Toronto fraudster sentenced to U.S. prison for running $21-million diamond swindle

A Toronto founder of a large diamond investment fraud that swindled more than $21 million from about 200 victims — many of them seniors duped over the phone — has been sentenced to 56 months in a U.S. prison.

James Gagliardini launched a company in 2013 that defrauded people for years through conmen convincing unsophisticated investors to send them ever-increasing amounts of money for coloured diamonds, lying that they were worth far more than they were and that a huge profit was just over the horizon — but they always needed to spend more to get there.

They never got there; the diamonds often didn’t even exist, police said.

With the impressive-sounding name Paragon International Wealth Management Inc., Gagliardini and his sales teams used a telemarketing call centre at their Toronto offices on Finch Avenue West to reach a vast number of people in Canada and the United States.

Paragon’s boiler room operated from 2013 until Toronto police raided it and arrested Gagliardini and four others in 2018. Instead of facing trial in Ontario, however, they were prosecuted in Ohio after the FBI found more victims were American than Canadian and the U.S. Department of Justice filed an indictment against four Paragon scammers, all of whom have pleaded guilty.

Paragon’s scam was recently revealed in colourful detail in a National Post investigative feature called Jack of Diamonds.

Gagliardini was sentenced Oct. 17.

“The impact of this crime on Paragon’s victims was profound,” James Lewis, Assistant U.S. Attorney in Cleveland, told court.

Court heard from several victims. One called the Paragon salesmen “vicious and greedy scam artists.”

“I am 79 years old,” said another victim. “I continue to work to mitigate the financial effect of the fraud on me and my family.”

Another said: “I charged a large amount of money on my credit card to purchase the diamonds… I never received any diamonds just excuses. I had to sell my company, using the equity to pay off the debt…. I was going to use the money to help retire.”

Prosecutors said the documented loss to Paragon by victims was US$15,685,733.86. Prosecutors said Gagliardini was “in charge of the day-to-day operations” but accepted his contention he had more of a “behind the scenes” role once it was running.

His leadership gave him the ability to stop the frauds, but he didn’t. His leadership also gave him a larger share of their take, court heard.

When he was trying to build a public name as a diamond investment expert, Gagliardini appeared as a guest on CBC’s flagship business show, The Lang & O’Leary Exchange, touting coloured diamonds.

Gagliardini pleaded guilty to one count of conspiracy to commit wire fraud in a plea agreement that ensured a deep discount from the maximum sentence of 20 years.

Gagliardini’s lawyer, John McCaffrey, told court that swindling millions over years was “totally out of character” for his client.

“He has spent significant time punishing himself for what he has done and acknowledges the toll it has taken on his family, the victims, and the victims’ families,” McCaffrey told court.

The judge was handed 22 letters asking for leniency for Gagliardini and vouching for his good character, attesting to him doing everything from helping them move furniture to being a terrific father to his daughter.

“James is a good man, who has made mistakes, but has learned from his errors, and I think that his friends and family are better served with him being present in our community than we are with him serving a lengthy prison sentence,” wrote family friend Ryan Charpentier.

Rabbi Zalman Goldman wrote that even though Gagliardini isn’t Jewish, he has acted as his “spiritual advisor and counsellor” when Gagliardini was in a relationship with a Jewish woman.

“He struck me then, as he does to this day, as a deeply moral and responsible individual and I was there to hold his hand when he came to me and disclosed that he had been involved in something untoward. His regret spoke volumes,” Goldman wrote.

Dimitri Vasitiadis, his friend and recent employer, praised Gagliardini’s integrity and blamed his criminal activity on others.

“James now finds himself in a difficult legal situation, stemming from his association with individuals who took advantage of his good nature. His trust and naivety were exploited, leading to circumstances that were beyond his control,” Vasitiadis wrote.

U.S. District Judge J. Philip Calabrese sentenced Gagliardini to 56 months in prison. At the request of Gagliardini, citing strain on his family, the judge recommended Gagliardini be placed in Federal Correctional Institution Morgantown, in West Virginia, which is a minimum-security prison camp often nicknamed “Club Fed” because of its pleasant location and wide range of recreational facilities.

It is 630 kilometres from Toronto.

Gagliardini was not immediately taken into custody. He was allowed to leave court under electronic monitoring with an order to surrender to prison when the Bureau of Prisons designates his placement.

Restitution was ordered — in the full amount — although it seems unlikely he can achieve that.

The court ordered him to pay 25 per cent of his income each month while in prison, and then, starting 60 days after his release, he is ordered to pay a minimum of 10 per cent of his income throughout three years of his probation. It is uncertain how the United States will enforce restitution once he returns to Canada.

Kevin Williams, the Toronto detective who first arrested Gagliardini and his co-accused for the diamond investing fraud, including Jack Kronis, the “Jack of Diamonds,” said the sentence seems appropriate.

“I feel this is a fair sentencing for Mr. Gagliardini. Although it will never make the victims whole again financially, getting accountability for his involvement in this crime is a win,” Williams told National Post.

The other Paragon swindlers have not yet been sentenced.

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