Gaynor said.
“They share a desire to see Lugano continue and thrive, and they recognize that the company was never about just one person,” Gaynor said. “They remain deeply invested in Lugano’s success.”
The company plans to remain involved in community nonprofits.
“Philanthropy has been a fundamental part of Lugano’s identity since the beginning,” Gaynor said. “Stuart Winston, our chief experience officer, has been the architect and leader of these efforts for the past 18 years and continues to drive these efforts today. Supporting community nonprofits will remain an important focus for the company.”
The Anatomy of a Fraud
When Compass Diversified on May 7 revealed accounting irregularities at its star portfolio company, Lugano, the details were vague.
Last week, a Lugano complaint against founder and prior CEO Moti Ferder in an Orange County court filing revealed details on the alleged improprieties.
Ferder had a “common theme” when convincing customers to help him finance a deal, according to the lawsuit.
“Moti would tell a third party that Lugano already owned or intended to acquire a specific diamond—purportedly verified by a unique identification number—and expected to sell it at a significant profit,” the complaint said.
“Moti proposed that Lugano and the third party would each contribute a percentage of the purchase price or that the third party could purchase a percentage interest in the diamond purportedly already owned by Lugano. Moti further represented that the anticipated profits from the sale of the diamond would be shared pro rata with the third party.
“Alternatively, if the third party chose not to wait for resale, Moti promised that Lugano would return the third party’s funds, plus a guaranteed, and substantially above market, interest rate.”
Ferder stole “millions of dollars” from the company, the complaint said.
Ferder “deliberately concealed” these contracts by claiming to Lugano personnel that these were ordinary sales, the complaint said.
“This was a lie,” the statement said. “Moti then manipulated Lugano’s internal accounting records to characterize the incoming funds as revenue rather than liabilities, thus obscuring the repayment obligations.”
Moti forged invoices and other documentation purporting to evidence arms-length transactions, even sometimes arranging for empty boxes to be shipped to addresses across the U.S. so that he could point to shipping records as false proof that the transactions had been fulfilled, according to the complaint.
Among other things, Moti concealed and mispresented the nature of numerous financing transactions he entered into with third party, high net worth individuals, the complaint said.
“He forged invoices and sale documents, sent out empty box shipments, falsely recorded the money from the third-party individuals as revenue for Lugano, and concealed the repayment obligations from Lugano’s books,” it read.
In recent months, third parties have shown up at Lugano boutiques where they yelled at the staff and threatened to call the police on them, the complaint said.
Compass Diversified first learned something was amiss earlier this year when an “outside party” brought it to their attention.
