How a judgment totaling $209 million came to be

It’s not enough that Leviev Gem Corp. (LGC) recently won substantial victories over its onetime partner Julius Klein Group (JKG)—most notably an arbitration judgment that totals $209 million. (The recent judgment totals $142 million, in addition to $67 million JKG paid to LGC in November 2014.)

But on top of that, LGC—founded by Israeli billionaire Lev Leviev, whose daughter, Chagit Sofiev-Leviev, now serves as president—has rubbed salt in JKG’s very expensive wound, sending out a press release proclaiming its arbitration award “may be a record judgment in the diamond industry.”

In that statement, Leviev’s lawyer, Charles Michael, partner with Steptoe and Johnson, says, “The Leviev Group will take all steps available, including seizing corporate and individual assets, to collect this judgment.”

Given this has become a high-profile case, it’s worth looking at its background. Prior to the lawsuits and arbitrations, the two sides had been partners for more than a decade. According to an affidavit signed by Lev Leviev, in 2001, his company and the Kleins created two companies, Sunrise and Vivid Collection. (The latter eventually shut down amid a lawsuit.)

Following that, Leviev became joint venture partners with the Kleins in three companies: Julius Klein Diamonds, Sunrise Ventures, and KLG (which runs the Leviev retail chain). For years, the Klein family operated those businesses. The Klein side claims that Leviev was never involved in its day-to-day operations, but the Leviev side griped in a complaint filed in New York State Court in September 2013 that “the businesses were operated in secret, without providing [LGC] any of the information they were entitled to concerning these entities’ operations.”

In 2012, LGC wanted out, and eventually decided to be bought out of all the partnership companies. The current dispute is over the valuation of LGC’s stakes in those companies.

Following industry custom, this issue was meant to be a settled by an arbitration, which commenced in May 2013. The Klein and Leviev sides chose one arbitrator apiece—Chaim Pluczenik and Israel Zahavi, respectively. Zahavi and Pluczenik picked the third, “neutral” arbitrator, Jacob Bronner. Pluczenik later resigned, calling the process “biased” and “unfair,” and was replaced by Eytan Cohen.

The arbitration panel issued a 2-1 ruling in favor of Leviev last June, in a decision that also gives LGC rights to the Leviev trademark. The Klein Group contested the ruling in court, arguing that it should be vacated in light of Bronner’s subsequent conviction (along with 100 other defendants) for tax fraud, as well as alleged undisclosed ties to Leviev. (Leviev denies any ties.) In his Feb. 16 opinion, U.S. district judge Jesse M. Furman ruled that the Kleins’ objections were “far from frivolous,” but ultimately declined to vacate the arbitration.

The legal papers accompanying all this were unsealed this week and contain a multitude of charges and unusual details. At one point, Bronner claimed he received an anonymous telephone threat. At another, a rabbi reportedly sent Bronner a note saying a beth din (rabbinic court) had issued an injunction against his continuing as arbitrator.

It’s not clear what this means for the Klein company—generally considered one of the largest diamond companies in New York City. JKG’s lawyer didn’t respond to a request for comment from JCK but told The New York Post his client will appeal.

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