Kalisch himself somehow escaped arrest. He called Mayra and initially told her he couldn't return because of business delays, but finally admitted there had been arrests, she testified.

"He hadn't been arrested, but he was nervous to leave the country," she testified. "I was kind of sick, you know, and nervous."

He went into hiding in Brazil for several weeks, fearing both arrest and for his life, court records show. He finally slipped out of the country and returned to New York. The diamond shipment that he had flown to Brazil to collect had disappeared. It was another huge setback, but, initially, he hid word of the arrests from Maple Trade.

Garimpeiros at work, photographed from a federal police helicopter in 2004.
Garimpeiros at work, photographed from a federal police helicopter in 2004.

Then the venture finally fell apart. On April 7, 2004, a Cinta Larga band attacked a large group of prospectors with firearms, clubs, spears, and arrows. At least 29 garimpeiros were massacred, many of whom appeared to have been tortured or mutilated and buried in shallow graves. Some of the victims had their stomachs sliced open.

Authorities charged 28 Indians in connection with the attack, but the case has dragged on for years over the question of whether the semiautonomous indigenous people should be bound to Brazilian law.

Shawn Gerald Blore, a journalist who has written extensively about diamond smuggling and the Cinta Larga, reported in 2004 that right before the attack, a miner was overheard threatening to shoot Indians. Three days after the attack, miners dragged a Cinta Larga teacher, tied him to a post, and threatened to kill him. Not long after that, miners fatally shot a 14-year-old Indian youth.

Blore alleges in the article that Cassol, the governor of Rondônia, was involved in illegal diamond mining, along with the mayor of Espigão d'Oeste, the hard-edged boomtown nearest to the Cinta Larga lands.

Blore says Cassol promised to improve the roads, schools, and clinics in exchange for moving 20 diamond-extracting machines onto the reservation. When the Indians refused, he pulled the roadblocks and allowed the miners back on the land, sparking the conflict, Blore says.

A Cinta Larga chief told the Associated Press days after the killings that some members of the tribe were furious that the miners had ignored their demands that they leave the reservation.

"We told them we didn't want them here, and they kept coming back," the chief said. He went on to deny any link to the incident, but said, "We are warriors."

After the massacre, Kalisch finally told Janovich about the arrests that had happened earlier. Janovich warned him not to mention it to Culver. But after the killings, and the ensuing international media coverage, Kalisch felt he could no longer hide the truth. Some—including a bankruptcy court judge who looked into the matter later—believed that Kalisch's mining operation helped trigger the mass killings, which was reported internationally.

"There's no way to keep a lid on this any longer," Kalisch told Janovich.

Even so, Maple Trade subsequently advanced Kalisch another $500,000, including $150,000 to pay off Janovich's bridge loan.

It was not long after that the company declared Kalisch in default of the loans, and moved to seize the couple's East 12th Street apartment. The diamond mining, the bribes, and the horrible massacre of the garimpeiros had finally come home to roost in the lovely million-dollar East Village domicile.

The Kalisches declared bankruptcy. Their filing listed $2 million in debts. And so began the years of litigation that wound its way through five New York courthouses.

In 2005, Mayra Kalisch sued in state court, arguing that Maple Trade shouldn't receive the fruits of an illegal venture, and sought a court injunction against the seizing of the apartment. But a state judge dismissed the lawsuit, and a higher state court dismissed their appeal. The conflict over diamonds moved to the federal bankruptcy court.

In July 2008, the bankruptcy trial took place in the august Custom House building in the Financial District. Once again, the issue was whether Maple Trade was aware of the illegal nature of the Kalisch venture.

Kalisch was in a tricky situation: He knew that the only way to hold on to his apartment was to argue that what he had leveraged it for was a highly unlawful enterprise—and one Maple Trade should have known was illegal when it lent him the money to engage in it.

In essence, instead of arguing that he should not be punished because his intentions were good, Kalisch needed to argue that he should not be punished because his intentions were completely dishonest.

An astonished Judge James M. Peck was clearly struck by the irregularities of the case: "It is hard to imagine that any rational witness under these circumstances would make up something so personally incriminating if it were not mostly the truth," he would write later.

When Culver took the stand, he admitted he had been aware that the venture was acquiring diamonds from "indigenous people." But he denied he knew that trading with the Indians without government approval was illegal. He also testified that he did not personally make an effort to check whether the scheme was legal.

"We were not financing an illegal diamond venture," Culver testified. "Our interest was to finance a diamond importer and hopefully make a substantial yield out of it."

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