April 15 (Bloomberg) -- Ralph Esmerian, who's in default to Merrill Lynch & Co. on a $178 million loan, derailed a forced New York auction of millions of dollars of his antique gems by filing a bankruptcy petition on behalf of the retail jeweler he controls.

In a dramatic legal maneuver late this afternoon, Esmerian's Fred Leighton Holding Inc. and seven affiliated companies filed for bankruptcy protection. The Chapter 11 petition lists between $100 million and $500 million in debts and liabilities and as many as 49 creditors.

The bankruptcy filing threw a wrench in Merrill's effort to force an auction by Christie's International of antique jewelry held by the firm as collateral on the debt. Auctioneer Francois Curiel announced the cancellation at 6:05 p.m. to about 100 collectors and dealers assembled at the Rockefeller Center auction house.

``It's the first time you see me without my gavel,'' he said.

Merrill won a ruling earlier today from New York state Appellate Court Judge Richard Andrias, allowing the sale to proceed. Just minutes after the judge issued his decision, lawyers for Esmerian said they would file a bankruptcy petition.

Esmerian used the money he borrowed from Merrill to buy Fred Leighton for $100 million in 2006. In court papers, he has objected to Merrill's effort to liquidate the jewelry at a ``commercially reckless'' auction he likened to a fire sale. He said he could fetch more in private sales held over several months.

A hearing is scheduled for tomorrow at 11 a.m., when Merrill will ask a bankruptcy judge to permit the auction to proceed tomorrow night.

Merrill is a passive, minority investor in Bloomberg LP, the parent of Bloomberg News.

To contact the writer of this story: Philip Boroff in New York at pboroff@bloomberg.net

Last Updated: April 15, 2008 19:38 EDT