18-10509-shl Doc 1156 Filed 10/18/19 Entered 10/18/19 16

Hearing Date and Time: November 18, 2019 at 11:00 a.m. EDT

Response Deadline: November 11, 2019 JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK

In re: FIRESTAR DIAMOND, INC., et al.

Debtors.1

Chapter 11 No. 18-10509 (SHL) (Jointly Administered)

NOTICE OF TRUSTEE’S OBJECTION TO FILED

CLAIM OF SAUMIL DIAM LLC (FIRESTAR CLAIM NO. 35)

Richard Levin, not individually but as chapter 11 Trustee (the “Trustee”) for the bankruptcy estates of the Debtors in the above-captioned bankruptcy cases, has filed his Objection (the “Objection”) to the claim (“Claim”) filed by Saumil Diam LLC. The Objection seeks entry of an order (the “Proposed Order”), substantially in the form attached as Exhibit C to the Objection, disallowing the Claim in full.

Any response to the Objection must be filed with the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) not later than November 11, 2019, and served so as to be received by counsel for the Trustee at the following address: Carl Wedoff, Jenner & Block LLP, 919 Third Avenue, New York, New York 10022.

Any response to the Objection should contain the following:

1 The Debtors and the last four digits of their respective taxpayer identification numbers are as follows: Firestar Diamond, Inc. (2729), Fantasy, Inc. (1673), and Old AJ, Inc. f/k/a A. Jaffe, Inc. (4756).

18-10509-shl Doc 1156 Filed 10/18/19 Entered 10/18/19 16:47:56 Main Document Pg 1 of 21

2

a. the name of the claimant and description of the basis for the amount of the Claim;

b. a concise statement setting forth the reasons why the Claim should not be disallowed as requested by the Trustee in the Objection, including, but not limited to, the specific factual and legal bases upon which the claimant will rely in opposing the Objection;

c. all documentation or other evidence of the Claim upon which the claimant will rely in opposing the Objection;

d. the address(es) to which the Trustee must return any reply to the claimant’s response, if different from the address(es) presented in the Claim; and

e. the name, address, and telephone number of the person (which may be the claimant or the claimant’s legal representative) possessing the ultimate authority to reconcile, settle, or otherwise resolve the Claim on behalf of the claimant.

A hearing on the Objection will be held on November 18, 2019 at 11:00 a.m. EST before the Honorable Sean H. Lane, United States Bankruptcy Judge, in the United States Bankruptcy Court for the Southern District of New York, One Bowling Green, Courtroom 701, New York, NY 10004, or before any other judge who may be sitting in his place and stead.

THE COURT MAY GRANT THE RELIEF DEMANDED BY THE OBJECTION WITHOUT FURTHER NOTICE OR HEARING IF YOU FAIL TO RESPOND TO THE OBJECTION IN ACCORDANCE WITH THIS NOTICE.

(Signature page follows.)


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Dated: October 18, 2019 New York, New York Respectfully submitted,

JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) 353 N. Clark St. Chicago, Illinois 60654 (312) 222-9350 [email protected] Counsel for the Chapter 11 Trustee


Hearing Date and Time: November 18, 2019 at 11:00 a.m. EDT Response Deadline: November 11, 2019

JENNER & BLOCK LLP Marc Hankin Carl Wedoff 919 Third Avenue New York, New York 10022 (212) 891-1600 Angela Allen (admitted pro hac vice) 353 North Clark Street Chicago, Illinois 60654 (312) 222-9350 Counsel for the Chapter 11 Trustee UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK


Debtors.1


TRUSTEE’S OBJECTION TO FILED


Richard Levin, Chapter 11 Trustee (the “Trustee”) of the debtors in these chapter 11

cases (the “Debtors”), files this Objection under section 502 of the Bankruptcy Code, 11 U.S.C.

§§ 1011532, and Rule 3007 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy

Rules”), requesting that the claim (Firestar Claim No. 35) (the “Claim”) filed by Saumil Diam

LLC (“Saumil”) against Firestar Diamond, Inc. (“FDI” or “Firestar”) be disallowed in full. In

support of this Objection, the Trustee states:



2

JURISDICTION AND VENUE

1. This Court has jurisdiction over the Objection under 28 U.S.C. § 1334. This is a

core proceeding under 28 U.S.C. § 157(b). The Trustee consents to the entry of a final order by

this Court.

2. Venue is proper in this district under 28 U.S.C. § 1409.

3. This Objection is made under sections 105(a) and 502 of the Bankruptcy Code, 11

U.S.C. §§ 1011532, and Bankruptcy Rules 3007 and 9014.

