An Israeli diamond dealer has fallen victim to a rough diamond sting, loosing $0.5 million in payments and expenses, court documents reveal.  The case involves some well-known names such as Russian president Vladimir Putin, Saudi billionaire Adnan Khashoggi, and entertainment legend Liza Minnelli.

 

It is known that the oil that lubricates the diamond industry's wheels is trust.  However, with high stakes involved, this trust at times is misplaced, leading to the possibility of great losses.  That was the case with Israeli diamantaire Avi Netanel who trusted Pierre Ergas.

 

The business cards Pierre Ergas gave Netanel, allegedly to convince his of his ties with Russian President Putin

The two met at a fund raising function in Monte Carlo, where a diamond necklace donated by Netanel was offered.  Following an introduction, Ergas allegedly presented himself as a close friend of Putin and a special presidential economic adviser, later offering additional proof of the close relationship.

 

Ergas went on to tell Netanel that Putin had entrusted him with revolutionizing the Russian rough diamond industry.  He allegedly offered Netanel an important role in the international rough diamond distribution of Russian goods.  After a series of meetings, which included Ergas's wife, Zoe Verdene, at a house in Cannes that Ergas claimed the couple owned, Netanel, a trader of large polished diamonds, decided to consult with a number of experts to learn about rough diamonds.

 

All along, the lawsuit claims, Ergas actively promoted the notion that Netanel would have a central role in the new Russian system, gaining his confidence by presenting documents prepared for Putin, while his wife, an Israeli, took an active role by creating a friendly atmosphere.

 

Ergas and Netanel continued to meet in Cannes, with Netanel accompanied by experts he hired at his own expense, to help the project get underway.  At this point, during marathon meetings that included Zoe Verdene's sister Sara, Ergas brought Khashoggi to meet the guests, allegedly to impress the visitors with his extensive business connections.

 

It was also at this point that Ergas requested that Sara Verdene be included on the "Israeli team."

 

The lawsuit, which was filed today in Tel Aviv, describes the proposed deal presented to Netanel as follows: The reform of the Russian diamond market will be aided by a government owned Russian bank, which will control and regulate the marketing of Russian rough diamonds.

 

During the discussions, Ergas claimed that Putin holds large sums of money outside of the country and that he, as Putin's representative, would use the money to take control of the bank and increase its holding by ”massive” sales of rough diamonds that Netanel would receive at prices substantially below market prices.  Half of the proceeds would remain Netanel's, the lawsuit states.

 

At the following meeting, which took place in Cannes on August 24, 2005, Ergas promised to provide Netanel with a first shipment of goods, defined by Netanel as 8 – 30 carat, makeable, of high color and purity.  Ergas told Netanel that he would obtain the diamonds in Dubai, but that he needed to receive $0.5 million in advance because it would demonstrate seriousness and because "that is how the Russians work.” Ergas allegedly promised that the advance payment would be refunded after the first transaction.  If Netanel did not like the goods, the advance payment would be returned.

 

On September 2, 2005, Ergas emailed Netanel that the goods, all above 10.8 carats, were ordered and provided bank account details for Netanel to transfer the money.  Netanel alleges that he transferred $300,000 to Ergas’s account.  Two weeks later Netanel flew to Dubai to receive the goods, however, they never arrived.  Ergas claimed that technical problems were to blame.

 

At this point, and after considerable expense on top of the advance payment, Netanel found himself in a futile chase after the goods, which included problems with Kimberley certificates and waiting for Russian representatives who delayed their arrival and failed to show up.  Ergas then promised to meet Netanel in New York at an industry function, promising to bring Liza Minnelli with him, a meetings that did not take place either.

 

A few days later, Ergas told Netanel, who was now in Belgium, that the best thing he could do was to come to Moscow and see the goods.  However, even after a series of meetings in the Russian capital, no diamonds appeared.

 

Netanel gave up on the deal at this point and demanded, via email, the return of his advanced payment, plus half of his expenses.  Ergas allegedly replied that he was "shocked" by the request, and promised to look into the matter.  Netanel also demanded the money from Sara Verdene, who claimed that patience was needed, but that the money would be returned if the deal did not materialize.

 

After several attempts to present the validity of the deal, which had been delayed by external problems, Pierre Ergas not only promised Netanel that "You'll get your money back at least tenfold," but he tried to obtain additional funds from Netanel, by offering him different diamond deals.

 

On September 21 of this year, Ergas offered another rough diamond deal, or a refund on Netanel's deposit.  Netanel asked for a refund.

 

The money has not been returned, and, as a result Netanel, filed the lawsuit today (Tuesday) in a Tel Aviv, Israel court.

 

Netanel is demanding NIS 2,176,618 ($506,000) from Ergas, his wife Zoe, and her sister Sara.  This sum includes travel and related expenses, payments to advisors, lost earnings, lost working hours chasing the goods around the globe, and punitive damages on top of the original $300,000.

 

Sources familiar with the case expect that a complaint against Ergas will be filed with the Israeli police Wednesday.