What it boils down to is the amount of diamond you had was outlandish at best. You had 2 stacks of diamond blocks and 2 stacks of raw diamonds. Now, since you've never mined a diamond block yet on this server, you understand how rare they are. Also, based on the fact you traded ALL THAT DIAMOND for some iron (which you were able to obtain on your own), you know how common iron can be. I'm sure at some point you had to relay this information of this trade with your friend atomic and he was like "NO WAY BRO! Probably duped, but you didn't cheat to get it!"
Now, mind you, thats all hearsay. However, clearing your inventory is letting you off light, I could have simply banned. However, atomicnapalm spoke up for you so I simply cleared the inventory (once again, never mined a diamond so I made a decision that the tools were not obtained legitimately either).
Also, for arguements sake, with the amount of time atomic has put into saying how much he hates me, starting threads, spamming other mods while they're online to complain about my methods, he could have dug up 4 new diamonds to make you new tools.
To Atomic: I'm sorry if you feel wronged, but I handled the situation correct as far as I've been instructed to handle my business while on the server. I spoke to you in a civil fashion, didn't ban per your request because you're a decent guy on the server, and had you speak with someone above me to get the situation handled in a way you felt was right, or for them to validate my methodology. Please try to move on. Not saying move onto a new server, but start mining, replacing what was lost. You both learned a lesson on this one.