Finders Keepers in Saga Over Hot Diamond

MANHATTAN (CN) - A New Jersey couple whose pear-shaped, 7.44-carat diamond is the same that a celebrity stylist stole over a decade ago need not relinquish the rock, a federal judge ruled.

The stone has been missing ever since disgraced stylist Derek Khan, who dressed hip-hop icons Lauren Hill and Salt-n-Pepa in high-end fashion before his spectacular fall, borrowed it for a fashion shoot and pawned it in 2003.

He spent two years in prison for the heist before seeking a new life in Dubai, where he reinvented himself a successful jeweler, the New York Times reported.

In late 2012, Steven and Suzanne Zaretsky went to a New York jeweler for an appraisal of a diamond Suzanne's father had bought in December 2003.

After that jeweler went to the Gemological Institute of America, which linked it to Khan's heist, the couple filed suit in New York.

At the time, the revelation "shocked" the Zaretskys, their Paramus-based lawyer. William Strasser, said in a phone interview.

It is undisputed that Suzanne's father bought the diamond on the legitimate market, but the William Goldberg Diamond Corp., which consigned the jewel to Khan, argued that the Zaretskys could never have held a valid title to a hot diamond.

U.S. District Judge Shira Scheindlin sided with the couple Monday.

Under the Uniform Commercial Code (UCC), the so-called "merchant entrustment rule" protects "the innocent purchaser" by forcing business owners to carefully choose whom they trust with their wares, the 14-page opinion states.

"It is undisputed that plaintiffs came into the possession of the diamond innocently," Scheindlin wrote. "And it is also clear that if the merchant entrustment rule applies - to protect plaintiffs' innocent acquisition - WGDC will be left to bear an unfortunate liability. Such is the nature of a case like this, where the true perpetrator - Khan - is beyond the court's grasp. There can be no doubt that Khan's actions were larcenous. However, because he falls within the broad definition of 'merchant' set out in the UCC, his larceny did not preclude him from passing title. I conclude, therefore, that plaintiffs are the rightful owners of the diamond."

Lawyers for the jeweler declined to comment.

Strasser praised the judge's "excellent analysis" favoring his clients.

"Obviously, we're very satisfied with the decision," he said.

In an ironic turn, Khan was named "Businessman of the Year" in Dubai this year, Strasser added.

Courthouse News could not independently confirm that information.

And Khan, whose website lists his international accomplishments and not his diamond heist, did not immediately respond to a request for comment.

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