Rare jeweller endangered

Not even diamonds as big as the Ritz can save Ralph Esmerian from the jaws of Wall Street now. A fourth generation rare jewels dealer whose Armenian family fled from Paris in 1940, Esmerian enjoyed a life of wealth, taste and art collecting in the old money enclave of Manhattan's Upper East Side.

That all ended when he ventured into the brash new world of 21st century finance and Hollywood glamour. First, he borrowed $57m from Merrill Lynch for what he describes as "estate planning purposes". As collateral, he pledged his 'Special Collection'.

This is not any old second-hand jewellery, but rather pieces for the connoisseur, stuff you might find in the treasure chests at the Tower of London. It includes the diamond brooch given to Empress Eugenie, wife of Napoleon III, and later acquired by Mrs Astor, queen of 1950s New York society. Esmerian is - for the moment - the owner of a Van Cleef and Arpels brooch 'encrusted' with diamonds and a Rene Lalique Art Nouveau bracelet, both of which are worth at least half-a-million.

And then he borrowed another $120m from his new friends at Merrill Lynch. This time the money was for buying the showy Fred Leighton jewellery shops on Madison Avenue and in the Bellagio casino in Las Vegas.

Getting into the spirit of the age, Esmerian, 68, ventured from the genteel parlours of Fifth Avenue to dress the stars in his bedazzling gems for their red carpet appearances. Cameron Diaz, Mira Sorvino (left) and Sarah Jessica Parker have all strutted in Special Collection diamonds, emeralds, rubies and gold. Dolly Parton of the big boobs and American vernacular was draped for the Oscars in jewels from the Fred Leighton shelves and boasted: "These cost $1,200,000!"

With the money flowing in, Esmerian decided it was time to establish a presence on Rodeo Drive in Beverly Hills. The shop opened last September but, as he said, "That was in the good old cowboy days when all this was fun." The name of the man he hired to run his retail empire should have sounded an alarm: it was Peter Bacanovic, the star-stroking Merrill Lynch broker who went to jail with his friend Martha Stewart for diddling the stock market. Even Merrill Lynch raised an eyebrow at that.

Shortly after his shop opened, the 'sub-prime' credit crunch began to take its terrible toll, and sales of top-end jewels tumbled. Esmerian could no longer make his $1.5m monthly payments and had to take back his Folk Art masterpieces from museums, and sell them. With Merrill Lynch doing even worse - it lost $30bn dollars on dodgy loans and fired 2,900 employees - Esmerian discovered that the smiles of Wall Street turn crocodile when debts go bad. They called in the jewels.

Problems came to a head when Merrill Lynch tried to cash in the jewels at a Christie's auction in New York. "It's a fire sale presentation!" complained Esmerian. "These are pieces that deserve respect. It's like a magnificent Fifth Avenue Mansion being offered for the price of a Third Avenue condo."

Old money is snobbish, new money ruthless. But ruthless wins. The only way Esmerian could avoid the indignity of his family jewels going on the block was by declaring bankruptcy. So now a judge will decide who gets the diamonds and who gets the gold.  ·