File image of Nirav Modi. 

Nirav Modi-Linked U.S. Firms Tied to India Fraud by Examiner

(Bloomberg) -- Three bankrupt U.S. companies with links to Indian billionaire Nirav Modi were “directly involved” in transactions related to the alleged multibillion-dollar international fraud for which Modi has been charged by Indian authorities, according to an investigation by the court-appointed examiner.

The examiner, John J. Carney, found “substantial evidence” that senior officers and directors at Firestar Diamond Inc., A. Jaffe Inc. and Fantasy Inc. had knowledge of and involvement in the criminal conduct alleged by Indian officials.

Nirav Modi-Linked U.S. Firms Tied to India Fraud by Examiner

The “intensive” 120-day investigation found substantial evidence to support the conclusion by Indian officials that the companies and their top officials were involved in the activities, according to the report that was filed Saturday. The Examiner has identified tens of millions of dollars of purported diamond sales by the debtors to various shadow entities, where payment can be traced to proceeds from the alleged bank fraud, it said.

The findings of the examiner in the U.S. court will likely bolster the Indian government’s case against the fugitive diamond merchant. U.K. authorities have confirmed to India that Modi has been located in the U.K. and British officials have asked India for documents necessary to make a provisional arrest, India Today TV reported Aug. 23.

The U.S. court examiner also determined it is “highly likely” that Firestar and A. Jaffe Chief Executive Officer Mihir Bhansali and Chief Financial Officer Ajay Gandhi were involved in assisting in the transactions necessary to the alleged fraud.

Documentary and witness evidence suggest that Bhansali was a key participant in the alleged fraudulent circumstances and worked closely with Modi to accomplish its execution, the report said. His involvement was not limited to control of the debtors and other U.S. Firestar entities but extended to oversight of the shadow entities, Firestar overseas affiliates and the Modi firms, it added.

A letter by Bhansali’s counsel before the release of the report rejected allegations that he engaged in any criminal wrongdoing. During the investigation, Gandhi provided documents and participated in multiple interviews, admitting that at some point he was told by Firestar India employees that the purpose of the loose diamond transactions was to obtain financing in India, specifically letters of undertakings, a popular import-finance instrument in India, which was used to perpetrate the alleged fraud.

The trustee in the bankruptcy case, Richard Levin, in a statement Sunday praised the “hard work” of the examiner and said the report will be reviewed “in depth to determine what action is warranted.”

Emails to representatives of Firestar and A. Jaffe and a lawyer for Bhansali weren’t answered.

The three companies sell jewelry to major retailers including Costco Wholesale Corp., J.C. Penny Co., Army/Navy Stores, Macy’s Inc. and Zale Corp., among others, it said.

Indian authorities and Punjab National Bank lodged a complaint in January against Modi and entities controlled by him, alleging that he and his co-conspirators fraudulently borrowed $4 billion over years by creating sham transactions as a way to import diamonds and other gems into India, the report said.

The biggest bank fraud in India also has generated political heat for Prime Minister Narendra Modi, with the opposition pouncing on the issue ahead of the 2019 general elections. It also led to the central bank banning use of the letter of undertaking.

Firestar previously said it wasn’t linked to allegations of fraud and Modi has denied wrongdoing.

©2018 Bloomberg L.P.