BACKGROUND

4. On February 26, 2018, the Debtors filed petitions under chapter 11 in this Court.

On March 9, 2018, this Court entered an Order directing that the Debtors’ cases be jointly

administered. [Dkt. 24.]

5. On June 14, 2018, the United States Trustee for Region 2 appointed Richard Levin

as the trustee in the Debtors’ jointly administered cases [Dkt. 222], which this Court approved

the same day. [Dkt. 227.]

A. The Bank Fraud.

6. As detailed by (a) the Indian Central Bureau of Investigation; (b) the Directorate

of Enforcement, Ministry of Finance for the Department of Revenue of India; (c) the Indian

Ministry of Corporate Affairs; and (d) two recent rulings by the Indian Debt Recovery Tribunal,

and as supported by the Trustee’s own investigation, beginning no later than 2011 and

continuing into 2018, Nirav Modi orchestrated a fraudulent scheme to obtain approximately $4

billion in financing under false pretenses from financial institutions, including Punjab National

Bank (“PNB”), and to launder the proceeds through a global web of corporate entities, family

members, and co-conspirators (the “Bank Fraud”).


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7. The Bank Fraud involved the fraudulent procurement of letters of undertaking

(“LOU”), a financial instrument unique to India designed to facilitate efficient import

transactions. When used legitimately, LOUs allow an importer to forego the expense an

importer would otherwise incur by borrowing Indian currency and then converting it to a

foreign currency to pay foreign suppliers. Instead, the importer obtains short-term credit from

its bank in India, secured by invoices for the to-be imported goods. The issuing bank, in turn,

enters into the foreign currency transaction: it requests a foreign branch of another Indian bank

to transmit funds into the issuing bank’s own account (referred to as its nostro—“our”—

account) at the foreign branch of a third bank to pay the exporter in its local foreign currency.

The issuing bank then recoups the loan from the importer (or the imported goods serving as its

collateral).

8. Since each LOU requires an import transaction, an importer’s LOU borrowing

capacity is tied directly to its import volume—the more imports, the more LOU funding

available. Modi and his co-conspirators conspired to artificially inflate the import volume of

Modi’s India-based companies—most notably Diamonds R Us, Solar Export, and Stellar

Diamond (collectively, the “LOU Entities”)—with sham transactions so as to obtain more and

more LOU funding.

9. To carry out this scheme, Modi and other co-conspirators utilized a web of

shadow entities, including Hong Kong-based Eternal Diamonds Corp., to engage in fraudulent

and fictitious import transactions (the “Shadow Entities”). Though designed to look like

legitimate independent businesses, the Shadow Entities were no more than shell companies

controlled by Modi and his co-conspirators. They conducted little to no legitimate business, but

instead existed only to further the Bank Fraud by conducting bogus transactions with entities

under the corporate umbrella of India-based Firestar International Limited (f/k/a Firestar


4

International Private Limited) (“FIL”), including the Debtors and India-based Firestar Diamond

International Private Limited (“FDIPL”), (collectively, the “Firestar Entities,” and together with

the Shadow Entities, LOU Entities, and all other entities controlled by Nirav Modi and his

family members, the “Modi-Controlled Entities”).

10. The Shadow Entity import transactions purported to involve arm’s-length sales

of highly valuable loose diamonds. In truth, these transactions routinely involved goods that

(a) did not exist; (b) were never transferred; (c) were transferred at prices having nothing to do

with market value but instead based on whatever amounts were necessary to reconcile the

Shadow Entities’ and Firestar Entities’ books and records so as to conceal other transfers made

for illegitimate purposes; or (d) were transferred in “circular transactions,” meaning the same

diamonds were exported from and re-imported back into India multiple times at varying and

often inflated prices, in transactions involving various Firestar Entities and Shadow Entities to

give the appearance of multiple distinct transactions for the sole purpose of artificially

increasing the entities’ import volume.

11. In the context of the Bank Fraud, transactions between and among Firestar

Entities and Shadow Entities furthered the Bank Fraud by: (a) inflating the Indian entities’ LOU

borrowing capacity by artificially inflating their import and export volume (for LOUs and

packing credit loans, respectively); (b) facilitating the repayment of outstanding LOUs and

packing credit loans; (c) laundering the fraudulent proceeds by making them difficult to trace

and siphoning them to Nirav Modi and his co-conspirators; and (d) manipulating auditors,

lenders, and regulatory bodies.

12. Transfers for these purposes were concealed in various ways, including:

(a) round-trip transactions of gems or funds in which Modi-Controlled Entities transferred

assets amongst themselves without any legitimate economic purpose; (b) buying and selling


5

gems at inflated or deflated prices (or not sending the gems at all); (c) characterizing transfers as

loans or loan repayments or advances against future purchases or returns of advances, etc.; and

(d) in some instances, fraudulently doctoring books and records outright.

