Diamond district stores scammed out of thousands with fake crypto

BY Bence Szechenyi

Manhattan’s diamond district is a single chaotic block on West 47th Street, between 5th and 6th avenues. It’s usually crowded with people in groups, smoking and talking under their breath. Men in designer jackets ask, “buying or selling,” as they try to usher pedestrians into shops that sell glittering jewels for small fortunes. 

Mike Shim has worked there for 15 years. Recently, a customer stole $190,000 worth of watches from his shop, Ultimate Diamond Co., by paying with fraudulent crypto currency. 

“I got burned,” Shim said, ripping a sticker that read “We Accept Bitcoin” from his store window.

Crypto fraud cost U.S. businesses $2.57 billion last year as attempts to regulate the industry have floundered.

The customer who pulled off the scam against Shim said he was from Dubai. He came in wearing a $60,000 watch, Shim said, shopping for other luxury timepieces.

Nothing was suspicious; the customer even haggled about the price. “If you negotiate, you seem legit,” Shim said. 

When they finally settled on a watch and a price, the customer asked if she could pay in crypto. “No problem,” said Shim. “We use crypto all day.” 

That would be the last such transaction Shim ever accepted. The customer went through the motions of transferring the money to the store’s crypto wallet. Shim carefully confirmed the transfer with his employee. Then he handed over the two Rolexes, a Skydweller and a Day-Date. 

After the customer left, Shim got a call from his staffer saying the currency was fake. “It looked like USBT,” Shim said, referring to an Ethereum token, a type of cryptocurrency that is pegged to the US dollar’s value. “It was actually BUSBT,” a completely worthless type of token. 

When they tried to transfer $50,000 worth of the token from the crypto wallet to a bank account, it was only worth $2.50, Shim said. 

He tried to trick the customer into returning with a message saying he forgot to include links of the watch bracelet, but it was too late.

Shim’s options were limited. He couldn’t file an insurance claim, he said, because the payment was made in crypto. Many insurance policies have not accounted for crypto because it is relatively new and legislation surrounding it is spotty. Crypto is hard to trace and currently impossible to recoup if you are the victim of fraud. 

Last May, New York Attorney General Letitia James proposed a solution: the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, an attempt to reign in scams. Part of the proposal would require crypto platforms to reimburse fraud victims. Similar to the Electronic Fund Transfer Act, which protects victims from fraudulent online money transfers, the proposed law would be a safety net for customers using the technology. But the CRPTO Act has stalled since its proposal and is yet to be implemented. 

The Manhattan District Attorney’s office and Leticia James’ office did not respond to requests for comment. 

This is the nature of the game in the diamond district, “scams happen all the time,” said Jaya Oleksnianski, who owns Jewelry Display of NY and has worked on the block since 1989. 

Michael Toback is president of Myron Toback, a family business founded by his father in 1960. “I grew up on the block,” he said, and has always been aware of the district’s shadier side. Some business dealings are less than legitimate, he said. 

Just this fall, five men were charged with using their business in the diamond district to move more than $600 million. 

“The people who take cryptocurrency in the district are usually people who deal in a little bit more of a gray area,” Toback said, adding that they have to be prepared for the risk of fraud if they choose to operate in that way.

“There’s a beautiful expression, it’s called ‘mazel and baruch,’” Toback said. This phrase, said with a handshake, signified a good faith business transaction. “No papers, just a handshake,” said Toback. “If you broke it once, phone calls were made,” he said, “and that’s it.”

But the district has changed, Toback said, explaining that he moved his own business a block away. 

Shim agreed that the block has changed with new technology like crypto and regulators playing catch up. Even if the CRPTO Act passes, he said, “I’ll never use crypto again.”

This entry was posted on Wednesday, November 8th, 2023 at 10:15 am. It is filed under Business, Featured, Uncategorized and tagged with crime, CRPTO, crypto, crypto fraud, Diamond District, Jewelry. You can follow any responses to this entry through the RSS 2.0 feed.