Huge heist won't cramp diamond dealers' style.

Diamond deals are cut in refined and genteel settings, in which trust, courtesy and respect bond purveyor and purchaser.

Except when somebody rips off $14 million worth of rocks, as in the case that recently came to light involving a six-month fraud scheme that stretched from Spain to Los Angeles.

In the wake of that theft, an industry-wide call to review and tighten up business practices is totally absent. The handful of local diamond dealers called for this story were unfazed. Several hadn't even heard of the heist.

"Once in awhile a bad apple spoils the bunch," said Lebanese native Peklar Pilavjian, who owns Pilavjian Diamonds in the St. Vincent's Jewelry Mart in downtown Los Angeles. He's been doing business there for 24 years.

"Once in awhile we get bad checks. You lose $5,000 here, $10,000 there. It's the cost of doing business. You get used to it."

Insurance companies and underwriters took the news in stride, as well.

"The business here is done on good faith and in the diamond business, it's been done that way for probably 200 years," said Robert Pesiri, senior vice president at Marsh & McLennan Cos. Inc.'s insurance brokerage subsidiary Marsh Inc. in Los Angeles. "It's not likely to change because the Republic of Congo was defrauded. It might make insurance companies more aware of what they intend to cover. These things always open up the insurance companies' eyes."

The case began in February of 2005 in Marbella, Spain. Emile Chayto, doing business as Emile Chayto S.A., met a woman claiming to be the wife of the former president of Zaire (now the Democratic Republic of Congo). According to two lawsuits filed in Los Angeles Superior Court, she claimed to be interested in selling him some uncut diamonds, but backed out of the sale. Then "Mrs. Mobutu" told Chayto she needed a collection of jewels to give as gifts and asked him to assemble a collection. He complied, producing items from his own store as well as jewels that were consigned to him by the individual owners.

"Mrs. Mobutu, agreed to pay about $14 million for the collection and took the jewels. Chayto waited five days for her wire transfer to be confirmed by his bank in Geneva. It never came. Two months later, Chayto received a call from a buyer in Los Angeles who had purchased one of the pieces. Chayto and his partners, who consigned gems to his company, filed suits against the six individuals and corporations who bought the stolen goods. The defendants have filed cross-complaints against various additional parties. The next hearing, on a preliminary injunction, is set for April 12.

Society of Lloyd's, which underwrote some of the stolen diamonds, does not comment on pending litigation as a general policy. Its attorney, Mary Gram, would only say that, "the goal is to get the jewels back."

Insurance companies prefer to refer to cases such as these as fraud rather than theft, due to coverage issues.

"It sounds like fraud," Pesiri said. "Usually these policies cover the theft if it was stolen in an armed robbery. Over the years, diamond merchants who carry diamonds from place to place have been accosted or approached because they knew these people were carrying large sums of diamonds, or even armed car theft."

Fraud, Pesiri explained, is a "big gray area" in the insurance underwriting field, particularly when it comes to jewels. "I can't say it would be declined, but I can't say it would be covered--especially when you're talking about large amounts of money, in excess of $1 million."

Dealer Pilavjian sees some lessons in the tale. He raises other issues, too.

"Things like this don't bode well for the industry," he said. "But these are isolated cases. There's a larger problem of how we control consignment goods and regulate fraudulent checks and non-sufficient funds cases, which seem to be prevalent in the American market in every industry, including the jewelry industry."

For diamond dealers, who often exchange their diamonds on trust, the consignment deals that got Chayto into trouble are as much a part of doing business as the laissez faire approach to deal making.

"Sometimes you take goods on consignment because you don't want to commit to the goods until they're sold," Pilavjian said. "Therefore you trust your customers, especially in the diamond industry and especially on consignment and hope the people who have received the goods are honest people."

The nature of his dealings with high-end jewelry customers is such that even carrying insurance is more trouble than it's worth to Pilavjian.

"I don't need it," he said. "I operate in a secure building."

EMILY BRYSON YORK

Staff Reporter