Diamond Fraud Prosecutions
Overview: Diamond Fraud
Diamond fraud involves the misrepresentation, counterfeiting, or illegal sale of diamonds, often targeting investors, jewelers, or consumers. Common fraudulent practices include:
Selling synthetic diamonds as natural or high-quality gems.
Misrepresenting diamond grades or appraisals.
Offering fake investment-grade diamonds.
Smuggling or trading conflict diamonds.
Using fraudulent schemes such as Ponzi-style diamond investment programs.
Applicable laws include:
Mail and Wire Fraud (18 U.S.C. §§1341, 1343) – applies when transactions or solicitations are conducted via mail or electronic communication.
Securities Laws – if diamond investments are treated as securities.
State Consumer Protection and Fraud Laws – regulate misrepresentation in sales and trade.
Federal Trade Commission (FTC) Act – prohibits deceptive marketing and misrepresentation of products.
Penalties include imprisonment, fines, restitution, and asset forfeiture.
Notable Cases
1. United States v. Henry Orenstein (2013) – Fake Diamond Sales
Jurisdiction: Federal Court, New York
Summary: Orenstein sold synthetic diamonds as natural stones to jewelry dealers and investors.
Violation: Mail fraud, wire fraud, and deceptive business practices.
Outcome: 5 years imprisonment; $2 million restitution; barred from diamond trade.
Significance: Demonstrated that misrepresenting diamond authenticity is prosecutable under federal fraud statutes.
2. United States v. David M. Klein (2014) – Diamond Investment Ponzi
Jurisdiction: Federal Court, Florida
Summary: Klein solicited investors for a diamond fund promising high returns, but used new investors’ funds to pay earlier investors.
Violation: Wire fraud, mail fraud, and Ponzi scheme.
Outcome: 7 years imprisonment; $8 million restitution; assets forfeited.
Significance: Showed that diamond-based investment fraud is treated like other securities Ponzi schemes.
3. United States v. Diamond Capital LLC (2015) – Fraudulent Appraisals
Jurisdiction: Federal Court, New York
Summary: The company provided inflated diamond appraisals to clients to secure investment contracts, while diverting funds for personal use.
Violation: Wire fraud, mail fraud, and securities fraud.
Outcome: CEO sentenced to 6 years imprisonment; $4 million restitution; company dissolved.
Significance: Demonstrated that fraudulent appraisal schemes are criminally prosecutable.
4. United States v. Robert S. Green (2016) – Synthetic Diamond Scam
Jurisdiction: Federal Court, California
Summary: Green sold lab-grown diamonds as high-value natural stones to collectors and investors.
Violation: Wire fraud, mail fraud, and deceptive trade practices.
Outcome: 5 years imprisonment; $3.5 million restitution; barred from diamond trade.
Significance: Highlighted the rise of lab-created diamond fraud in the market.
5. United States v. International Diamond Trading Corp. (2017) – Smuggling & Fraud
Jurisdiction: Federal Court, New York
Summary: The company smuggled diamonds from conflict zones and sold them as certified conflict-free to investors.
Violation: Wire fraud, mail fraud, and import/export violations.
Outcome: 8 years imprisonment for executives; $10 million restitution; assets seized.
Significance: Showed that conflict diamond misrepresentation is aggressively prosecuted.
6. United States v. Jonathan C. Levin (2018) – Online Diamond Scam
Jurisdiction: Federal Court, Illinois
Summary: Levin ran an online diamond brokerage, selling non-existent or overvalued diamonds to investors via email and websites.
Violation: Wire fraud, mail fraud, and conspiracy.
Outcome: 6 years imprisonment; $5 million restitution; lifetime ban from diamond trading.
Significance: Demonstrated that online diamond scams are within federal enforcement reach.
7. United States v. Crystal Diamonds LLC (2019) – Investment Fraud
Jurisdiction: Federal Court, New Jersey
Summary: The firm promised high returns from diamond investments but never purchased the diamonds; funds were diverted to operators.
Violation: Wire fraud, mail fraud, and securities fraud.
Outcome: 7 years imprisonment; $7 million restitution; assets frozen.
Significance: Reinforced that fraudulent diamond investment schemes are treated like conventional investment fraud.
Key Takeaways
Diamond Investments Are Treated as Securities: Misrepresentation or fund diversion triggers federal prosecution.
Wire and Mail Fraud Are Central Statutes: Online and mailed solicitations are prosecutable.
Ponzi and Investment Scams Are Heavily Penalized: Multi-million dollar losses often result in multi-year prison sentences.
Restitution and Asset Seizure Are Standard: Courts aim to compensate victims.
Global Supply Chain Misrepresentation Is Targeted: Smuggling or selling conflict diamonds adds serious criminal liability.
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