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Investigation into $1.8B Jewelry Fraud Intensifies

Feb 21, 2018 11:14 AM   By Joshua Freedman
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RAPAPORT... Indian authorities have reportedly arrested five senior executives at Nirav Modi Group and Gitanjali Gems as investigations continue into a massive fraud case involving the two companies.

Punjab National Bank (PNB) has alleged the jewelers fraudulently obtained loans worth $1.8 billion (INR 113.94 billion), according to a complaint filed by the state bank last week. It describes how executives colluded with a PNB official over several years to obtain loans from foreign branches of Indian banks, avoiding official checks and without getting proper approvals.

The Central Bureau of Investigation (CBI) on Tuesday held three executives of Firestar International, a subsidiary of Nirav Modi, one from Nakshatra, which is a Gitanjali brand, as well as a manager at Gitanjali Group, The Times of India reported.

Nirav Modi, chairman of the brand that carries his name, and his uncle Mehul Choksi, managing director of Gitanjali, are currently out of the country, according to media reports.

Trade Impact

India’s Gem and Jewellery Export Promotion Council (GJEPC) blamed PNB for not carrying out the proper due diligence to prevent the alleged fraud, adding that the case doesn’t represent normal lending practice in the industry.

“When thousands of exporters undertake business lawfully, adhering to all norms and practices, prescribed very diligently, incidents of this kind can only take place due to non-adherence of procedures,” the council said in a statement over the weekend.

De Beers, which supplies rough diamonds to Gitanjali, declined to comment on the case directly, or to say whether the company would remain one of its sightholders. However, the miner added that it scrutinizes such cases closely, while its Best Practice Principles ensure it only retains clients whose behavior meets certain ethical standards.

“We take matters of financial probity extremely seriously, and investigate any issues that come to light as a matter of urgency,” a spokesperson for the rough producer told Rapaport News.

Alrosa did not respond to a request for comment on whether it would strip Firestar Diamond, a Nirav Modi company, of its membership in the Alrosa Alliance, a contract-sales arrangement for rough-diamond buyers.

Responses and Resignations

Both Nirav Modi and Gitanjali have contested the allegations. Modi disputed the amount he owed the lender, and, in a letter to PNB published in The Times of India on Monday, claimed that the bank’s eagerness to recover the money had destroyed his business.

“The erroneously cited liability resulted in a media frenzy, which led to immediate search and seizure of operations, and which in turn resulted in Firestar International and Firestar Diamond International effectively ceasing to be going concerns,” the newspaper cited the letter as saying.

Gitanjali’s management did not come across any such fraudulent activity, or find anything wrong, the group’s company secretary and compliance officer, Pankhuri Warange, said in a statement Monday. Warange resigned from his role, mentioning his “cluelessness” about the matter. Gitanjali’s CFO, Chandrakant Karkare, also resigned last week, citing his wife’s illness.

Gitanjali shares slumped more than 50% in the past week since the allegations surfaced. Nirav Modi is a private company.

Image: Sorbis/Shutterstock
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Tags: Alrosa Alliance, Best Practice Principles, CBI, Central Bureau of Investigation, Chandrakant Karkare, De Beers, Firestar, fraud, Gem and Jewellery Export Promotion Council, Gitanjali, Gitanjali Gems, Gitanjali Group, GJEPC, India, Jewelry, Joshua Freedman, Mehul Choksi, Nakshatra, Nirav Modi, Pankhuri Warange, PNB, Punjab National Bank, Rapaport News
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