Diamonds may have been long known as a girl's best friend, but fraudsters seem to be the new paramours of this glitzy substance and multiple regulators are probing this nexus after a state-run bank got defrauded of USD 1.8 billion by designer jeweller Nirav Modi.
Capital markets watchdog Sebi is looking into the trade details and various suspected violations by Modi-linked entities, including another jewellery major Gitanjali Gems of Mehul Choksi. Also under the scanner is a suspected nexus between the diamond traders and stock market brokers, a senior official said.
The banking regulator is conducting supervisory assessment of Punjab National Bank, while all banks have beefed up their vigil on all clients linked to diamond and jewellery trade.
Besides, the Corporate Affairs Ministry is looking into the filings of all registered companies and directors associated with Modi and Choksi, which run into dozens. Besides, the ministry has identified 150 shell companies for investigations.
There are at least four registered companies and four LLPs in India where Modi is a director, though he does not hold directorship at many of the entities supposed to be associated with him including some bearing his own name.
The companies where Modi is a director include Firestar Diamond Pvt Ltd, Firestar Diamond International Pvt Ltd, Radhashir Jewelry Company and Jewelry Solutions International.
The four Limited Liability Partnership firms with his direct association include Panchajanya Diamonds LLP, Neeshal Enterprises LLP, Paragon Jewellery LLP and Paragon Merchandising.
The state-run bank alleged that Modi fraudulently acquired PNB guarantees, which they later used to obtain loans from overseas.
Interestingly, this is not the only case where diamond traders have been found to be associated with fraudulent and other manipulative activities and Sebi is probing several others for various stock market-related irregularities.
Besides, several high profile loan default cases that have come to light in recent past have been found to be linked to the diamond trade, even as banks are supposed to exercise extra caution in case of loans to such sectors.
Diamond trade has also been often found to be a preferred route for money laundering like activities as the valuation process for such commodities is often very complex and prone to manipulations.
The high-profile designer is the founder of the Nirav Modi chain of diamond jewellery retail stores. Modi had figured in the Forbes' list of richest Indian with a net worth of USD 1.7 billion.
Several film stars including Kate Winslet, Priyanka Chopra, Kareena Kapoor, Alia Bhatt and Shilpa Shetty have donned jewels made by Modi, as per the information available with his website.