Yesterday, Lazare Kaplan filed a notice with the Securities and Exchanges Commission, which basically said that it is once again unable to file a full financial report, as it hasn’t done since fiscal year 2009. The continued inability of the company to fulfill his duties as a public corporation—blamed on “material uncertainties”—have caused LKI to be delisted from NASDAQ, a humbling fate for a company which once enjoyed the prestige of being the only U.S. diamond company to be publicly traded. The filing also notes its continued inability to solve those uncertainties threaten its ability to “maintain and/or expand its operations.”
So it’s not suprising the 8K spends a lot of time detailing the company’s latest attempt to put these issues to bed—a much-publicized $500 million lawsuit against Antwerp Diamond Bank, charging it with violating RICO statutes. Boiled down, here is what LKI is charging occurred:
– LKI and the “Daleyot Entities” (companies associated with Belgian diamantaire Erez Daleyot) both share(d) the same banker, ADB.
– LKI and Daleyot’s companies were also partners in a $135 million diamond deal involving Angolan diamonds.
– The 2008 financial crisis knocked down diamond prices, which the filing says jeopardized Daleyot’s ability to pay back his loans to ABN.
– This, the suit proclaims, “threatened to cause ADB to collapse.”
– To stave off this collapse, “the principal source of funds Defendants [ADB] seized upon was the over $135 million worth of LKI Diamonds,” the lawsuit charges.
– The lawsuit then alleges that “certain of the Daleyot Entities, at the direction and participation of Defendants, took possession of the LKI Diamonds through various intermediary companies, including other clients of Defendants. Instead of paying for them, these entities shipped the LKI Diamonds across the Middle East, Asia, and Europe, from one shell company associated with Daleyot to another.”
There is a lot more to the case—the legal filing runs 163 pages—including allegations of bribes and two sets of books. The complete complaint can be seen here.
The Antwerp Diamond Bank hasn’t filed a response to the charge, but strongly denies them in a statement:
[ADB parent company] KBC and ADB believe that Lazare Kaplan International Inc.’s (LKI) suit is without merit.
The dispute relates to legal proceedings before the Antwerp Commercial Court regarding a credit contract between LKI and ADB, terminated in 2009 by ADB in full accordance with all contractual obligations and relevant regulation.…
KBC and ADB deplore the steps taken by LKI and will take all necessary measures to defend their rights and the interests of their stakeholders.
I have no idea how true all of this is, but to the outside world it may appear as if LKI has just turned over a very wormy rock. The lawsuit could “draw the attention of U.S., Belgium, and Israel authorities which will prove problematic,” one correspondent wrote me. “Financing to this industry will be further constrained.”
One also wonders the effect all this is having on LKI, which has already sued—and settled with—its insurers over this. The company has always seemed to pride itself on retaining top legal representation: the late JFK speechwriter Theodore Sorenson represented it at the initial Kimberley Process meetings. Perhaps because of this, the company has never shied away from the courtroom: its case against Photoscribe and the GIA is still going after nearly six years.
Clearly, LKI feels it was wronged here. That’s up to a court to decide, provided this suit isn’t settled. But legal proceedings can sap a company’s time, energy, and money, and cause executives to take their eye off the ball. Hopefully, LKI will soon be able to go back to doing what it does best—being a diamond company, and not a house of litigation.