The former boss of Kimberley Diamonds, Alexandre Alexander, is facing jail and a hefty fine for allegedly misleading the stock market.
He is accused of authorising false and misleading statements about Kimberley's earnings forecasts to the Australian Securities Exchange between October 2013 and March 2014.
Commonwealth prosecutors allege Kimberley failed to disclose that its forecasts were based on assumptions it would obtain a 30 per cent price rise for its rare yellow diamonds.
In a statement to investors in May 2014, Kimberley said it had failed to secure higher prices during talks with a subsidiary of the famous US jeweller Tiffany & Co.
As a result, Kimberley slashed its earnings forecast for the final quarter of the 2014 financial year from $7.5 million to $1.5 million.
The price of Kimberley's shares plunged 41.5 per cent.
Mr Alexander was arrested on Wednesday following an investigation by the Australian Securities and Investments Commission.
Australian Federal Police officers arrested him at Sydney Airport as he returned from an overseas trip.
He faced Central Local Court via video link charged with four offences under the Corporations Act.
Each charge carries a maximum penalty of five years jail or a $34,000 fine.
Mr Alexander was granted bail and ordered to reappear at Sydney's Downing Centre on November 10.
Kimberley Diamonds, which was one of the world's largest producers of precious yellow diamonds, shuttered its Ellendale Diamond Mine in north Western Australia in July.
The company's subsidiary Kimberley Diamond Company was placed into administration, resulting in dozens of job losses.
The company has previously said the Ellendale project is the world's leading source of rare yellow diamonds and makes up around 50 per cent of the world's supply.
Diamonds were first discovered at the Ellendale Diamond Field in the west Kimberley 38 years ago.
Shares in Kimberley Diamonds closed 1.9 cents, or 23.75 per cent, lower at 6.1 cents.
The company late on Wednesday issued a brief statement, saying it had been informed by Mr Alexander that he denies the allegations and will fight all charges.
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