Did 'Bling King' Wash Dirty Diamond Dollars?

June 19, 2006 — -- Can you deal with gangsters without becoming one yourself?

Last Thursday Jacob Arabov -- also known as Jacob the Jeweler -- was arrested on accusations of money laundering on a warrant issued by federal authorities in Detroit. Arabov, celebrity supplier of jewelry whose clients include Madonna, 50 Cent and Rudolph Giuliani, was famous for large pieces of "bling" or "ice" -- slang terms for diamonds often used in large, loud medallions.

Court documents allege that Arabov "facilitated the purchase of jewelry utilizing drug proceeds … to conceal the true source, nature and ownership of the funds." Federal prosecutors believe he knowingly accepted drug money for his famously extravagant jeweled pieces.

"He's going to fight the case," Howard Jaffe, a defense lawyer representing Arabov, told ABC News.

Others named in the indictment -- men identified by nicknames that include "C Bear," "Southwest T " and "B-Smooth" -- are charged with conspiracy to distribute cocaine. According to the indictment, they used drug money to buy jewelry, luxury cars and winning lottery tickets.

The accused are part of the "Black Mafia Family," a nationwide crime ring based in Detroit that has been linked to the hip-hop music industry. In 2005, Drug Enforcement Agency officials arrested 30 members of BMF, seizing $3 million in cash and 2½ kilograms of cocaine. A 1.8 carat diamond Jacob & Co. watch and a custom-made Jacob & Co. necklace with 224 Asscher-cut diamonds were among the 27 jewelry items seized by authorities from BMF members.

Arabov's defense lawyer said Arabov was willing to cooperate with authorities, and that his arrest was an attempt to humiliate him

"We believe that the government is doing this as an attempt to embarrass him," Jaffe said. "They could have just called him and he would have shown up."

It's unclear what laws Arabov may have violated to prompt last week's charges. Since the Sept 11, 2001, attacks, anti-money-laundering laws and industry standards have been tightened, largely to prevent the flow of terrorism dollars through the jewelry trade.