Diamond Dealer Going to Prison For Memo Fraud

New York--A diamond dealer is being sent to prison for memo fraud, and Diamond Dealers Club officials are indicating thatmore may follow.

Club officials said they are turning more and more to outsideauthorities to handle what they consider particularly egregiousexamples of fraud in the industry, especially dealers whoreceive goods on consignment, or "memo," and do not pay for orreturn them.

This is a bit of a change for the Diamond Dealers Club, whichhas always been something of a closed society. Disputes areusually handled internally through the club's highly regardedarbitration system.

But now, after a series of big-money memo failures, clubofficials said they have no choice but to get tough.In May, Andrew Swaap, of Nico Swaap and Son, a dealer accusedof receiving approximately $1.5 million worth of stones on memoand not returning or paying for them, pleaded guilty in NewYork State Supreme Court to two counts of second-degree grandlarceny. Under a plea bargain agreement, he will be sentencedin July to one and one-half to four and one-half years in stateprison. His father, Nico Swaap, who was also cited in a relatedcivil case, agreed in a judgment to pay the full amount of thecreditors' losses.

Andrew Swaap was prosecuted by the New York County DistrictAttorney at the strong urgings of club officials and members ofthe Swaap Creditors Committee.

"People felt that they were immune to prosecution in ourbusiness," said Meilech Fastag of Ideal Brilliant Co., chairmanof the Swaap Creditors Committee. "This will make them thinktwice."

Diamond Dealers Club attorney S. Herman Klarsfeld, whorepresented the Swaap Creditors Committee in the proceedings,said the club "wants the Swaap case to send a message.""The club is taking a very hard line in these kinds of cases,"Klarsfeld said. "People who commit fraud or larceny incommercial transactions will be prosecuted to the full extentto the law and serve jail time."

DDC Managing Director Arthur M. Wein said the club plans tostay in close communication with the district attorney'soffice. And members of various creditors committees said theyare working on other fraud cases that will probably involveprison sentences.

They said there are ongoing investigations involving two recent"memo failure" cases: One, which occurred earlier this year,involves an Israeli dealer who allegedly didn't pay for over$1 million worth of diamonds; the other, which happened lastyear, concerns a dealer and his brother who were said to havehocked more than $2 million worth of memo stones without payingsuppliers.

Bruce Smith is a dealer involved with the creditors committee."In the past, when people were defrauded, [the club] gave upafter a year," Smith said. "Now we will not give up. Thedistrict attorney has been extremely sympathetic andcooperative. We are going after these people. We want this tostop."