Compass-Backed Lugano Diamonds Files for Chapter 11 Bankruptcy Amid Fraud Allegations and Luxury Retail Slowdown

November 18, 2025

Lugano Diamonds & Jewelry Inc., the ultra-luxury jeweler known for multimillion‑dollar bespoke pieces and private salons, has filed for Chapter 11 bankruptcy in Delaware and put itself up for sale, just as the crucial holiday shopping season kicks into gear.

The Newport Beach–based retailer, majority‑owned by investment firm Compass Diversified, is seeking court protection after internal probes uncovered serious financial irregularities and a cascade of lawsuits tied to its former chief executive and co‑founder, Mordechai “Moti” Ferder. ^[1]

At the same time, the move underscores how even the very top of the luxury market is feeling the strain as U.S. consumers pull back on discretionary spending, a point highlighted in new coverage of the filing today. ^[2]

Key facts about the Lugano Diamonds bankruptcy

Type of filing: Voluntary Chapter 11 bankruptcy
Court: U.S. Bankruptcy Court for the District of Delaware (Case No. 25‑12055) ^[3]
Owner: Compass Diversified holds a 60% stake acquired in 2021 for $256 million; Ferder retains 40% ^[4]
Estimated balance sheet: At least $100 million in assets and more than $500 million in liabilities ^[5]
DIP financing: Up to $12 million in debtor‑in‑possession (DIP) financing, with about $10 million in new liquidity expected ^[6]
Strategy: Court‑supervised Section 363 sale of substantially all assets, with Enhanced Retail Funding as the stalking‑horse bidder ^[7]
Operations: Boutiques remain open; “first‑day” motions seek to keep employees paid and customer programs intact ^[8]

Who is Lugano Diamonds?

Founded in 2005, Lugano built its brand on ultra‑high‑end, one‑of‑a‑kind pieces sold through intimate “salon”‑style boutiques and private events aimed at family offices, ultra‑rich individuals and equestrian circles. ^[9]

After Compass Diversified (often referred to as CODI) bought a controlling stake in 2021, Lugano expanded aggressively from four stores to 10 boutiques, adding locations in markets such as Aspen, Houston, Greenwich (Connecticut), Chicago and Washington, D.C. ^[10]

According to court and company statements, Lugano currently operates salons in:

Newport Beach, California (its flagship)
Palm Beach, Florida
Aspen, Colorado
Houston, Texas
Ocala, Florida
Chicago, Illinois

However, the company is now closing at least two newer locations — in Greenwich, Conn. and Washington, D.C. — as part of its restructuring plan. ^[11]

How a high‑flying luxury jeweler ended up in bankruptcy court

Until early 2025, Lugano appeared to be a private‑equity success story. In a declaration filed with the Delaware court, Lugano’s chief restructuring officer, J. Michael Issa, said the company believed it generated approximately $470 million in 2024 revenue and $180 million in operating income, painting a picture of a rapidly growing, highly profitable enterprise. ^[12]

That narrative unraveled this spring:

May 2025 – “Irregularities” revealed: Compass Diversified disclosed in an SEC 8‑K that it had discovered irregularities in Lugano’s non‑CODI financing, accounting and inventory practices. At the same time, CEO and co‑founder Mordechai “Moti” Ferder resigned. ^[13]
Wave of investor complaints: Within weeks of the disclosure, Lugano began hearing from roughly 60 individuals and entities claiming substantial losses tied to investment transactions allegedly arranged by Ferder, according to Issa’s court declaration. ^[14]
Multiple lawsuits: Since then, around a dozen lawsuits have been filed against Lugano and Ferder, many alleging that investors were drawn into joint investment deals in loose diamonds, supposedly to be resold at a profit. ^[15]

Coverage today in fashion and legal outlets describes a sprawling alleged fraud scandal, with court documents indicating that investors and customers are claiming at least $701 million in losses connected to those transactions. ^[16]

Lugano itself has sued Ferder, accusing him of concealing and misrepresenting the nature of numerous financing deals with wealthy third parties. Ferder, in a recent court filing responding to the company’s lawsuit, denies wrongdoing and argues that Lugano and its owners are attempting to scapegoat him. ^[17]

These allegations have not yet been tested at trial. They remain allegations, and Ferder is contesting them in court.

Inside the Chapter 11 filing: sale process, DIP loan and court strategy

Lugano’s Chapter 11 petition, filed in the District of Delaware, lays out a classic “file‑to‑sell” strategy:

Section 363 sale with stalking‑horse bidder

The company has moved for approval to run a Section 363 sale process for substantially all of its assets. To anchor that process, Lugano has signed a deal with Enhanced Retail Funding, an investment firm with long experience in the jewelry industry, to act as the stalking‑horse bidder. ^[18]

That means:

Enhanced Retail Funding sets the baseline offer for Lugano’s assets.
Other bidders are invited to submit higher and better offers in a court‑supervised auction.
If a richer bid emerges, the stalking horse may receive certain break‑up fees or expense reimbursements, subject to court approval — a common feature in U.S. bankruptcy sales.

