US Firms Aided $4B Modi Fraud, Probe Finds

RAPAPORT... Nirav Modi's US jewelry businesses were directly involved inthe Indian fugitive's alleged billion-dollar bank fraud, a court examiner hasconcluded.Mihir Bhansali, the CEO of Firestar Diamond, Fantasy and A.Jaffe, as well as Ajay Gandhi, their chief financial officer, assisted at leastpartly in transactions necessary for the fraud to succeed, the report claimed Saturday."In addition to conducting their stated wholesale business,the debtors conducted transactions totaling hundreds of millions of dollars, with the foreign shell companies alleged to have been created and secretlycontrolled by Modi for the purpose of furthering the fraudulent bankingscheme," the examiner said. "These transactions were primarily structured aspurchases and sales of loose diamonds, at a volume and in a manner that is notconsistent with the stated business of the debtors." The US bankruptcy court for the Southern District of New Yorkappointed an examiner in April to assess whether the three companies - whichfiled for chapter 11 in February - had participated in the alleged scheme byModi to borrow $4 billion through sham transactions, the document continued. Previous reports had estimated the fraud at $2 billion.Following a 120-dayinvestigation, the examiner, John Carney, said he found "substantial evidence"that the firms, as well as Bhansali and Gandhi, knew about and were involved inthe alleged crimes that occurred in India. Indian authorities are hunting for Modi, who is currently inthe UK, according to reports. In his 165-page report, Carney identified "tens of millionsof dollars of purported diamond sales by the debtors to various shadowentities, where payment can be traced to proceeds from the alleged bank fraud."Money from these deals flowed from India to the US, and often returned toFirestar in India or went to fund the three US companies' operations, includingfor payments on loans from US banks. Diamonds that these "shadow entities" bought or soldroutinely went for shipping on the same day or within days of arriving, withoutemployees even opening them for inspection, the report alleges. Certainhigh-value diamonds were the subject of "round-tripping," meaning they werebought and sold multiple times at varying prices, often well above marketrates. That gave the false appearance of millions of dollars in legitimatetransactions, and facilitated the movement of funds, Carney said. In addition, Firestar's reported sales in tax returns from2011 to 2017 - and A. Jaffe's from 2011 to 2012 - were millions of dollars, andsometimes tens of millions of dollars, lower than the companies' records insales journals. Neither their CFO nor any of their employees could explain the origin of the figures in the tax returns, the report added. Millions of dollars from the "shadow entities" also wentthrough the three US companies to fund the operations of jewelry retailerBailey, Banks & Biddle, the examiner's report alleged. That company did notimmediately respond to Rapaport News' request for comment. Throughout the investigation, Bhansali declined to answerthe examiner's questions other than to confirm his identity, asserting hisFifth Amendment right not to incriminate himself. Gandhi admitted "at some point"that Firestar India employees had told him that the purpose of the loose-diamondtransactions was to obtain financing in India, specifically letters of undertaking(LoUs). LoUs are the type of bank guarantee that Modi allegedly obtainedfraudulently. The companies had claimed they were "innocent victims of thefraud," Carney noted. In a court declaration shortly after their Chapter 11filing, Bhansali said the Modi allegations had hit the firms' supply chains andback-office support, significantly damaging their ability to operate.In a letter last Wednesday, Bhansali's lawyer rejectedallegations the executive "engaged in any criminal wrongdoing," and warned theexaminer not to view his client's silence as an admission of guilt.