(IDEX Online) - Sotheby's may be responsible for the loss of 45 vivid yellow diamonds, worth $4m, a federal judge in California, USA, has ruled.A consulting and brokerage firm, M&L Financial, took the gems to Sotheby's New York (pictured) for auction on consignment in 2109.The company, based in Dallas, Texas, told Sotheby's it was the exclusive owner of the diamonds.But the auction house later released them to another party without telling the company, according to papers from the Superior Court of Los Angeles County.The court papers identify a Jona Rechnitz, owner of Jadelle Jewelry and Diamonds in Beverly Hills, as having owed M&L "substantial" sums.As security for his debt, he is said to have transferred ownership of the diamonds to M&L on the understanding that he could later buy them back at a fixed price.Rechnitz proposed M&L list the diamonds with Sotheby's. M&L had never dealt with Sotheby's, but Rechnitz said he had a long-standing relationship with an executive there.Sotheby's later released the diamonds to a man who was supposedly picking them up on Rechnitz's behalf. Sotheby's did not tell M&L.In its judgment the court reversed a judgment by a lower court which said payment could be made to either party, and found against Sotheby's.The court said it "reverse[d] the judgment and remand for further proceedings regarding M&L's breach of contract claim. We award costs to M&L."In a statement, quoted by ARTNews Sotheby's said it "regards the allegations in the complaint as baseless and riddled with untruths and mischaracterizations."