As has been widely reported – including by the Daily News and the Post – New York diamond dealer Avi Taub, 28, was recently indicted for allegedly stealing consigned merchandise from other dealers. (Here’s my report on the civil case against him and his family.) He was also charged with insurance fraud and filing a false claim for allegedly falsely telling his insurance company and police he had been robbed. (If true, a pretty dumb move.)

I’ve seen numerous cases of this type over the years, and the feeling on 47^th Street is that people are rarely prosecuted for them. And it’s true, there have been people who stolen millions on the street – and sometimes came back, years later, to do it again. But I’ve also seen quite a few dealers convicted of financial shenanigans, including the Swaap, Schonfeld, Jacob Haas, and Richard Maslin cases. To be honest, I don’t know how people still expect to get away with this kind of thing.

I recently talked to the lawyer for the Taub creditor’s committee, Cindy E. Molloy, of Tratner, Molloy & Goodstein, who was also involved in the Schonfeld case, about what this indictment means, and how dealers can protect themselves in the future:

 

Do you think this means the D.A. is now more willing to look into these cases?

We certainly hope so. If the community bands together like they did in the Taub case, that will definitely get the attention of law enforcement. It takes unity among the dealers in order to form these groups to raise public awareness about the epidemic of theft on 47^th Street.

The victims are very grateful to law enforcement for taking action to protect this community from the current epidemic of theft.

Will the dealers ever get their money back?

We are hopeful that restitution will be a part of any sentencing request or plea bargain. In the Schnofeld case, the victims received over $1 million. [Working with law enforcement] is the best way that could possibly happen.

What can dealers do to prevent cases like this in the future?

UCCs are not that helpful because most of these companies are shell companies.

Short of rewriting the time-honored manner in which 47^th street does business, some suggestions for gradual change are: 

(1) [for new customers] retain a private investigator to (a) run a background check (i.e. how many companies did the principal own in the last 10 years?) (b) conduct an asset search. Also have the private investigator do background checks on all the companies given by the credit applicant as “References.”

(2) ALWAYS require the individual taking your diamonds to sign a personal guarantee (which includes your right to attach all his personal assets in the event of nonpayment);

(3) make sure the language in your consignment memos is specific enough to evidence consignment and remedies for disregard thereof (as opposed to sale)

Requiring collateral for each transaction is actually the safest way to do business. Yet the customary and time- honored tradition of honesty on the street construes such requests as insulting….hence, the catch 22 which has resulted in the invasion of the current group of predators.

Well-put. And I should note, the new JBT/DMIA system also aims to prevent this case of thing – though I’ve heard many dealers aren’t signing up because they are reluctant to share information.  Which is probably predictable, but I’d argue, self-defeating. Every change in behavior has both positive and negative aspects. But the downsides here pale in comparison to being the latest victim of “memo fraud” – and then having to hire a lawyer with a slim chance of getting your money back.  

Rob Bates

JCK News Director