Picture this: A group of corrupt banks get together with several similarly corrupt brokers and other parties, and collude to convince the investing public that a given asset is not only a "safe" investment, but that it's also worth far more than investors would ever be willing to pay under ideal market circumstances. They accomplish this by colluding to tightly control the flow of information and capital underpinning said market.

No, we're not talking about the pernicious marketing of mortgage bonds during the run-up to the financial crisis, though the fraud at the center of one of Europe's more colorful banking scandals appeared to be just as ruthless, according to a Reuters story about a long-running investigation into a "diamond cartel" set up by several Italian banks and diamond brokers.

At least five Italian banks, and two diamond brokers, have had assets seized in connection with the investigation into fraud, money laundering and other allegations. The entities at the center of the investigation could face greater fines and risk forfeiting seized assets.

The Reuters story offered probably the most comprehensive glimpse yet at a scandal that has been raging since at least 2016.

In a long-running scandal in a sector already tarnished by controversy, Italy’s biggest banks are suspected of colluding with diamond brokers to scam their own customers - allegedly selling them diamonds at vastly inflated prices while marketing them as sound financial investments. All of the banks, along with a Banco BPM subsidiary, Banca Aletti, are suspected of fraud and money-laundering for using the proceeds to boost profits, according to allegations laid out in the documents used for the seizure order. Prosecutors also allege that UniCredit and Banco BPM worked out a deal with IDB where, in return for the banks selling IDB’s diamonds, the broker would channel money into their stock, boosting their share capital at a time when it was under pressure from a rising tide of bad debts. Under Italian law it is deemed to be corruption when one party abuses its commercial position to induce the counter-party to provide it with favors - in this case, the alleged purchase of shares. The IDB officials involved are also under investigation. According to a criminal lawyer when asked by Reuters, under Italian law, if the banks are charged and convicted, they could be fined millions of euros, risk forfeiting the total of 161 million euros seized from them in February and could even be temporarily suspended from operating by court order.

In Italy, banks have been selling diamonds on behalf of brokers since the 1980s, but they ramped up that business after the global financial crisis, according to prosecutors, when a deep recession left them saddled with soured loans, and a desperate need for more revenue to offset these costs.

Over the last 20 years, more than 100,000 people are estimated to have bought diamonds at Italian banks.

Milan prosecutors believe the banks - which include UniCredit (Italy's largest bank by assest), and another bank called Banco BPM - teamed up with brokers to sell the stones in blister packs to bank customers, often at more than double their market value, making tens of millions of euros each in commissions. The diamond brokers, meanwhile, made hundreds of millions of euros on the scheme.

Some of the banks have started offering to repurchase the diamonds at the price buyers initially paid, though not all of instituted such a policy.

While we acknowledge that the scheme described above certainly sounds bad, as one Twitter wit pointed out, are these lies and distortions really any worse than selling Italian government bonds?