Merrill Lynch has raised brows recently by seeking business in untraditional areas. It financed United Artists to the tune of $500 million to produce the Tom Cruise movie "Valkyrie." It also lent money to the Ranch, a winery in Napa Valley. It thought it had latched onto a can't miss project when it met Ralph Esmerian, a jewelry dealer and art collector.

According to Fortune, in a deal code-named "Project Nile," Merrill decided to lend Esmerian $176 million, payable over three years. The project went south almost immediately, and ended up with suits and countersuits and rare jewels being carted away as seized collateral on loans gone bad. A tough tale, one that has burned Merrill Lynch but also one that has been overshadowed by the company's larger issues. 

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