13. The Bank Fraud was exposed in January 2018 after PNB denied issuance of a new

LOU and began investigating the borrowing practices of Modi-Controlled Entities. In the weeks

leading up to and following the exposure of the Bank Fraud, Modi and his co-conspirators

implemented various measures designed to remove assets from the reach of creditors. One key

element of this plan was to ship all U.S.-based inventory to Modi-Controlled Entities in Hong

Kong such as Eternal Diamonds Corp. (“Eternal”), a Shadow Entity. Although these shipments

to Hong Kong were disguised as sales on paper, the various Hong Kong entities never actually

paid the U.S. entities. Instead, the U.S.-based entities were left holding worthless accounts

receivable.

14. As discussed below, the transaction underlying Saumil’s Claim appears to be

directly connected to such fraudulent efforts.

B. Saumil’s Relationship with Modi-Controlled Entities.

15. Saumil is a New York-based limited liability company owned by Mitesh Kothari.

From as early as 2013, Saumil and other entities linked to Mitesh Kothari transacted extensively

with various Modi-Controlled Entities, as well as with entities controlled by Nirav Modi’s

uncle, Mehul Choksi, who is accused of running his own version of the Bank Fraud through

entities such as Gitanjali Group and Samuels Jewelers.

16. In a federal complaint filed against Nirav Modi and Mehul Choski, among

others, on September 23, 2019 in the U.S. District Court for the Southern District of New York,

Saumil and Kothari described the genesis and nature of their relationship with Modi, Choksi,

and their respective companies as follows:


6

Defendant NEENA SHETH proposed that DIAMLINK, INC. and other associated companies could ship the merchandise to Plaintiff SAUMIL DIAM LLC, which would, in turn, ship the merchandise to DIAMLINK’s customer, utilizing its own business line of credit and credit insurance to cover the usual 120 to 150-day payment terms and the risk associated with such a lengthy wait for payment, adding a varying small percentage to the amount to be collected from the customer, as SAUMIL DIAM LLC’s profit.

. . . After a year or two engaged in this type of cooperation, Defendants NEENA SHETH and NEHAL MODI invited Plaintiff MITESH KOTHARI to travel to Mumbai, India to meet Defendant MEHUL CHOKSI, Defendant NEENA SHETH’s brother, and NIRAV MODI, Defendant NEHAL MODI’s brother and Defendant NEENA SHETH’s nephew. Plaintiff MITESH KOTHARI traveled to Mumbai and met with Defendant MEHUL CHOKSI, owner of the GITANJALI GROUP, in his office, where Defendant MEHUL CHOKSI cited the same credit insurance limitations, and proposed similar cooperative arrangement between the GITANJALI GROUP and Plaintiff SAUMIL DIAM LLC, where SAUMIL DIAM LLC would be a customer of GITANJALI GROUP. Defendant MEHUL CHOKSI’s proposal included SAUMIL DIAM LLC’s fulfilling GITANJALI GROUP’s customer’s orders.

. . . On the same trip, Plaintiff MITESH KOTHARI met Defendant NIRAV MODI and Defendant NEESHAL MODI, who made similar proposals for cooperation between Plaintiff SAUMIL DIAM LLC and the FIRESTAR GROUP, and they introduced Plaintiff MITESH KOTHARI to Defendant MIHIR BHANSALI, CEO of FIRESTAR, INC., New York.

(Case No. 19-cv-8722, Dkt. 1, at ¶¶ 47, 53-55, 57 (emphasis in original).)

17. Consistent with these allegations, FIL and FDIPL each shipped substantial

amounts of diamonds and jewelry to Saumil. For example, as of December 31, 2017, Saumil

owed FIL and FDIPL accounts receivable of $26,928,340 and $2,849,660, respectively.

18. Saumil and Kothari also allege in their complaint that, in January 2018, they first

learned of PNB’s investigation into Modi and Choksi:


7

Suddenly, in January, 2018, Defendant MEHUL CHOKSI came to the [sic] New York and [told] Plaintiff MITESH KOTHARI that there was some sort of misunderstanding with the Punjab National Bank (“PNB”), but that he hoped Defendant NEHAL MODI would be able to straighten it out within a short time, and asked me to hold any transactions for them. Around the same time, Plaintiff MITESH KOTHARI also met with NIRAV MODI, who also held up further transactions, due to the “misunderstanding” with PNB, and he expressed confidence that Defendant NEHAL MODI, who had been dispatched to India, would sort everything out. By March, 2018, word came from all of the defendants that the PNB issue had not been sorted out, and all transactions with any of their companies would cease indefinitely. The defendants informed Plaintiff MITESH KOTHARI that it was likely that the Indian government would come after SAUMIL DIAM LLC and other companies formed as part of the plaintiffs’ cooperation with the defendants.