$12 million DIP financing

To keep operating during the case, Lugano is seeking approval for a $12 million debtor‑in‑possession financing facility, provided with the backing of Compass Diversified. Court filings and related reporting suggest the facility could deliver around $10 million of fresh liquidity once existing obligations are refinanced. ^[19]

According to the company’s statement and explanatory articles:

The DIP proceeds, along with cash on hand, are intended to fund store operations,
Pay employees and maintain benefits,
Continue key vendor and landlord payments, and
Support customer programs during the crucial holiday season. ^[20]

“First‑day” motions and operational continuity

Lugano has also filed a suite of “first‑day” motions aimed at minimizing disruption:

Authority to continue wage and benefit payments for staff
Permission to maintain customer loyalty and repair programs
Approval to pay certain critical vendors whose goods are essential to ongoing operations ^[21]

Official statements stress that all Lugano boutiques remain open and operating “in the ordinary course”, even as the company pursues a sale in bankruptcy court. ^[22]

What today’s coverage adds: liability estimates and investor fallout

Fresh reporting on November 18, 2025, builds out the picture of the company’s financial strain and legal exposure:

Business and legal outlets citing the Chapter 11 petition say Lugano reported at least $100 million in assets and over $500 million in liabilities, putting the case firmly in the large‑cap retail category. ^[23]
Fashion‑business coverage describes at least $701 million in claimed losses from investors and clients who say they were drawn into diamond investment deals tied to Ferder’s activities. ^[24]
Consumer‑facing articles note store closures and point out that a London location has already shut its doors, with several U.S. salons also closing as part of the restructuring. ^[25]

Collectively, the new wave of coverage confirms a dual crisis:

A balance‑sheet crisis, with substantial liabilities versus assets; and
A trust crisis, as wealthy clients and co‑investors pursue litigation and the brand’s reputation comes under pressure.

Pressure from a tougher luxury retail environment

While the alleged fraud and governance failures are at the center of Lugano’s problems, today’s reporting also links the filing to a more challenging macro backdrop:

Higher interest rates and market volatility have cooled discretionary spending in the U.S., particularly at the very top end of the market. ^[26]
Luxury players that pursued rapid store expansion during the post‑pandemic boom are now reassessing their footprints as high‑net‑worth clients pull back on impulse purchases.

Lugano’s story, therefore, is not only about alleged misconduct. It is also a cautionary tale about leveraged growth in a cyclical, confidence‑driven segment of retail.

What it means for Compass Diversified

Compass Diversified — a publicly traded holding company that invests in niche industrial and branded consumer businesses — acquired its 60% stake in Lugano in 2021, paying $256 million for four salons and what then appeared to be a fast‑growing luxury platform. ^[27]

Key implications for Compass include:

Reputational risk: CODI has had to disclose irregularities, remove Ferder, and back a full Chapter 11 sale process — a stark reversal from its original growth thesis. ^[28]
Financial hit: While the ultimate recovery will depend on the auction outcome, the gap between Lugano’s assets and liabilities suggests that Compass may face meaningful write‑downs on its equity investment. ^[29]
Legal exposure: Some lawsuits name both Lugano and Ferder; as the case progresses, plaintiffs could seek to test how much responsibility, if any, should be borne by ownership and board‑level oversight. ^[30]

At the same time, Compass is also positioned as part of the solution, providing DIP financing and supporting the sale process aimed at preserving as much value as possible.

Impact on employees, customers and the wider jewelry trade

Employees

If the court approves Lugano’s first‑day motions and DIP facility, employees should continue receiving pay and benefits without interruption, at least in the near term. ^[31]

However, the announced and anticipated boutique closures mean regional job losses are likely, particularly in salons identified as non‑core or underperforming.

Customers

For existing clients, the company and its advisors are sending a clear message: Lugano is still open, still selling jewelry, and still servicing past purchases while the bankruptcy is underway. ^[32]

Even so, customers with:

Outstanding custom orders,
Items on consignment, or
Deposits for future events

will want to track court filings and official communications closely as the sale process unfolds.

The trade

Suppliers, diamond dealers and event partners that worked closely with Lugano may now find themselves among the company’s unsecured creditors. Trade press coverage suggests that industry participants are watching the case closely as a barometer for how aggressively luxury retailers can expand using investor capital and complex financing structures. ^[33]

What happens next in the Lugano Diamonds Chapter 11 case?

Over the coming weeks, observers will be focused on several key milestones:

DIP financing approval: The bankruptcy court must sign off on the $12 million DIP loan for Lugano to access new money and stabilize operations. ^[34]
Bidding procedures: The judge will be asked to approve bidding rules and a timeline for the Section 363 auction, including protections for Enhanced Retail Funding as the stalking‑horse bidder. ^[35]
Competing bids: Other strategic buyers or financial sponsors may emerge, particularly those already active in high‑end jewelry or luxury retail.
Resolution of investor lawsuits: Parallel state‑court and federal lawsuits involving Ferder, Lugano and various investors will continue to evolve, potentially affecting how much value is ultimately available to creditors and equity holders. ^[36]

For now, Lugano Diamonds is attempting a delicate balancing act: maintain an image of continuity and exclusivity for its wealthy clientele while openly acknowledging, in bankruptcy court, the depth of its financial and legal problems.

How successfully it can pull off that balancing act — and whether a buyer steps up to rescue the brand — will determine if Lugano emerges from Chapter 11 as a restructured luxury jeweler or becomes another cautionary tale in the increasingly crowded history of retail bankruptcies.

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