Luxury Jewelry Retailer Lugano Holdings Collapses Under $500 Million Debt
Lugano Holdings Inc., a prominent operator of high-end jewelry boutiques owned by Compass Diversified, has officially filed for bankruptcy protection. This dramatic development comes just months after the company exposed its former chief executive for allegedly stealing millions of dollars and misrepresenting investment deals with wealthy clients.
The retailer sought court protection on Sunday in Delaware, revealing it has received an offer to sell the business to Enhanced Retail Funding. However, this deal must receive approval from a bankruptcy judge and could face competition during a Chapter 11 auction process where better offers might emerge.
Financial Collapse and Executive Fraud
According to the Chapter 11 petition documents, Lugano listed staggering financial figures that highlight the severity of their situation. The company reported at least $100 million in assets but faced crushing liabilities exceeding $500 million.
The bankruptcy filing represents the culmination of a crisis that began with the departure of former Lugano CEO Mordechai Haim Ferder, who originally established the business in 2004. Following an intensive internal investigation conducted by parent company Compass, Lugano filed a civil lawsuit in June accusing Ferder of serious financial misconduct.
The lawsuit contains shocking allegations that Ferder forged invoices and sale documents while orchestrating complex schemes with high net worth individuals. Investors were reportedly told they would receive stakes in diamonds that would be sold at higher prices, with promises of repayment at "substantially above market" interest rates.
Systematic Financial Deception Uncovered
According to court documents, Ferder allegedly concealed the true nature of transactions he conducted with wealthy clients related to diamond purchase financing. The complaint states he disguised these transactions as ordinary sales and improperly recorded incoming funds as revenue rather than liabilities.
This systematic deception fundamentally misled Lugano's stakeholders and auditors about the company's actual financial performance and valuation. The fraudulent accounting practices created a false picture of corporate health that ultimately contributed to the company's collapse.
Ferder resigned as chief executive officer in May and has not formally responded in court to the June lawsuit. Attempts to reach him for comment on Monday were unsuccessful. Lugano indicated in their lawsuit that Ferder was residing in Tel Aviv and "appears to be in the process of moving his assets out of the United States and to Israel."
Business Expansion and Financial Revisions
Lugano Chief Restructuring Officer J. Michael Issa revealed in a Sunday court filing that multiple lawsuits have been filed against both the company and Ferder since summer. He also provided crucial background about the company's ownership structure and expansion.
Following Compass's acquisition of a majority interest in 2021 at a $256 million valuation, Ferder and his affiliated entities retained approximately 40% of the business. This acquisition fueled aggressive expansion, including the opening of additional boutiques and a private social club for clients called Lugano Privé.
Issa disclosed that the company initially believed it had generated $470 million in revenue and $180 million in operating income in 2024. However, he confirmed that "those amounts are being revised to reflect actual revenues and operating income at substantially lower levels" following the discovery of the financial irregularities.
Compass has agreed to provide Lugano with $12 million in Chapter 11 financing to fund the bankruptcy and related sale process. Despite the financial turmoil, Lugano confirmed that all its stores remain open and are operating normally during the restructuring.
The case, officially known as Lugano Diamonds & Jewelry Inc., number 25-12055, is proceeding in the US Bankruptcy Court for the District of Delaware.
