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 often ask, “buying or selling?” as they try to usher pedestrians into shops that sell glittering jewels for small fortunes.
Mike Shim has worked on this block for 15 years. Recently, a customer stole $190,000 worth of watches from his shop, Ultimate Diamond Co., by paying with fraudulent crypto currency, he said. Cryptocurrency is a digital currency designed to be exchanged through a decentralized computer network. The technology has been marred by fraud with high-profile cases, such as the trial of Sam Bankman-Fried.
“I got burned,” Shim said, ripping down a sticker that read “We Accept Bitcoin” from his store window. Crypto fraud cost U.S. businesses $2.57 billion in 2022, 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 he could pay in USBT, referring to an Ethereum token, a type of cryptocurrency that is pegged to the U.S. dollar’s value. “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. “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 cryptocurrency payments because it is relatively new. Crypto is hard to trace and currently impossible to recoup if someone is the victim of fraud. Due to the risk involved, Shim told me that almost no one on the street will accept cryptocurrency today.
Last May, New York Attorney General Letitia James proposed a solution for New Yorkers: the Crypto Regulation, Protection, Transparency, and Oversight (CRPTO) Act, an attempt to rein in scams. Part of the proposal would require crypto exchange, the platforms on which people buy, sell, and trade cryptocurrencies, 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 since stalled and has yet to be implemented.
The Manhattan District Attorney’s office and Leticia James’ office did not respond to requests for comment.
The nature of the game in the diamond district is that “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.
Just this fall, five men were charged with using their business in the diamond district to illegally transmit more than $600 million. They allegedly moved the money from cash to checks or wire transfers, executing illegal financial transfers for customers, and are now facing up to five years in prison and at least a $250,000 fine.
“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 und baruch,’” Toback said. This phrase, Yiddish for “luck and blessing,” said with a handshake, signified a good faith business transaction. “Just a handshake, no papers, no nothing,” said Toback. “If you broke it once, phone calls were made,” he said, “and that’s it.” This phrase encapsulated the diamond district, a place where transactions were made on the basis of trust.
Toback saw the block change over the years, like everywhere in Manhattan. The traditional way of doing business is still present in the diamond districts, Toback said, but not for everybody.
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.”