(Case No. 19-cv-8722, Dkt. 1, at ¶¶ 64-67 (emphasis in original).)

19. On November 30, 2017, just weeks prior to the exposure of the fraud, Ajay

Gandhi (on behalf of FDI) and Saju Palose (on behalf of FIL and FDIPL) executed agreements

under which FDI became entitled to receive a 1.25% commission on all sales by FIL or FDIPL to

Saumil. The agreements were back-dated to April 1, 2017, presumably so that FDI could receive

a commission on the substantial sales to Saumil from April 2017 onwards. The same day the

agreements were executed, FDI issued invoices to FIL and FDIPL for royalty payments of

$489,829 and $102,301, respectively, under the terms of the agreements.

C. January 2018 Transactions Between Saumil, FDI, and Eternal.

20. Under Memo No. 11924, dated January 18, 2018, Saumil purportedly delivered

42 parcels of “mix polish diamonds” totaling 2,298.54 carats to FDI at a total price of

$329,997.90. Memo No. 11924 was accompanied by a packing list indicating the total carat


8

weight for each of the 42 lots. The packing list also assigned an “SR No.” to each of the 42 lots

(ranging from 1 to 42).

21. Saumil issued Invoice No. 3207, dated January 18, 2018, to FDI in connection

with Memo No. 11924. Invoice No. 3207 describes the goods as “mix polish diamonds total 42

parcels” having a weight of 2,298.54 carats and a total value of $329,997.90. FDI booked

Purchase Receipt No. 11957400, dated January 19, 2018, in connection with this transaction,

which indicated that FDI received 2,298.54 carats of Item No. DR_RN900010, described as “DIA.

RD .10 RN9”, from Saumil.

22. FDI’s check register reflects a payment of $329,997.90 to Saumil posted on

February 5, 2018.

23. On January 23, 2018, the following adjustments were posted to FDI’s accounting

system under the heading “Assortment – Saumil Diam Memo #11924/Inv 3207 (1/18/2018)”:

Upon information and belief, these adjustments were designed to reallocate the diamonds

among different item numbers (which normally track the diamonds’ size, shape, quality, and

other characteristics) so as to make them difficult to trace in subsequent sales.

24. Under Invoice No. 15339415, dated January 24, 2018, FDI purported to sell

Eternal a total of five lots of loose diamonds, the first four of which reflected carat weights

identical to the lots Saumil delivered to FDI under Memo No. 11924, but with item numbers

consistent with the January 23, 2018 accounting adjustments, as set forth in the below excerpt

from Invoice No. 15339415:


9

25. Additionally, the Trustee recovered a spreadsheet entitled “ETERNAL

DIAMONDS CORP LTD HK 01-23-2018” (the “First Spreadsheet”) from the computer of FDI’s

sourcing manager, Rebecca Chow. The spreadsheet contains three tabs. The first tab, labeled

“Orig”, contains rows for 43 lots of loose diamonds and columns indicating, among other

things, for each lot: (1) the SR No. (which, for SR. Nos. 1-42, matched the packing list

accompanying Memo No. 11924); (2) the total number of carats; (3) the price per carat; (4) the

total cost; (5) the price per carat less 25%; and (6) the total cost less 25%. The first 42 lots total

2,298.55 carats and a total discounted cost of $330,371.81. The final lot consists of 21.09 carats

and a cost of $39,143.04. The first tab also contained calculations of the sale price necessary to

achieve a 13.32% margin on each of the lots.

26. The second tab, labeled “Packing List”, lists the same 42 lots in four groupings

totaling 338.32 carats, 603.19 carats, 495.11 carats, and 861.93 carats, respectively.

27. The third tab contains the following table:

Item No. Cts PPC Total Location Invoice To

DTC_SNS000020 495.11 $132.00 $65,354.52 LOOSE 3 ETERNAL DIAMONDS CORP

LTD - HK

DR_RN900005 861.93 $140.00 $120,670.20 LOOSE 3 ETERNAL DIAMONDS CORP

LTD - HK


LTD - HK


LTD - HK

DR_JVS200050 21.09 $1,925.00 $40,598.25 LOOSE 3 ETERNAL DIAMONDS CORP

LTD - HK 2319.64 $426,320.97


10

28. Thus, the First Spreadsheet confirms that FDI’s transactions with Saumil and

Eternal in January 2018 involved the same stones, i.e. that FDI purported to immediately ship to

Eternal the same stones it had just purportedly purchased from Saumil.

