Trusting Delilah

         One night on a street in Milan, an elderly jeweler from New York met a man he’d never seen before. The jeweler took out an envelope with $2.5 million worth of diamonds and handed them to the stranger.

Several years later, the jeweler, Aaron G.,* a distinguished looking man in his seventies, sat down for a deposition in my firm’s conference room, his son at his side. I was representing Hillside National Bank, where his company, Aaron G., Inc., was a longtime borrower with a credit line secured by the company’s diamond inventory. Aaron G. and other family members also personally guaranteed the company’s obligations to the Bank.  He regularly submitted financial statements to the Bank certifying he held $5 million or more in diamond inventory, usually well in excess of the amount he owed on his loan.

In 2011, his company defaulted in making payments on the loan, which at that time had a $2.5 million balance. The Bank brought an action against the company seeking return of the diamond inventory and the deposition was part of that action.

         Aaron told me he no longer had possession of the inventory and launched into an astonishing tale of a long-con fraud, gullibility, possible complicity, or all the above.

He told me several years ago he was approached by a woman named Delilah Morem, who said she could help him sell diamonds to representatives of the Vatican Bank at very favorable terms. He and Delilah had several telephone calls about the proposed transaction, during which Delilah said she was working with an agent in the upper hierarchy of those permitted to do business with the Vatican Bank. By doing deals like the one with Aaron G., she could eventually earn certification for that rank.

         Delilah identified this person only as “The Baron,” and gave Aaron his telephone number at a location she said was in Zurich, Switzerland. His initial call was followed by months of conversations in which Aaron and the Baron developed a close relationship – Aaron told the Baron intimate details about his family and business and the Baron told him about his dealings with the Vatican and his personal life. After about six months Aaron implicitly trusted the Baron.

         The Baron said he had a great deal with the Vatican Bank, but to consummate it, Aaron had to personally bring diamonds to a location in Milan, Italy, and give them to his representative there. So Aaron got on a plane to Milan and arranged with an associate there to provide him with $2.5 million in diamonds. Then Aaron went to the designated location, met the Baron’s representative, someone he had never met or spoken to before, and gave him the $2.5 million worth of diamonds. The man assured him he would be paid very soon, and Aaron returned to New York.

         The diamond business in New York, centered around 47^th Street between Fifth and Sixth Avenues, operates with minimal documentation. If a dealer has diamonds (also referred to as “stones”) he wants to sell, he finds a possible buyer and gives him the stone or stones. In exchange, the buyer executes a 3X5 slip of paper called a “Memo,” which identifies the diamonds, the amount the seller expects from a sale, and the time (usually 30-60 days) in which a sale must occur. Within that time, either the diamonds (if there is no sale) or the amount on the memo (if there is a sale) are returned to the dealer. The buyer’s profit is the difference between his sale to an end customer and what he pays back to the dealer. There is a great deal of trust required for these transactions, but because of the small community of dealers and buyers, fraud or theft hardly ever occurs.

         Aaron’s transaction took this trust to a new level. He did not ask for or receive even a Memo from the man on the street in Milan because, he said, he had complete confidence in the Baron and Delilah. No mere document was necessary.

         Aaron received no payment in the first few months after he returned from Milan. He resumed his calls with the Baron, who assured him the holdup was just bureaucracy at the Vatican Bank and would be resolved shortly.

         After a few more months, Aaron received a check for $25,000, with a note from the Baron saying this is an initial payment, and the rest will be coming soon. But to facilitate final payment, Aaron had to confirm the Vatican Bank’s confidence in him by providing additional diamonds. This time, the Baron said, they would save Aaron’s time going to Milan by giving the diamonds to Delilah, who would take care of it. So Aaron gave another $2 Million in diamonds to Delilah.

         Aaron never received any payments after this transfer – not even a small payment like the first one. His repeated inquiries to Delilah went unanswered until one day she answered the telephone and gave him the sad news that the Baron had passed away. Yet she still assured Aaron that payment would still be forthcoming after more red tape and other bureaucratic obstacles were taken care of. By this time, though, the Bank had initiated proceedings against Aaron G., Inc. and I was taking this deposition.

*Names of individuals and entities are changed.