Sotheby’s Allowed a ‘Stranger’ to Pick Up $4 Million Worth of Someone Else’s Diamonds. A Judge Says the Auction House May Be Liable

The case involves Jona Rechnitz, a convicted felon who faces other fraud charges.

Fernando Mateo, Jeremy Reichberg, Mayor de Blasio and Jona Rechnitz. Photo courtesy of the U.S. Attorney's Office for the Southern District of New York.
Fernando Mateo, Jeremy Reichberg, Mayor de Blasio and Jona Rechnitz. Photo courtesy of the U.S. Attorney's Office for the Southern District of New York.

In a tangled tale of celebrity jewelers, political corruption, and bankruptcy, Sotheby’s may be left holding the bag for $4 million worth of vivid yellow diamonds, the California Second District Court of Appeal has ruled.

M&L Financial, Inc., a financial services firm, sued Sotheby’s over the loss of the 45 precious stones it left with the auction house for appraisal and possible consignment in April 2019. When M&L checked in later that year, the company learned that Sotheby’s had released the diamonds to a “stranger,” according to the new ruling. Sotheby’s denies this account.

Since then, the whereabouts of the jewels have remained unknown.

The diamonds originally belonged to Jadelle Jewelry and Diamonds, a Beverly Hills business owned by Jona Rechnitz, a former star witness in three federal corruption trials turned celebrity jeweler.

Diamonds. Photo by Danielle De Angelis, Pexels.

Diamonds. Photo by Danielle De Angelis, Pexels.

According to the suit, Rechnitz owed M&L a substantial amount of money, and had transferred ownership of the stones to the firm to help repay his debt.

As part of the arrangement, Rechnitz would have the option to repurchase the diamonds later. Then, he made a suggestion: Sotheby’s should sell the stones at auction. Rechnitz knew Quig Bruning, the head of the jewelry department, and could arrange an appraisal.

M&L contends that it later learned that Bruning and Rechnitz were friends, and that the former had flown on the latter’s private jet to Las Vegas, and accepted a gift of pricey sports tickets.

While Sotheby’s acknowledged the two men knew each other, a representative denied Bruning ever “accompanied Rechnitz on a jet or any other trip” and says the relationship was strictly professional.

At the time, the transaction seemed normal—until it came time to sign the appraisal contract. On the single line provided for consignors, Bruning wrote both Rechnitz’s company Jadelle Jewelry and M&L, even though M&L verbally clarified that it was the sole owner of the stones.

Nevertheless, when one Levin Prado showed up at Sotheby’s asking for the diamonds on Rechnitz’s behalf, the auction house promptly handed them over. Sotheby’s didn’t keep a written record about the release of the stones, the suit claims.

“The person who retrieved the property was an authorized agent for Jadelle,” Sotheby’s countered. “Consignors regularly instruct Sotheby’s to release to an agent and here, we received written instructions from Jadelle to release to this individual and upon pick-up, the agent provided the necessary identification as required.”

With the diamonds lost, M&L sued the auction house. A lower court granted a motion to dismiss from Sotheby’s, based on a California civil code that states “when a deposit is made in the name of two or more persons,” it can be returned to either party.

Sotheby's in New York City. Photo: Michael Nagle/Getty Images.

Sotheby’s in New York City. Photo by Michael Nagle/Getty Images.

But Judge Mark V. Mooney has now found that the code does not apply in this case, because Sotheby’s knew that the diamonds belonged only to M&L. His new ruling, which overturns the earlier decision, allows M&L to pursue its breach of contract claim against the auction house.

“Sotheby’s regards the allegations in the complaint as baseless and riddled with untruths and mischaracterizations,” an auction house employee told ARTnews. “We will continue to vigorously defend this in court.”

Rechnitz, it turns out, is something of a troubled figure.

He launched Jadelle in 2018 on the strength of his personal relationships with celebrities including Kim Kardashian, NBA stars Shaquille O’Neal and Scottie Pippen, and boxer Floyd Mayweather, Jr. (with whom Rechnitz is a co-defendent in an unrelated case about the profits of his Logan Paul fight).

But before he was billing himself as a jeweler to the stars, Rechnitz owned a real estate company and was a major donor to Bill De Blasio. He became the subject of federal corruption investigations into the mayor’s fund-raising activities.

In three trials, Rechnitz was a witness for the government. On the stand, he said his money bought access to the mayor. (In response, De Blasio called Rechnitz “a liar and a felon.”)

In 2019, Rechnitz pleaded guilty to fraud for bribing New York City officials on behalf of a hedge fund. Federal prosecutors sought a reduced sentence due to his cooperation, and a judge sentenced him to five months each house arrest and jail time.

Shortly after the sentencing, Victor Franco Noval, an investor in Jadelle, slapped Rechnitz with a lawsuit, claiming he was never repaid for a $2.8 million loan for the business. The jeweler initially gave $7 million in diamonds as collateral, but when Rechnitz cut a check and secured their return, it bounced, according to the complaint.

Novel’s lawyer told the New York Post that Recnitz was running a $15 million scheme.

And those aren’t even Rechnitz’s only legal disputes related to his jewelry business. The company M.J.S. Diamond sued Rechnitz in March, alleging he ordered $6.3 million worth of jewelry that he never paid for, reports Law360. The suit claims that the theft was part of a larger eight-figure fraud scheme in which Jadelle targeted jewelers on both the East and West Coasts.

Jadelle faced bankruptcy proceedings in 2020, but the case was later dismissed.

Update, July 25: This article has been updated to add additional comments from Sotheby’s.

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