Financial Crime: Good money after bad: Four charged in cold-call diamond sale scheme prosecutors say was a dazzling scam

It was a pitch designed to dazzle: turn a small investment in pink diamonds into big bucks by getting ahead of a major buyer trying to corner the market.

But prosecutors say it was little more than a boiler room scheme that convinced investors to keep sending money to buy stones that may never have existed in the first place.

Four Canadian diamond dealers have been charged with allegedly running  a strong-arm, cold-call scam that cheated dozens of U.S. investors out of tens of thousands of dollars each with promises of big returns on precious stones.

According to court documents filed in federal court in Ohio late last week, James Gagliardini, 44,  Michael Shumak, 52, Anthony Palazzolo, 64, and Jack Kronis, 63, ran Paragon International Wealth Management from 2013 until 2018 out of offices in Toronto, Canada. The firm billed itself as expert in buying and investing in so-called “colored diamonds.”

All four men have been charged with one count of wire fraud.

Messages left for attorneys representing Gagliardini, Shumak and Palazzolo weren’t immediately returned. It wasn’t immediately clear if Kronis had yet retained an attorney and he couldn’t immediately be reached. 

Prosecutors say the firm started by acquiring telemarketing lists of potential customers in the U.S. and Canada and the four men, often using aliases, would cold-call them and aggressively pitch their diamond investment scheme.

At first, the offer was modest — for an initial investment of as little as $700 to $800, the customer would acquire shares in a pool of small pink-colored diamonds that could later be sold for a profit. Paragon would sometimes even send the investor an actual pink diamond with an appraiser’s certificate indicating its value as a show of good faith.

But that’s when prosecutors say the scheme would kick in. Eventually the firm would contact the buyers and tell them of a deep-pocketed Hong Kong buyer who was seeking to corner the pink diamond market. They said he would acquire their diamonds if they spent more to purchase larger ones.

Prosecutors say dozens of clients from all over the United States agreed to the deal, sending tens of thousands of dollars more to acquire the supposedly larger diamonds. But the deal never went past this point, according to court documents, with the defendants telling their clients that the Hong Kong buyer either was unable to buy the diamonds due to financial difficulties, or had paid with yellow diamonds.

The defendants then allegedly told some customers that the yellow diamonds could be sold at auction if they spent more to have them set into pieces of jewelry. Several agreed to pay thousands of dollars more to have the diamonds made into jewelry only to later be told that the pieces failed to sell at auction as they hadn’t met their reserve price.

As part of the scam, the defendants sometimes sent customers phony appraisal certificates that inflated the value of the diamonds they had purportedly invested in, prosecutors said.

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