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An investigation into luxury jeweler Lugano, the purported star unit of Compass Diversified, was revealed on May 7 along with the resignation of co-founder and Chief Executive Moti Ferder.
President Josh Gaynor was appointed as interim CEO and is set to work with Lugano’s Chief Financial Officer Christoph Pachler to take over the former leader’s responsibilities. Both joined the 20-year-old Newport Beach-based jewelry business last year.
“What has been uncovered through the investigation thus far does not reflect who we are as a business and the values we uphold,” Compass Diversified CEO Elias Sabo said in a statement. “Our priority is to support the Audit Committee’s investigation and to fully understand what happened.”
Ferder and his wife Idit, who also exited the company, established the first Lugano flagship in 2005. In 2021, Connecticut-based Compass (NYSE: CODI) bought a controlling stake in the Orange County business. It’s been a star performer among the company’s portfolio of nine companies. In 2024, Lugano reported a 53% jump in sales to $470.7 million while its operating income surged by 83% to $183 million.
Lugano was by far the most profitable unit at Compass, which last year reported operating income of $230.1 million on top of $2.1 billion in sales. Now, those numbers are being put in question, Compass said last week.
Lugano is under internal investigation following concerns about its inventory financing methods. The probe’s preliminary findings have uncovered “irregularities” tied to Lugano’s financing, accounting and inventory practices.
“After discussing with senior leadership and investigators, the Audit Committee of CODI’s Board has concluded that the previously issued financial statements for 2024 require restatement and should no longer be relied upon,” the company said.
As a result, the company said it intends to delay the filing of its first quarter results.
The investigation does not affect any other subsidiaries under Compass like Costa Mesa-based tactical gear retailer 5.11 Tactical, which employs 1,170, including 165 in Orange County.
“CODI’s other eight subsidiary companies have strong balance sheets and cash flow, and we are, as always, fully focused on protecting our stakeholders and maximizing value,” Sabo said.
Shares of Compass fell 62% to $6.55 in the trading session following the disclosure. It had a market cap of $532 million at press time.
“The investigation has thus far identified certain irregularities that do not reflect our standards and values, and Mr. Ferder has resigned from all of his positions,” Lugano told the Business Journal in an email.
A Company of Artists
Compass, while based in Westport, Connecticut, has several top executives who live in Orange County and work out of its office in Costa Mesa. It purchased a 60% stake in Lugano for $265.1 million in 2021.
At the time, CEO Sabo called Lugano a “company of real artists.” “We don’t run across that level of exceptional talent often,” Sabo told the Business Journal in 2021.
Lugano now counts nine retail locations including Chicago, London, Aspen, Colorado, and Houston. Three more stores, which the brand refers to as “salons,” were scheduled to open in 2025. Lugano’s rings, necklaces, earrings, bracelets and brooches can top $1 million.
As recently as February, Compass executives were praising Lugano. The company’s capital expenditures were expected to land between $80 million to $90 million, “driven by growth investments at Lugano as well as other businesses,” according to Chief Financial Officer Stephen Keller at the time.
“Lugano continues to post exceptional results,” Compass Chief Operating Officer Patrick Maciariello said on the February conference call. “This performance is a direct result of the company’s disruptive business model, redefining the greater than $160 billion luxury collectibles market.”
Compass said that “the average sale price per retail transaction increased from approximately $400,000 in the prior year to about $450,000 in the current year,” citing Lugano’s highly affluent consumers. Last week, Compass took a notably different tone.
The ongoing internal investigation is based on “concerns about how Lugano was potentially financing inventory.” “The investigation has thus far identified certain irregularities that do not reflect our standards and values, and Mr. Ferder has resigned from all of his positions at Lugano,” Gaynor told the Business Journal. “The Lugano leadership team and I, having joined the company in 2024, are focused on engaging with our clients and partners, and on providing the highest caliber of quality, service and experience.”
Compass Chairman Larry Enterline said “the company’s manager and its employees reacted swiftly and decisively in response to a concern regarding Lugano, elevating it immediately to our Audit Committee.”
The company did not provide more details about Ferder’s departure, only stating that he will not receive any severance compensation. Idit Ferder is also no longer with the company Interim CEO Gaynor previously worked for seven years at Bvlgari as managing director of North America. His prior experience includes roles at other luxury brands such as Fendi and Bottega Veneta.
Orange County Founders
The Ferders established their jewelry business in 2005 in Newport Beach. In 2022, the company relocated to a 11,500-square-foot space at Fashion Island. An attached exclusive club and venue space, called Privé, debuted the year after.
“Lugano is known for the events and experiences we create for our clients, and Privé is our way of expanding those offerings,” Moti Ferder previously told the Business Journal.
The Ferders were also among many locals who supported the opening of the Orange County Museum of Art (OCMA) in 2022. The museum can provide free admission to the public for the next decade after a multi-million-dollar endowment from the family.
Idit Ferder was honored in 2022 with the Business Journal’s Women in Business Awards. A few days before Moti Ferder’s abrupt exit from Lugano, a spokesperson told the Business Journal that he was traveling and “will be away through the month.” n