29. Under House Airway Bill No. 1728953, dated January 24, 2018, FDI purportedly

shipped the diamonds listed on Invoice No. 15339415 to Eternal in Hong Kong. FDI never

received payment from Eternal. FDI’s books and records continue to reflect $1,215,461 in

accounts receivable owed by Eternal, consisting of $426,321 on account of Invoice No. 15339415

and $789,140 on account of Invoice No. 15340724 described below.

30. As discussed above, Saumil admitted it first learned of PNB’s investigation into

Modi in January 2018 and that transactions with Modi were being “held up” as a result.

D. February 2018 Transactions Between Firestar, Saumil, and Eternal.

31. Still, under Memo No. 11926, dated February 1, 2018, Saumil purportedly

delivered 57 parcels of “mix polished diamond[s]” totaling 4,443.05 carats to FDI at a total price

of $619,917.00.

32. Saumil issued Invoice No. 3208, dated February 1, 2018, to FDI in connection

with Memo No. 11926. Invoice No. 3208 describes the goods as “mix polish diamonds 57

parcels” having a weight of 4,443.05 carats and a total price of $619,917.00. The version of

Invoice No. 3208 recovered from FDI’s books and records is different from the version attached

to Saumil’s proof of claim. The version attached to Saumil’s proof of claim lists a due date of

April 2, 2018 and payment terms of 60 days. By contrast, FDI’s version lists a due date of

February 1, 2018 and payment terms of 15 days. Additionally, whereas Saumil’s version states

only the total carat weight, FDI’s version contains a breakdown of the diamonds into six lots

consistent with the lots subsequently sold to Eternal, as discussed below.


11

33. FDI booked Purchase Receipt No. 11958155, dated February 2, 2018, in

connection with this transaction, which indicated that FDI received a total of 4,443.05 carats of

loose diamonds from Saumil, as summarized in the below excerpt from the purchase receipt:

34. Under Invoice No. 15340724, dated February 6, 2018, FDI purported to sell

Eternal a total of eight lots of loose diamonds, the first six of which were identical to the six lots

listed on Purchase Receipt No. 11958155, as set forth in the below excerpt from Invoice No.

15340724:

35. Under House Airway Bill No. 1730021, dated February 6, 2018, FDI purportedly

shipped the diamonds listed on Invoice No. 15340724 to Eternal in Hong Kong. As noted above,

FDI never received payment from Eternal on this invoice.

36. Rebecca Chow’s computer also contained a spreadsheet entitled “Saumil Diam

LLC Inv 3208 4443.05cts Packing List 02-01-2018” (the “Second Spreadsheet”) which is largely

analogous to the First Spreadsheet. As before, the Second Spreadsheet contains three tabs. The


12

first tab, labeled “Orig”, contains rows for 57 lots of loose diamonds and columns indicating,

among other things, for each lot: (1) the SR No.; (2) the total number of carats; (2) the price per

carat; and (3) the total cost. Each lot in the Second Spreadsheet from SR No. 1 through SR No. 42

is identical in carat weight, price per carat, and total price to the entries listed as SR No. 1

through SR No. 42 in the First Spreadsheet (and therefore items SR No. 1 through SR. 42 of the

packing list accompanying Memo No. 11924). Like the First Spreadsheet, the second and third

tabs of the Second Spreadsheet contain the groupings by item number and margin calculations

to determine the eventual sale price to Eternal.

37. The lots listed as SR No. 43 through SR No. 57 in the Second Spreadsheet have

no counterpart in the First Spreadsheet, nor in any packing list in FDI’s books and records. The

Trustee has not been able to locate any packing list created in connection with Memo No. 11926.

38. In sum, based upon a thorough review of the books and records surrounding

Saumil’s January and February 2018 transactions with FDI, the Trustee has concluded that the

same stones were purportedly transferred from Saumil to FDI to Eternal in January 2018, and

then again from Saumil to FDI to Eternal in February 2018.

E. Saumil’s Proof of Claim.

39. On September 11, 2018, Saumil filed its Claim in the general unsecured amount

of $619,917 based on “goods sold (diamonds).” In support of its Claim, Saumil attached: (a) a

copy of Invoice 3208 (which, as discussed above, is different from any version found in FDI’s

files); (b) a statement reflecting the amount owed by FDI as of August 22, 2018; and (c) a copy of

Memo No. 11926 (again without any packing list).

RELIEF REQUESTED

40. The Trustee respectfully requests that the Court enter an order, substantially in

the form attached hereto as Exhibit C, disallowing the Claim in full.


13

BASIS FOR RELIEF

41. A claim, once filed, is allowed unless a party in interest objects. See 11 U.S.C. §

502(a). A proof of claim filed in accordance with the Bankruptcy Rules constitutes prima facie

evidence of the validity and amount of the claim. Fed. R. Bankr. P. 3001(f). However, if an

objecting party provides sufficient evidence to rebut the claim, the burden shifts back to the

claimant to establish the validity of its claims by a preponderance of the evidence. See id.

