Police said Yakov Arabov, known throughout the hip-hop world as Jacob Arabo or "Jacob the Jeweler," was connected to a multistate drug and money-laundering ring.
Arabov, who appeared briefly in U.S. District Court in Manhattan after his arrest, did not want to comment, said his lawyer, Daniel Gotlin.
"It's been a difficult enough day for what they did to him," Gotlin said, declining to comment further. Bail was set for Arabov at $100,000, which the Russian immigrant immediately had paid.
The 41-year-old Arabov, who first came to fame in the mid-1990s as hip-hop and R&B artists started sporting his gem-encrusted pieces — was arrested at 8:30 a.m. on a warrant issued in Detroit by federal authorities.
The authorities have charged him with conspiring with others to launder money in connection with a jewelry business.
Drug Enforcement Administration spokeswoman Erin Mulvey said the arrest occurred at Arabov's midtown Manhattan store.
Paul Wilmot, a spokesman for Jacob & Co., said the arrest was "the result of an unfortunate misunderstanding that we believe will be straightened out in the next several weeks."
He added, "We are confident that once the government is advised of all the facts surrounding these issues that all of the charges against Mr. Arabov will be completely dismissed."
Arabov was identified along with the alias, "Jacob the Jeweler," in an indictment charging some of 16 people with breaking federal drug laws, included conspiracy to distribute more than 476 kilograms of cocaine and laundering about $270 million, Detroit U.S. Attorney Stephen J. Murphy announced Thursday.
Federal authorities say those indicted are connected to a drug organization called the "Black Mafia Family." The gang dealt cocaine in the Detroit metropolitan area beginning in the early 1990's, extending across the country.
Between October 1997 and June 2005, authorities said they seized approximately $5 million in cash from the gang, which used the drug money to purchase and lease luxury vehicles, buy real estate and jewelry.
Arabov became popular among hip-hop and R&B artists in the mid-1990s after he attracted the attention of Notorious B.I.G., according to the Jacob & Co. Web site. Sean "Diddy" Combs, Madonna and Sir Elton John have all worn his baubles.
Arabov launched a line of religious-themed jewelery with Kanye West, who later named him in songs including "Diamonds From Sierra Leone," in which he asked, "These ain't conflict diamonds, is they Jacob? Don't lie to me man."
He also manufactured Lil' Kim's line of Royalty watches and was recently named the jewelry trendsetter of the year by Modern Bride magazine.