Diamonds nobody owned: the SEC sues Lugano's founder, and names three family trusts

On 31 August 2026 the Securities and Exchange Commission filed a complaint in the US District Court for the Central District of California against Mordechai Ferder, founder and former chief executive of Lugano Diamonds & Jewelry, Inc. The regulator published the filing on 1 September as litigation release 26625. The allegations have not been proven.

The SEC alleges that between 2021 and 2025 Ferder persuaded individuals to put hundreds of millions of dollars into diamonds that neither he nor Lugano ever owned. Each investor signed a contract tied to a particular stone. According to the complaint, Ferder told them he or the company would acquire that stone, would find a buyer for it, and would raise its value by setting it into a piece of jewellery. The SEC says none of that happened. Money coming in from new investors was paid back out to earlier ones.

How a billion dollars of revenue appeared

The accounting side is where the numbers became large. The complaint alleges Ferder directed Lugano to book the investors’ money as revenue and to disguise the repayments as purchases of inventory. Compass Diversified Holdings, the listed company that bought Lugano in 2021, therefore reported revenue it had not earned. The SEC puts the total of fictitious revenue at more than a billion dollars.

When the conduct came to light in 2025, Compass Diversified restated its accounts. The net identifiable assets it had recorded for Lugano at acquisition fell from $179m to $5m. More than 85 per cent of the revenue it had reported from Lugano after the acquisition was erased. Lugano itself went into bankruptcy.

Ferder is charged under section 17(a) of the Securities Act 1933 and sections 10(b) and 13(b)(5) of the Securities Exchange Act 1934, with rules 10b-5 and 13b2-1. Simba IL Holdings LLC, an entity he controls, faces charges under section 17(a), section 10(b) and rule 10b-5. The SEC is seeking permanent injunctions, disgorgement with prejudgment interest, civil penalties, and a bar on Ferder serving as an officer or director. Its investigation continues.

The trusts are in the claim

The part of the filing that will interest family offices is at the end. Ferder and his wife, Edit Ferder, are named as relief defendants in their capacity as trustees of the Haim Family Trust, the TF 2021 Irrevocable Trust and the RF 2021 Irrevocable Trust. The complaint alleges those three trusts received proceeds of the fraud.

A relief defendant is not accused of wrongdoing. It is named because it holds property the regulator wants back. Two of the three trusts were settled in 2021, the same year the alleged scheme began.

What it means for family offices

The instrument here was a contract over a specific physical object held by the person selling it, valued by the same person, and stored on premises the buyer did not control. Anyone signing that document owns a promise, not a stone. The test a family office can apply before signature is short: name the asset, name where it sits, and name the independent party who has confirmed both. If any of the three answers is the counterparty, the exposure is unsecured credit to a jeweller.

The pattern of returns was the second signal. Payments that arrive on schedule regardless of whether the underlying object has actually been sold are not proceeds of sale. They are cash from somewhere else.

The trusts carry the wider lesson. Being irrevocable does not put assets beyond a disgorgement claim where a regulator can trace them to alleged fraud, and the SEC does not have to show the trustees knew anything. Families who have received distributions funded by a business now under investigation should assume the trust deed is a starting point for that argument rather than the end of it.

Sources: US Securities and Exchange Commission; Investment Executive; InvestmentNews.