Lugano Diamonds, once considered a key asset of investment firm Compass Diversified (CODI), has found itself at the center of a massive scandal involving fraud, missing diamonds, and multimillion-dollar liabilities.

The controversy stemmed from a 6.43-carat blue diamond worth approximately $11 million, which was given to CEO Mordechai "Moti" Ferder in January 2025 for display to a client in Miami. The stone was never returned to its owner, Scarselli Diamonds, which later filed a $13.5 million lawsuit. It soon emerged that the company could not confirm the whereabouts of several other jewels, and investors began suing Lugano, claiming they were owed millions of dollars.

The collapse of Lugano led to Compass Diversified defaulting on $1.8 billion in debt. To avoid immediate foreclosure, the company entered into a settlement with creditors led by Bank of America and JPMorgan, agreeing to reduce management fees and return some of the previously received payments. In November, Lugano Diamonds filed for bankruptcy and was sold to a division of Gordon Brothers in January. Compass accuses Ferder of fraud and embezzlement, while his lawyers claim the investment firm was aware of the financing schemes and is now attempting to shift responsibility.

The Lugano Diamonds affair has dealt a serious blow to the reputation of Compass Diversified, which paid $198 million for 60% of the jewelry business in 2021, hoping to make it the flagship of its portfolio. Instead, the "jewel" turned into a financial disaster, a massive financial restatement, and a market capitalization drop to $500 million. The scandal highlighted the risks of aggressive growth in the luxury goods segment and demonstrated how quickly impressive figures can turn into multi-billion dollar losses.