Not just PNB, Mehul Choksi conned Wells Fargo, Gordon Brothers, too

It is not just Punjab National Bank (PNB) that was a victim of fraud. Fugitive businessman Mehul Choksi and an international web of co-conspirators used his US company Samuels Jewelers and a series of puppet vendors, including a psychologist, to fraudulently induce Samuels's primary lenders.

These findings paint a clear picture of the US-based bank fraud by Choksi and his henchmen who are already connected to the largest bank fraud in Indian history masterminded by Choksi's nephew Nirav Modi.

Texas-based Samuels Jewelers, which filed for bankruptcy proceedings in August last year, is already linked to the multi-billion dollar scam that involved fraudulently borrowing from Indian banks over a period of years using Letters of Undertaking (LoUs) and Foreign Letters of Credit (FLCs). A 30% owner and former chairman of Samuels and the parent Gitanjali group of companies, Choksi, now on the run, has been charged by Indian authorities for his role in the alleged multi-billion-dollar fraud on PNB.

In the case of Samuels and American lenders, Choksi and an international web of co-conspirators created the false appearance that Samuels was purchasing and/or selling jewellery to and from unrelated third-parties. In fact, Samuels and related entities were secretly selling inventory and laundering money among themselves at the direction of Choksi and individuals under his control, the examiner's report concluded.

"These disguised transactions accounted for approximately $121 million worth of reported purchases and sales. At least one primary goal of the deception was an apparent scheme to fraudulently induce Samuels's primary lenders, Wells Fargo and Gordon Brothers, to authorise tens of millions of dollars of credit line advances which were ultimately funneled outside the US to Choksi-controlled entities in India, Dubai and Hong Kong," examiner John J. Carney's report says.

Among the puppet vendors employed by Choksi was Exclusive Design Direct Inc (EDD) reflected in Samuels's records as one of its largest independent inventory suppliers. "...in reality (it was) a one-person front company run out of a psychologist's office in Sterling Heights, Michigan. No inventory was shipped from this vendor and Choksi and his co-conspirators issued tens of millions of dollars in invoices on EDD's behalf and caused tens of millions of dollars to be transferred from Samuels's bank accounts to EDD. The psychologist, who controlled the EDD bank account, was promised a 1% fee for laundering the money. Nearly 100% of these laundered funds have been traced back to Choksi controlled entities," the report said.

Many Choksi entities were Hong Kong companies established by Choksi to appear as if they were unaffiliated third parties, but were staffed by Gitanjali employees and run out of the offices of a Gitanjali affiliate.

During his investigation, the examiner also found that Samuels Jewelers purportedly independent jewellery grading laboratory was, in fact, an entity secretly controlled by Choksi. Disguised through a British Virgin Islands entity, Choksi owned 99.99% of Independent Gemological Laboratories, the diamond grading company that Samuels advertised to its customers as providing them with “independent” verification of merchandise's quality and value.

Investigating the truth of allegations of bank fraud in India was beyond the scope of the examiner's charge, the report said. Nonetheless, the investigation has revealed credible evidence consistent both with the occurrence of the fraud alleged and with the Samuels Jewelers' involvement and assistance with this fraud. The examiner was able to trace millions of dollars procured from the US lenders that Samuels transferred via puppet vendors to Choksi controlled entities and ultimately to repayment of FLCs in India.

Additionally, evidence gathered in the investigation by the US examiner confirms that Choksi and entities and individuals under his control influenced Samuels Jewelers prior to the Chapter 11 proceeding.