On Oct. 9, the U.S. Trustee overseeing the Samuels Jewelers bankruptcy case appointed an examiner to scour through the retailer’s books—and it’s the same person that examined Firestar Diamonds’ books in its Chapter 11 case.
John J. Carney, a partner in law firm Baker & Hostetler and former head of the securities fraud division of the U.S. Securities and Exchange Commission, has 120 days to determine if any executive at Samuels played a role in the alleged bank fraud perpetrated by Samuels’ former owner Gitanjali Gems and Gitanjali chairman Mehul Choksi.
Samuels Jewelers filed for Chapter 11 on Aug. 7, in part because of the allegations against Gitanjali, which has owned the retailer since 2007. Samuels has retained an investment bank to seek a going-concern buyer.
In a filing, the company’s board of directors said that it “welcome[d] any investigation” of its accounts and said it’s taken a “transparent [and] proactive” approach to any allegations that have arisen.
Punjab National Bank (PNB), which claims to have been defrauded by Choksi—although it’s not listed as a creditor in the Samuels case—first requested the examiner in August, and its request was soon endorsed by the case’s U.S. Trustee.
However, unlike the Firestar case, where the examiner’s appointment raised no significant opposition, both Samuels and its unsecured creditors’ committee tried to shoot the idea down, with the creditors’ committee arguing that it had already appointed someone to comb through the company’s books.
In response, the U.S. Trustee and PNB asserted it would be in all parties’ interests to have “an independent third party” look at the company, and presiding Judge Kevin J. Carey approved their motion earlier this month.
Bankruptcy specialist Seth Freeman, senior managing director of GlassRatner, tells JCK the appointment makes sense.
“There was no way the newly formed Samuels unsecured creditors committee could efficiently nor effectively undertake an investigation of such a complex cross-border fraud case like this,” he says. “[Carney’s team] is already very knowledgeable of the underlying mechanics of the [alleged] Firestar-PNB fraud. Facts are different in Samuels, but they can connect the dots between Choksi, Gitanjali, and Samuels and [any] PNB- related transactions better and faster than a committee.”
In the Firestar bankruptcy—which included related companies Fantasy Inc. and A. Jaffe—Carney issued a 169-page report alleging that certain executives of the companies, who have since resigned, helped the companies’ owner Nirav Modi with a purported scheme to defraud PNB and other Indian banks. (Through his lawyer, Modi, who is Choksi’s nephew, has denied the charges.)
Carney also alleged he had found evidence of “suspicious [money] transfers” to retailer Bailey Banks & Biddle. The retailer, considered one of the oldest jewelers in the United States, is currently owned by Twin Field Investments, which Carney links in his report to associates of Modi.
Bailey Banks could not be reached for comment, and executives did not respond to JCK’s inquiries.
Since Firestar, A. Jaffe, and Fantasy Inc. filed for bankruptcy on Feb. 26, the Chapter 11 trustee has been selling off their assets. A. Jaffe was purchased by Paramount Gems in July, and in a statement, the brand said it has no affiliation with its predecessor and was eager to put the past behind it.
“Please be assured that A. Jaffe will provide uninterrupted service and delivery of the quality product you expect from the brand in the near term and for many years ahead,” stated Parag Jain, CEO of Paramount Gems, in a statement. “A. Jaffe has the same team in New York and has retained all the A. Jaffe artisans. The key heads of departments, all of whom have been an integral part of the leadership team for over a decade, …remain to lead their existing teams.”
A. Jaffe is currently headed by chairman Samuel Samberg and CEO Sumay Bhansali. Sumay Bhansali is no relation to Mihir Bhansali, the former director of the three companies who was singled out in the examiner’s report. Mihir Bhansali “categorically rejects” any charges of wrongdoing, according to a note from his attorney appended to the report.
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