I. Saumil’s Claim Should Be Disallowed as Unenforceable Under Section 502(b)(1).

42. Section 502(b)(1) of the Bankruptcy Code provides for the disallowance of any

claim that “is unenforceable against the debtor and property of the debtor, under any

agreement or applicable law for a reason other than because such claim is contingent or

unmatured.” 11 U.S.C. § 502(b)(1). “An example of an ‘unenforceable’ claim would be a[n] . . .

obligation that has already been satisfied or that is prohibited by law based on a legal

determination of a court of competent jurisdiction.” In re Dobbs, 597 B.R. 74, 78 (Bankr. E.D.N.Y.

2019).

43. Even “[i]f a contract is not itself unlawful, the bargain may still be illegal if it is

closely connected with an unlawful act.” Contemporary Mission, Inc. v. Bonded Mailings, Inc., 671

F.2d 81, 83 (2d Cir. 1982) (citing McConnell v. Commonwealth Pictures Corp., 7 N.Y.2d 465 (1960));

accord Deligiannis v. PepsiCo, Inc., 757 F.Supp. 241, 253 (S.D.N.Y. 1991) (“Even if [a] contract [is]

entirely legal, public policy will deny its enforcement if its performance would practice fraud on

[a] third party.”); Ross v. Bolton, 1991 WL 285619, at *2 (“As a knowing participant in an illegal

scheme [a plaintiff] cannot invoke judicial power to enforce a contract which is a dominant part

of such scheme.”).

44. Saumil’s Claim is unenforceable for both of these reasons. First, as discussed

above, the February 2018 invoice underlying Saumil’s Claim involved the exact same diamonds


14

Saumil purportedly sold to FDI in January 2018 and which FDI purportedly sold to Eternal

immediately thereafter. Since FDI paid the January 2018 invoice in full, Saumil’s Claim is

unenforceable to the extent it seeks additional payment on account of those same purported

diamonds.

45. Second, and more fundamentally, the facts and circumstances discussed above

demonstrate that both the January and February transactions, at a minimum, furthered broader

efforts to perpetrate the Bank Fraud and hinder, delay, and defraud creditors, and very well

might themselves have been fictitious and falsified outright. Specifically, the Trustee bases this

conclusion upon, among other things: (a) the timing of these transactions immediately after

exposure of the Bank Fraud; (b) the fact that the goods at issue were ultimately shipped to

shadow entity Eternal in Hong Kong without payment, consistent with the conspirators’ known

modus operandi; (c) the fact that, given Saumil’s own description of its arrangement with Nirav

Modi and the substantial accounts receivable owed by Saumil to FIL and FDIPL at the time,

Saumil likely sourced the goods at issue from FIL or FDIPL in the first place; (d) the

unmistakable overlap between the purportedly distinct January and February 2018 sequences

made clear by the First Spreadsheet and Second Spreadsheet, including the Second

Spreadsheet’s reference to SR Nos. 1-42, each of which matched SR Nos. 1-42 of the First

Spreadsheet and SR Nos. 1-42 of the January packing list; (e) the Second Spreadsheet’s reference

to SR Nos. 43-57, which did not exist on the January packing list or any other document in FDI’s

books and records; (f) the fact that the diamonds involved were repeatedly regrouped and

assigned different item numbers so as to render them difficult to trace; and (g) the discrepancies

between versions of the invoice attached to the Claim.

46. Given the suspicious nature of the transactions underlying Saumil’s Claim and

their undeniable link to the broader fraud, enforcing Saumil’s Claim would unfairly prejudice


15

the Debtors’ truly innocent creditors whose recoveries should not be diluted by claims based

solely on the bogus transactions comprising the Bank Fraud and subsequent efforts to shield

assets from creditors. Nor is this result unfair to Saumil. Saumil, by its own admission, was

aware of PNB’s investigation in January 2018. That did not stop Saumil from, in February 2018,

purportedly selling FDI the same stones Saumil had purportedly just sold FDI less than two

weeks earlier. As such, Saumil was, at best, willfully negligent and, at worst, a knowing

participant in the misconduct. Either way, permitting Saumil to recover on account of its Claim

would “practice fraud” on FDI’s truly innocent creditors. See Deligiannis, 757 F. Supp. at 253.

The Court should therefore disallow Saumil’s Claim under section 502(b)(1) as unenforceable

under applicable nonbankruptcy law. See id.; 11 U.S.C. § 502(b)(1).

