Former Samuels Jewelers chairman Mehul Choksi and his affiliates used that retail chain as part of an alleged bank fraud scheme, according to a new report from John Carney, the examiner in the company’s Chapter 11 case, which was filed in Delaware bankruptcy court on Feb. 20.

Last February, Indian authorities charged Choksi (pictured) and the company he chaired, Gitanjali Gems, with bank fraud. Gitanjali has denied the charges, and Choksi has dubbed them “false and baseless.”

Six months later, Samuels, the 112-store chain owned by Gitanjali, filed for Chapter 11. Last week, it announced all of its stores were closing.

In October, the U.S. Trustee decreed that an examiner was necessary, and it appointed Carney, who had previously filled that role in the Chapter 11 case involving three diamond companies formerly owned by Choksi’s nephew Nirav Modi.

Like his report on Modi’s companies, Carney’s 134-page document paints a sometimes-dizzying picture of financial transfers between associated companies.

The retailer’s bankruptcy petition lists its top five unsecured creditors as Exclusive Design Direct, Hong Kong–based Taipingyang Trading, lab-grown company GoGreen Diamonds, Jewel Evolution (also described as a lab-grown diamond company), and Voyager Brands, which, according to Carney, was located in the same Austin, Texas, office complex as Samuels.

Carney’s report alleges that Choski or his affiliates had ownership stakes in four of those five companies. He does not mention GoGreen, which also does business as Bare Diamond and Epic Diamond Co. A filing from Samuels’ board has said that “it understands that GoGreen is owned by the father of Mehul Choksi’s son-in-law.”

Carney’s report charges that certain vendors used “false paperwork” to make them look like independent entities, as some of Samuels’ bank covenants restricted the business the retailer could do with affiliated entities or required written disclosure of that affiliation.

Samuels’ counsel did not return a request for comment on the examiner’s report. But on Sept. 7, its board of directors wrote in a filing that Samuels’ management and board “has been fully transparent, proactive, ethical, and meticulous in the fulfillment of its fiduciary duties as it relates to all of the Debtor’s affairs, including, but not limited to, the investigation of Choksi.”

Carney’s report also alleges that, since 2010, Choksi has owned the Independent Gemological Laboratories (IGL) grading lab through a British Virgin Islands holding company. Carney writes that Samuels primarily used IGL’s reports for its diamonds, and it accounted for 10 percent of the lab’s business. Other apparent lab customers include Sears, Amazon, and J.C. Penney’s Modern Bride collection.

The examiner’s report maintains that Choksi’s ownership of IGL was generally kept quiet since other retailers might not want to support one of their competitors. But he calls the nondisclosure of ownership “misleading” to customers who expected a grading lab to be truly independent.

In his report, Carney writes that in 2017 Samuels CEO Farhad Wadia voiced doubts about the company’s reports:

[Wadia was concerned] IGL might be enabling Samuels to sell lab grown diamonds as natural diamonds by providing false certifications, committing “consumer fraud on a massive scale.” Wadia was also concerned that IGL was giving better grades to diamonds than warranted, and he received complaints from retailers including Sears. While the accuracy of IGL’s grading statements is beyond the scope of this investigation, the Examiner identified one instance of IGL certifying a lab-grown diamond that had been labeled by Samuels as natural.

IGL did not respond to requests for comment. (UPDATE: Its founder and president has posted a comment in response.) According to its site, it offers CVD testing, though another page notes that it does “no advanced testing … unless specifically stated” and said “lab-grown gemstones are not always identifiable in mounted conditions.”

The report also echoes a complaint that JCK has heard from Samuels sources—for all the benefits of vertical integration and being owned by a jewelry manufacturer, Gitanjali often supplied Samuels product that was unsuitable or overpriced.

“Although each store sets its prices, Gitanjali had a designated gross margin and controlled the wholesale price for which it sold items to Samuels,” the report says. “This caused some discontent among the retail branches and Samuels’ merchandising employees because purchasing from the parent at a high price required the stores to sell at higher prices to their ultimate customers or caused certain inventory to sit stagnant.”

Carney says his report covered phase one of his investigation. If the court approves a phase two, he hopes to look further at a variety of issues, including other companies that might be related to Choksi and whether any lab-grown diamonds were misidentified as natural.

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