Diamonds that never existed: SEC says Lugano co-founder booked fake sales

A jewelry company's co-founder sold investors stakes in diamonds he never owned, the Securities and Exchange Commission alleged in a complaint filed Aug. 31.

The filing, brought in the Central District of California, targets the co-founder and former chief executive of Lugano, a high-end diamond and jewelry company, along with a holding company he ran. The SEC describes a “massive accounting fraud” that ran from 2021 to 2025.

The pitch was simple, according to the complaint. He told investors he had found a valuable diamond at a below-market price. They could buy a 50% share. He would turn it into custom jewelry, tap his network of wealthy clients to find a buyer, and hand back a 20% to 40% return in about six months. All they had to do was wire the money.

None of it was real, the SEC says. The diamonds were never bought or sold, according to the complaint, and money paid back to earlier investors came from newer ones - what the filing calls “Ponzi-like payments.” Sometimes, the SEC says, the same diamond was promised to several investors at once.

That was one side of the case. The other was where the money landed. In 2021, the publicly traded firm CODI bought a majority stake in the Lugano business for nearly $104 million, most of it going to the holding company, and the co-founder became chief executive of the new CODI subsidiary. Over the next four years, the SEC alleges, he had Lugano log investor cash and other short-term financing as sales - not as debt the company owed. Reported sales nearly quadrupled. By the end of 2024, the filing says, Lugano made up 21% of CODI's revenue and 58% of its income.

The complaint lays out a pattern advisors will recognize. Fixed, outsized returns on a short clock. One person controlling the paperwork, the pricing, and the story told to buyers. The SEC says he had staff call the investment contracts “diamond sales” rather than “investment deals,” pushed back on auditors, and once told employees that “the auditors are NOT your friends.”

The story came apart in April 2025. The co-founder was abroad and did not come back, the SEC says. CODI opened an internal investigation and later reworked years of financial results to correct them. The day after it disclosed the investigation, its stock fell more than 62%. When the company redid the math, the value of Lugano's acquired net assets dropped from $179 million to $5 million. Lugano filed for bankruptcy in November 2025.

For CODI, the cost of missing it was steep. The company paid nine figures for a business the SEC now calls essentially worthless, its reported growth “a mirage.” The agency is asking the court to bar further violations, impose civil penalties, and order the return of money it says was wrongfully taken. It has also asked for a jury trial.

The complaint reflects the SEC's allegations. Nothing in it has been tested, and no court has ruled. The co-founder and the holding company are the ones being sued. Family trusts also named in the case are said to have received money from the 2021 sale, but they are not accused of any wrongdoing.