II. Saumil’s Claim Should Be Disallowed Under Section 502(d).

47. Section 502(d) of the Bankruptcy Code requires the court to disallow any claim of

a creditor who has received a preference or fraudulent transfer unless the creditor has satisfied

the liability for the preference or fraudulent transfer. 11 U.S.C. § 502(d).

48. Section 548 of the Bankruptcy Code provides for the avoidance of any transfer of

an interest of the debtor in property, or any obligation incurred by the debtor, made or incurred

within two years prior to the petition date, if the debtor voluntarily or involuntarily made such

transfer or incurred such obligation with actual intent to hinder, delay, or defraud any existing

or future creditor. See 11 U.S.C. § 548(a)(1). Similarly, a transfer made with actual intent “to

hinder, delay, or defraud either present or future creditors” may be avoided as an actual

fraudulent transfer under New York Debtor & Creditor Law (“DCL”) section 276. See HBE

Leasing Corp. v. Frank, 61 F.3d 1054, 1057 (2d Cir. 1995). Section 544(b) of the Bankruptcy Code

permits the Trustee to use avoidance powers available to creditors under the DCL. See 11 U.S.C.

§ 544(a).


16

49. Based on the facts and circumstances alleged above, there is strong evidence that

both the $329,997.90 payment Firestar made to Saumil in February 2018 and the related

diversion of inventory to Hong Kong were designed to deplete FDI’s assets so as to hinder,

delay, or defraud FDI’s creditors in the wake of the Bank Fraud’s exposure. As such, the

$329,997.90 payment is subject to avoidance as a fraudulent transfer under the New York

Debtor and Creditor Law and sections 544 and 548 of the Bankruptcy Code.

50. In addition, this payment is subject to avoidance as a preferential transfer under

section 547 of the Bankruptcy Code. A transfer may be avoided as a preference if it (1) was a

transfer of an interest of the debtor in property; (2) was made to or for the benefit of a creditor;

(3) was made for or on account of an antecedent debt owed by the debtor before such transfer

was made; (4) was made while the debtor was insolvent; (5) was made on or within 90 days

before the date of filing of the petition; and (6) enabled the transferee to receive more than it

would have received had the case been a chapter 7 liquidation and the creditor not received the

transfer. See 11 U.S.C. § 547(b). Firestar, which was insolvent at all relevant times, transferred

the $329,997.90 to Saumil in early February 2018—well within the 90-day preference period—on

account of Invoice No. 3207 issued on January 18. This payment enabled Saumil to receive more

than it would have in a hypothetical liquidation because the $329,997.90 payment fully paid off

Invoice No. 3207 and Firestar lacked sufficient assets to pay its creditors in full. This payment is

therefore subject to avoidance as a preference under section 547(b) of the Bankruptcy Code.

51. Consequently, as Saumil has received at least one fraudulent transfer and/or

preference that it has not repaid, its Claim is subject to disallowance under section 502(d) of the

Bankruptcy Code. See 11 U.S.C. § 502(d).


17

RESERVATION OF RIGHTS

52. Nothing in this Objection should be construed as the Trustee conceding the

validity of Saumil’s Claim or any other claim. The Trustee’s claims analysis continues, and this

Objection is one of many the Trustee anticipates filing. Therefore, the Trustee expressly

reserves the right to object to any or all of the claims filed or deemed filed against the Debtors’

estates, including other claims brought by Saumil, on any proper basis whatsoever. The Trustee

further reserves the right to bring any and all claims the Debtors’ estates might have against

Saumil, including any avoidance claims based on any transfer made or obligation incurred to or

for the benefit of Saumil.

NOTICE

53. The Trustee has provided notice of this Motion to: (a) the Office of the United

States Trustee; (b) all parties who have formally requested notice in the Debtors’ cases; and

(c) Saumil.

WHEREFORE, the Trustee respectfully requests that this Court enter an Order

substantially in the form of the attached proposed order and grant such other and further relief

as this Court deems just and proper.


18

Dated: October 18, 2019, New York, New York Respectfully submitted,

JENNER & BLOCK LLP By: /s/ Marc Hankin Marc Hankin Carl Wedoff 919 Third Avenue New York, NY 10022 (212) 891-1600 [email protected] [email protected] Angela Allen (admitted pro hac vice) 353 N. Clark St. Chicago, Illinois 60654 (312) 222-9350 [email protected] Counsel for the Chapter 11 Trustee


Exhibit A Saumil’s Proof of Claim (Firestar Claim No. 35)

18-10509-shl Doc 1156-1 Filed 10/18/19 Entered 10/18/19 16:47:56 Exhibit A Pg 1 of 8








Exhibit B Declaration of Richard Levin

18-10509-shl Doc 1156-2 Filed 10/18/19 Entered 10/18/19 16:47:56 Exhibit B Pg 1 of 3

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK


Debtors.1


DECLARATION OF RICHARD LEVIN IN

SUPPORT OF OBJECTION TO FILED CLAIM OF SAUMIL DIAM LLC (FIRESTAR CLAIM NO. 35)

I, Richard Levin, declare the following is true to the best of my knowledge, information,

and belief:

1. I am the chapter 11 trustee (“Trustee”) of the Debtors in the above-captioned

chapter 11 cases.

