Sotheby's May Be Liable for $4M in Missing Diamonds

RAPAPORT... Sotheby's may have to pay a consignor $4 million after the auction house allegedly released 45 vivid-yellow diamonds to another entity.On July 14, an appellate court ruled on a claim brought against Sotheby's by M&L Financial. The ruling assumes that the facts contained in M&L's allegations are true.According to the filing, M&L claimed that Jona Rechnitz, the owner of Jadelle Jewelry, owed the company a "substantial" sum of money. As security for his debt, Rechnitz transferred ownership of the diamonds to M&L, with the understanding he would be able to repurchase them at a later time, the document continued.Rechnitz then proposed M&L list the diamonds with Sotheby's as he had a "long-standing relationship" with Quig Bruning, the auction house's senior vice president and head of jewelry for the Americas, the filing said. Rechnitz accompanied M&L to meet with Bruning at the auction house's Los Angeles office in April 2019. Bruning filled out a consignment listing for the diamonds to send them to the New York office for appraisal. However, in the space for the consignor's name, Bruning put "Jadelle Jewelry and M&L Financial," despite M&L maintaining it was the sole owner of the diamonds, and Bruning "indicating he understood," according to the filing.In late 2019, when M&L did not hear back from Sotheby's, it phoned Bruning and was told that the auction house had released the diamonds to one of Rechnitz's associates without consulting M&L, as Rechnitz was listed as a co-consignor. M&L never saw the diamonds again, it claimed.The claim is one of three originally leveled at the auction house. The first two have already been dismissed.The way the court system in California works is that, for the purposes of a motion to dismiss, the court has to take the allegation outlined in the complaint as factually true. That leaves Sotheby's without the opportunity to contradict any of the allegations at this point, a source at Sotheby's told Rapaport News.Sotheby's has also disputed M&L's claims that it later learned Bruning and Rechnitz were "friends" and that Rechnitz had "flown Bruning to Las Vegas in a private jet and had given Bruning valuable tickets to a sporting event."The two knew each other from prior business dealings, as both were in the Los Angeles jewelry world, the source noted. They were not friends as alleged, and Bruning was never on a private jet with Rechnitz.The view of Sotheby's is that what was in the written contract stipulates it could release the stones to either of the two consignors. The court now has to decide whether that -or M&L's alleged explanation that it was the sole owner - will prevail."Sotheby's regards the allegations in the complaint as baseless and riddled with untruths and mischaracterizations," a Sotheby's spokesperson said. "We will continue to vigorously defend this in court."M&L Financial did not respond to a request for comment.Image: The Sotheby's auction house in New York. (Shutterstock)