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Jeweler Esmerian Pleads Guilty to Bankruptcy Fraud Scheme

April 15 (Bloomberg) -- New York jeweler Ralph O. Esmerian pleaded guilty to a bankruptcy fraud scheme and other crimes for pledging at least $20 million of jewels as collateral on multiple loans from Merrill Lynch & Co. and other lenders.

Esmerian, 71, the former owner of Fred Leighton Holding Inc., told U.S. District Judge Denise Cote, in New York, today that he had engaged in a scheme to conceal assets from the bankruptcy court as well as wire fraud, and attempted to sell off and repurchase antique jewels when he was facing bankruptcy in April 2008.

Prosecutors from the office of Manhattan U.S. Attorney Preet Bharara said in November, at the time the charges were filed, that Esmerian borrowed $210 million against the jewels to help finance his businesses. About $177 million was borrowed from Merrill Lynch Mortgage Capital Inc. to buy Fred Leighton, a rare antique and vintage jewelry dealer.

Asked by Cote if he knew what he was doing was a crime, Esmerian replied, “I knew it was something wrong.”

In court today, Esmerian told Cote that the assets and jewels he had embezzled and double-pledged were worth “at least $20 million.” Assistant U.S. Attorney David Massey told the judge that the government valued the assets at “between $20 million to $50 million.”

While he had faced as long as 30 years in prison, under a plea agreement with the U.S., Esmerian faces from 97 months to ten years in prison when he is sentenced on July 22, Cote said today.

‘Sad Day’

“It’s a very sad day for Mr. Esmerian and his family,” Patricia Pileggi, Esmerian’s lawyer, said outside the courtroom. Esmerian and his family “have been collecting fine antique jewelry for four generations and today everything is gone. He has nothing.”

The U.S. said after he borrowed the funds, Esmerian, a fourth-generation dealer and collector, began to sell collateral pledged to Merrill without notifying the lender, according to court papers. He also “double-pledged” the items to obtain other loans, including $40 million from Acorn Capital Group LLC, prosecutors said in November.

Prosecutors said when the charges were announced that after Esmerian caused Fred Leighton to file for bankruptcy protection in April 2008, he repeatedly and systematically embezzled property belonging to Fred Leighton and other debtors, the U.S. said.

Lalique Necklace

The criminal complaint described items Esmerian used in the scheme worth more than $9 million, including a Lalique gold enamel necklace belonging to Sarah Bernhardt valued at $858,500 and a golden album commissioned by Marie Antoinette in 1781, worth an estimated $1.5 million.

Esmerian secretly sold one of the most valuable items belonging to Merrill, an engraved diamond and ruby butterfly brooch by Boucheron, circa 1894, worth at least $2.45 million, according to the U.S. Esmerian sold it to another dealer for $2.2 million and had about $1.1 million of the proceeds wired to a Swiss bank account he controlled, Bharara’s office said.

When Merrill discovered the theft of the brooch, Esmerian raised funds to buy it back by stealing an additional $10 million in property, according to the complaint. Prosecutors said he also lied to the federal bankruptcy judge presiding over the Fred Leighton bankruptcy.

“We appreciate the government’s handling of this matter,” Bill Halldin, a spokesman for Merrill, said in an e-mail.

Fred Leighton jewelry has been featured on the cover of Vogue magazine and in Sofia Coppola’s “Marie Antoinette” film. In November 2009, Fred Leighton was purchased out of bankruptcy by a group led by Kwiat Enterprises LLC.

The case is U.S. v. Ralph Esmerian, 10-mj-2589, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Patricia Hurtado in New York at pathurtado@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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