2. I submit this Declaration in support of my objection to the claim of Saumil Diam

LLC (the “Saumil Claim”) (Firestar Claim No. 35).

3. The statements in this Declaration are based on my personal knowledge,

information supplied or verified by my professionals, my review of relevant documents, or my

opinion based upon my experience and knowledge of the Debtors’ operations and financial

condition. If called as a witness, I could and would testify competently to the facts set forth

herein.

4. In my position as Trustee, I am generally familiar with the Debtors’ books and

records (“Books and Records”) that reflect, among other things, the Debtors’ liabilities and the

amounts owed to creditors as of the Petition Date. My professionals and I have reviewed and



2

continue to review the Debtors’ Books and Records to determine the validity of claims asserted

against the Debtors in these chapter 11 cases.

5. In connection with preparation of the Objection, I oversaw the review of the

Books and Records with respect to the Saumil Claim, reviewed the Objection; and reviewed and

approved the information contained on the Objection and the justifications set forth therein.

My professionals and I have performed specific due diligence as to the Saumil Claim and have

information supporting my position. Accordingly, I am familiar with the information contained

in the Objection.

6. I have reviewed and am generally familiar with each document referenced in the

Objection to the Saumil Claims.

7. I have reviewed and am familiar with the evidence detailed by (1) the Indian

Central Bureau of Investigation; (2) the Directorate of Enforcement, Ministry of Finance for the

Department of Revenue of India; (3) the Indian Ministry of Corporate Affairs; and (4) two recent

rulings by the Indian Debt Recovery Tribunal that Nirav Modi orchestrated a fraudulent

scheme to obtain approximately $4 billion in financing under false pretenses from financial

institutions, including PNB, and to launder the proceeds through a global web of corporate

entities, family members, and co-conspirators.

8. Accordingly, based on the review described above, I am informed and believe

that the facts contained in the Objection are true and correct.

I declare under penalty of perjury under 28 U.S.C. § 1746 that the foregoing is true and

correct.

Dated: October 18, 2019, /s/ Richard Levin New York, New York Richard Levin


Exhibit C Proposed Order

18-10509-shl Doc 1156-3 Filed 10/18/19 Entered 10/18/19 16:47:56 Exhibit C Pg 1 of 3

UNITED STATES BANKRUPTCY COURT SOUTHERN DISTRICT OF NEW YORK


Debtors.1

Chapter 11 No. 18-10509 (SHL)

(Jointly Administered)

[PROPOSED] ORDER GRANTING OBJECTION TO FILED


Upon consideration of the Objection to Filed Claim of Saumil Diam LLC (the “Objection”)

filed by Richard Levin in his capacity as Trustee of the three Debtors in these jointly

administered cases (the “Trustee”), seeking entry of an order under section 502(d) of title 11 of

the United States Code (the “Bankruptcy Code”), and Rule 3007 of the Federal Rules of

Bankruptcy Procedure (the “Bankruptcy Rules”), disallowing Saumil Diam LLC’s claim

(Firestar Claim Dkt. 35) (the “Claim”), as more fully described in the Objection; and appropriate

notice under the circumstances of the Objection having been provided, and it appearing that no

other or further notice need be provided; and the Court having found and determined that the

legal and factual bases set forth in the Objection establish just cause for the relief granted herein;

and after due deliberation and sufficient cause appearing therefor, it is

ORDERED that the Objection is sustained; and it is further

ORDERED that Claim No. 35 filed by Saumil Diam LLC against Firestar Diamond, Inc.

identified in the Objection is disallowed for the reasons stated in the Objection; and it is further



2

ORDERED that the Trustee, the Claims and Noticing Agent (Omni Agent Solutions),

and the Clerk of this Court are authorized to take all actions necessary or appropriate to

effectuate this Order; and it is further

ORDERED that this Court shall retain jurisdiction to hear and determine all matters

arising from or related to the implementation and/or interpretation of this Order.

Dated: New York, New York _______ __, 2019

_______________________________________ HONORABLE SEAN H. LANE UNITED STATES BANKRUPTCY JUDGE


Documents

18-10509-shl Doc 1156 Filed 10/18/19 Entered 10/18/19 16