Alfred "Avi" Taub, 29, of Brooklyn was ordered held on $100,000 bond on charges of grand larceny and insurance fraud, the New York Post reported Wednesday.
Police arrested Taub outside his apartment after allegedly finding some of diamonds he reported stolen to an insurance company.
Last year Taub, his brother, Oren, and his father, Shalom, were the subject of a civil suit by 45 diamond dealers who accused the trio of running off with dozens of diamonds they had been given on consignment.
The Taubs acted as middlemen for the diamond wholesalers until one day when their storefront operation vanished, the Post said.
Taub reportedly told police and the insurance company that he'd been robbed of $1 million in diamonds while visiting jewelry stores on Canal Street.