New Delhi: Three American firms indirectly controlled by Nirav Modi may have used money made from the Punjab National Bank scam to help finalise the purchase of two apartments in New York for the diamond merchant’s wife and family, just months before the scandal became public in India.

These findings, and more, of how Nirav Modi’s operations in the US helped put together the massive Rs 13,500 crore bank fraud come from a bankruptcy examiner report submitted this week to the United States Bankruptcy Court in the Southern District of New York.

The three companies in question – Firestar Diamond Inc (FDI), A Jaffe Inc and Fantasy Inc – filed for Chapter 11 bankruptcy protection in the US after the scandal came to light in India in late January 2018.

However, the New York court appointed an examiner (John J Carney) to determine “the extent, if any, of the Modi conspirator’s influence on the debtors [the three American firms]”.

There appears to be “substantial evidence to support the knowledge and involvement by the debtors, and their senior officers and directors, namely Mihir Bhansali and Ajay Gandhi, in the criminal conduct alleged by Indian authorities”, the examiner concluded.

In particular, the report notes that Ajay Gandhi, who has denied all allegations, apparently assisted Nirav Modi in using the American firms’ funds in “connection with large real estate purchases shortly before the fraud charges were brought in India [emphasis added].”

Also, money from what the bankruptcy examiner calls “shadow entities’ – a group of Middle Eastern and East Asian shell companies that were used for round-tripping as part of the letter of undertaking (LoU) fraud – was used to “purchase an approximately $6 million apartment on Central Park South for the sole use of Modi and his family in the US”

“Gandhi assisted Modi by paying approximately $3 million from FDI to pay off an HSBC mortgage to transfer an apartment valued at approximately $6 million from a Firestar affiliate to a trust established by his sister for the benefit of Modi and his family,” the report notes.

How did it work?

The report shows that in the run-up to the Punjab National Bank scam coming to light – which happened in the last week of January 2018 – two apartments were either bought or their mortgage paid off.

The ownership of both flats was then eventually transferred to a revocable trust called the Ithaca Trust, which was established in August 2017. The beneficiaries of the trust were Nirav Modi’s wife and his three children while the settlor was Purvi Mehta (Nirav Modi’s sister)

Essex House – 160 Central Park South

Nirav Modi’s personal residence in New York has long been an apartment at Essex House, located at 160 Central Park South. While it was purchased through a company that was part of the Firestar diamond empire in 2007, it was transferred to the Ithaca trust only in January 2018.

“In January 2018, approximately one month before the filing of the Chapter 11 cases, the property was transferred to a trust outside of the Firestar corporate structure. The beneficiaries of the trust were Modi and his wife and children,” the report notes.

“Because of the timing of this insider transaction so close in time to the bankruptcy filing, the backdrop of this fraud-related case, and the ease of using luxury real estate as a means to launder money, the Examiner views the ownership of the apartment and subsequent sale in January 2018 as suspect,” it adds.

When the Essex House apartment was bought for $5 million in 2007, it was purchased through a limited liability company (LLC) called CPRE. This LLC had taken out a $3 million mortgage from HSBC to finance the deal.

The examiner report quotes an email from Ajay Gandhi to Nirav Modi, which allegedly notes that the remaining $2 million was financed by Brilliant Diamonds (a ‘shadow entity’) and Firestar Diamond Inc (FDI).

While the mortgage was slowly paid off over the intervening years, it was only December 2017 that Nirav Modi suddenly decided to pay off the full loan and transfer ownership to his wife.

The examiner’s report describes an email sent from Ajay Gandhi to Nirav Modi on December 5, 2017, which laid out three options by which ownership of the Essex House apartment could be transferred. According to the report, “Modi told Gandhi to pay off the HSBC mortgage that day”.

“In 2017, Gandhi emailed Modi that HSBC, as the mortgage holder, needed more information on the ownership structure of CPRE. Gandhi stated that he “avoided giving these [sic] information and told them that we may do restructuring of Central Park and may change ownership etc.”,” the report notes.

The transfer of ownership from CPRE to the Ithaca Trust was initiated on December 29, 2017 – a month before the PNB scam broke and three weeks before Nirav Modi went to Davos to be part of the Indian CEO summit meeting with Prime Minister Narendra Modi.

“On December 29, 2017, The Ithaca Trust agreed to purchase CPRE, the owner of the Essex House Apartment, for $6 million pursuant to a Membership Interest Purchase Agreement.503 Ajay Gandhi, as the CFO of CPRE, signed the agreement,” the report notes.

“Purvi Modi transferred $6 million to the Commonwealth Trust Company on January 2, 2018.504 The funds came from Purvi Modi’s account at the Bank of Singapore Limited.5 An email dated December 8, 2017 from Immeke Smith to Purvi Modi confirms that transfer came from Purvi Modi as settlor of The Ithaca Trust. On January 2, 2018, the Ithaca Trust wired $6 million to Firestar Group, Inc.’s HSBC account to for the purchase of CPRE,” it adds.

Indian lawyers helped complete Ritz Carlton apartment

The examiner report also traces the history of another real-estate transaction. According to the report, the funds for an apartment “located in the Ritz Carlton residents at 50 Central Park South” came from another LLC – Central Park South Properties, which was owned by The Ithaca Trust.

Strangely, the report notes that this apartment, which was bought in September 7, 2017, was “purchased for $25 million in cash”(emphasis added).

According to the banking examiner, the money came through a complex series of bank transfers which were done through HSBC while “lawyers in India were used to complete the purchase”.

The details of the Ritz Carlton purchase apparently came from an interview the examiner conducted with one Rahul Echeverz, Nirav Modi’s designer.

“According to an interview of Raul Echeverz, Nirav Modi’s designer, the purchase of the apartment was Modi’s decision and was to be for his personal use. Modi used lawyers in India to complete the purchase. On January 18, 2018, Purvi Mehta made an additional $1 million transfer to the Commonwealth Trust Corporation for the Ithaca Trust. The funds were then sent to Central Park South 50 Properties LLC. The purpose of the transfer is unknown,” it states.

While both Mihir Bhansali and Ajay Gandhi have denied the allegations made by Punjab National Bank, Bhansali also disagrees with the findings of the examiner’s report. The report includes a letter from Bhansali’s lawyers to this effect.

With the examiner’s report now submitted, the court will have to decide how to move forward with the bankruptcy proceedings of the three American firms.