A New York federal court judge has ruled that a local couple can keep a 7.35 ct. pear-shape diamond, even though it was garnered illegally from William Goldberg Diamond Corp.
According to an opinion issued Nov. 17 by Judge Shira Scheindlin, the Goldberg company consigned the stone to celebrity stylist Derek Khan in Feb. 2003 for use in fashion shoots. The agreement said Khan was authorized to sell the diamond only if the owner approved the sale. When the diamond was not returned after the customary few days, Goldberg filed a police report and notified GIA, the opinion said. Khan later went to jail for pawning $1.5 million in jewelry he borrowed for shoots, according to The New York Times, which reports he has since mounted a comeback as a stylist in Dubai.
The stone was pawned and cut from 7.44 cts. to 7.35 cts. Later that year, a local jeweler took possession of it and sold it to a customer for $175,000. It was eventually bequeathed to Suzanne Zaretsy of New Jersey. In 2012, her husband took it to get appraised at a jeweler, who recommended he send it to the Gemological Institute of America.
But when the GIA looked at it, it was flagged as stolen because of the Goldberg company’s decade-old police report. It was then put in the GIA’s vault while true ownership was being determined. In June 2013, the couple sued for the return of the diamond.
The case eventually came down to the issue of whether Khan met the legal definition of merchant. Scheindlin ruled that because Khan had an “aesthetic” knowledge of the diamonds, he could pass title to them.
In her opinion, Scheindlin admitted that the case’s outcome was not entirely satisfactory.
“It is undisputed that plaintiffs came into the possession of the diamond innocently,” she wrote. “And it is also clear… [Goldberg] will be left to bear an unfortunate liability. Such is the nature of a case like this, where the true perpetrator—Khan—is beyond the court’s grasp.”
Ben Kinzler, Goldberg’s co-counsel on the case, says his client is “understandably upset” by the ruling and is considering an appeal.
He argues the ruling imperils all consignment transactions.
“In light of the Court’s ruling, consignors must now have assurance not only that the intended consignee is not a dealer or merchant in that type of merchandise, but also, that he or she has no ‘aesthetic’ knowledge of the goods as well,” he tells JCK. “This, in our opinion, places an extraordinary burden on potential consignors, allowing anyone having ‘aesthetic’ knowledge concerning the consigned merchandise [to] sell or dispose of the consigned merchandise to a good faith buyer.”