$2-billion PNB scam: Mehul Choksi's US co Samuel Jewelers opposes probe plan

Mehul Choksi-controlled Samuel Jewelers is opposing fraud-hit Punjab National Bank’s (PNB’s) proposal for an appointment of an examiner to probe the case, which is believed to be linked to the over $2-billion bank fraud in India.

This comes days after a separate US examiner probe turned up crucial evidence linking Nirav Modi’s American jewellery firms to the alleged fraud. PNB and the US Trustee both want a US court-appointed examiner to probe, among other things, the nature and extent of any involvement of Samuels Jeweler’s executives in the fraud.

PNB is not a creditor of Samuels Jewelers but PNB seeks party-in-interest status, which is yet to be established. PNB believes that Choksi’s company has significant similarities and connections to Modi’s Firestar Diamond and two other US firms (A Jaffe and Fantasy).

The Modi-controlled three US firms have been found to have conducted transactions worth hundreds of millions of dollars with shadow entities allegedly for the purpose of furthering the fraudulent banking scheme. Interestingly, Modi’s firms had earlier denied any involvement in the fraud.

However, the US examiner, (a former department of justice securities fraud chief John Carney), in a 170-page report, concluded that the Modi firms were directly involved in the fraud, and it is highly likely that the CEO and CFO were involved, at least in some part.

On August 7, Samuels Jewelers filed for bankruptcy protection. On August 27, PNB, as the largest victim of that fraud, sought the appointment of an examiner for Samuels Jewelers, which is a 100% subsidiary of Mehul Choksi’s Gitanjali Gems. Both Gitanjali and Choksi have been implicated in the bank fraud. US Trustee Andrew R Vara has also separately moved the court for an order directing the appointment of an examiner in the Samuels Jewelers case.

Samuels Jewelers through its attorneys has said a probe by the examiner will not be cost-effective. “The Debtor (Samuels Jewelers) does not oppose an appropriate investigation with respect to the fraud allegations described in the Motions.

In point of fact, the Debtor’s management has expressed strong support for such an investigation. However, the Debtor, following input from its key creditor constituencies, does not believe that an examiner is necessary or appropriate to conduct such an investigation. The appointment of an examiner will likely lead to significant additional costs and expenses, without clear incremental benefit to the estate,” the company told the US Bankruptcy Court District of Delaware in a September 7 filing.

In the Firestar Diamond case, the US examiner’s 128-day probe cost $1.6 million. A bankruptcy court has the authority to appoint an examiner on request of a party in interest.
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This is in order to investigate any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement or irregularity in the management of the affairs of the debtor by the current or former management of the debtor.

Source: DNA Money