Lost Luster

Sotheby's

Edward Hicks's "Peaceable Kingdom" (1846-48) had been promised to the American Folk Art Musuem, but was sold off to satisfy its owner's hefty debts.

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In a dramatic last-ditch effort to stave off a court-approved auction of his collection of rare jewels and gemstones at Christie’s New York in April, Ralph Esmerian, the prominent New York jewelry dealer and arts patron, declared bankruptcy for his privately held company, Fred Leighton Holdings, Inc.

The eleventh-hour gambit killed the 115-lot sale of what Christie’s called “the most spectacular and comprehensive collection of period jewels” it had ever offered. The termination of the auction, which had been expected to fetch in excess of $34 million, caused great embarrassment to the house, which had spent more than $1 million marketing it, and to its worldwide jewelry head, François Curiel, who was forced to announce the cancellation from the auctioneer’s podium. “I told the people present that unfortunately, it couldn’t take place,” says Curiel. “This never happened to me before, and of course, I was terribly disappointed.”

The auction—to which Esmerian was vehemently opposed—was initiated by Merrill Lynch Mortgage Capital, which claims the jeweler is in default on upwards of $181 million in loans made to him and various companies he controls. The bank declared the default last October when Esmerian failed to make his monthly interest payment of $1.5 million; after reportedly attempting to renegotiate the terms of the debt with Esmerian, Merrill filed suit against him this past January. Esmerian had borrowed the funds in part to acquire the vintage-jewelry specialist Fred Leighton in March 2006 for a reported $100 million. Following that acquisition, cracks began to show in the dealer’s financial empire.

“Nobody wants to be in bankruptcy,” says Helen Davis Chaitman, Esmerian’s attorney. “ But when the alternative is having a fire sale of what Christie’s admitted was the most spectacular collection of antique jewelry ever put together, at least in our view, it would have been a crime for that auction to go forward.”

Chaitman echoes her client’s April testimony to a U.S. bankruptcy court in New York to the effect that if the sale had taken place as planned, a group of jewelry dealers would have conspired to keep the prices low, despite the fact that such a practice— ring bidding—is outlawed. “Everybody acknowledges that it happens,” Chaitman states, “but it’s a crime, so nobody wants to talk about it in great detail.” She adds that the auction would have ruined Esmerian’s plan to sell jewels from his and his family’s extensive collection through the Fred Leighton flagship store on Madison Avenue, in New York; at another retail outlet, in a branch of the Bellagio Hotel, in Las Vegas; and in a new Leighton emporium slated to open this fall on Rodeo Drive, in Beverly Hills.

In court proceedings, Esmerian laid much of the blame for his plight on Merrill: “Although Merrill Lynch aggressively pursued the financing of the acquisition of the Fred Leighton business, the honeymoon was over virtually as soon as [the bank] booked the millions of dollars of fees it earned upon the loan closing. Virtually from the day the loan closed, [Merrill] constantly pressured me in innumerable ways.”

Not surprisingly, William Halldin, a spokesman for Merrill Lynch, sees the situation differently. “We are working constructively with the debtor and the bankruptcy court to resolve these matters as quickly as possible,” he says, adding that it was Esmerian’s default “that triggered our action” and that the bank had expressed concern about the hiring of Peter Bacanovic as president of Leighton. Bacanovic is the disgraced former Merrill Lynch stock trader who received a prison sentence for his involvement in the Martha Stewart insider-trading case of 2003.

Esmerian now has the right to dispose of his collection gradually, as he had intended. Most of the jewels that were headed to the block are currently cloistered in a Chase Morgan bank vault in New York that is controlled jointly by Esmerian, Merrill and the bankruptcy court judge overseeing the reorganization of Fred Leighton Inc. “We will, over time, be able to sell these items for 250 percent of what Christie’s was going to get for them,” Chaitman says. So far, there have been two private treaty sales from the vault: A rare Empress Eugénie diamond bow brooch, estimated by Christie’s at $4 million to $6 million, was bought by the Louvre in May for $10.5 million; and a circa 1860 mosaic and gold snuffbox depicting a mythological scene, which the house had given a $30,000-to-$50,000 estimate, sold for $100,000 to a private collection.