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Auction house may be held responsible for millions in lost diamonds

A state appeals court in the US has ruled that auction house Sotheby’s may be liable for the disappearance of $US4 million of fancy colour yellow diamonds.

The lawsuit began in 2020 when M&L Financial, a financial services firm, alleged Sotheby’s incorrectly released a collection of diamonds to an unnamed individual.

In April of 2019, Jona Rechnitz, owner of Jadelle Jewelry and Diamonds of Beverly Hills, provided 45 fancy colour yellow diamonds to M&L Financial as security for a debt. Along with the exchange, Rechnitz and M&L Financial agreed the diamonds would not be further moved so Rechnitz could regain them at a later date.

According to the filing, Rechnitz and a representative from M&L Financial met in April of 2019 with Quig Bruning, Sotheby’s senior vice president, and arranged for the diamonds to be appraised in New York.

It’s alleged that Bruning listed both M&L Financial and Jadelle Jewelry as consignors for the appraisal, despite M&L Financial being the sole owner of the diamonds as a result of the debt arrangement.

Later that year, a representative from M&L Financial contacted Sotheby’s seeking the outcome of the appraisal. The representative was informed that the diamonds had been released to an associate of Jadelle Jewelry.

M&L Financial states it has not been able to recover the diamonds since they were released by Sotheby’s. 

At a previous hearing, a lower court ruled that as Jadelle Jewelry was listed as a consignor, Sotheby’s was correct to release the diamonds to the associate.

On 14 July however, the Court of Appeals in California disagreed with that ruling and cleared M&L Financial to levy breach of contract litigation against Sotheby’s.

According to CNN Business, Jadelle Jewelry no longer has a website and is not contactable via phone. Owner Rechnitz could not be contacted for comment.

A spokesperson for Sotheby’s told CNN the consignment was handled like any other.

“Sotheby’s regards the allegations in the complaint as baseless and riddled with untruths and mischaracterisations,” the spokesperson said.

"The person who retrieved the property was an authorised agent for Jadelle Jewelry. Consignors regularly instruct Sotheby's to release to an agent and here, upon pick-up, the agent provided the necessary identification as required."

“We will continue to vigorously defend this in court.”

The case is further complicated by claims from M&L Financial that Sotheby’s was recommended as an auction house due to a personal relationship between Rechnitz and Bruning. Sotheby’s has denied the two held any connection beyond a business relationship.

Rechnitz, the owner of Jadelle Jewelry, has a colourful history. Prior to the launch of Jadelle Jewelry, he was the founder of real estate firm JSR Capital and a former employee of Lev Leviev’s company Africa Israel Investments.

Rechnitz pleaded guilty to wire fraud in 2016 in a case that involved the alleged bribery of public and union officials. He was sentenced to five months in prison and a further five months of house arrest in a court in New York.

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