Audit reveals possible fraud in Blue Diamonds books

The capital market regulator, Securities and Exchange Commission (SEC) said yesterday an audit conducted into the business affairs of Blue Diamonds Jewellery Worldwide PLC (BLUE) revealed possible misappropriation of funds. The special audit, carried out by Ernst & Young, was commissioned by the SEC in February, after receiving several complaints from investors, stockholders and some directors of the company.

The purpose of the audit was primarily to investigate discrepancies in the interim financial statements for quarter ended September 2015 and the ut i l izat ion of the funds raised from a rights issue in December 2014. The Rs. 165.24 million raised through the rights issue was to be utilized in setting up a new research and development unit. The SEC yesterday said the audit found “several irregularities in the conduct of business affairs of BLUE by the management which may point to possible misappropriation of public funds in relation to the proceeds raised by way of a rights issue and the possible commission of one or more capital market offences as well as offences under the Penal Code.” In view of the findings, the SEC said further investigations into the company have been initiated and measures would be taken to safeguard investor interests.

While BLUE is also in receipt of the said audit report, the company has sought time to submit a reply to the revealed finding. SEC has been seen tightening the noose around BLUE as it froze a share transaction by BLUE Chairman Xia Liqiang, a Chinese national, this month, claiming that trade may have been carried out in violation of the SEC Act, and may involve multiple offenses. Liqiang disposed 15.15 million of his 31.95 million shares in the company for Rs. 19.58 million earlier this month. However, the SEC instructed the broker who facilitated the deal to halt the payment arising from the share deal to Liqiang.

Blue Diamonds Jewellery Worldwide had made a net loss of Rs. 67.98 million in the 5 years up to 2013. Liqiang took over the company at the beginning of the 2014 financial year. The company had posted a net loss of Rs.36.25 million in 2014 and a net loss of Rs. 89.30 million in 2015. Liqiang held 15.46 percent of the company’s shares as at December 31, 2015. V.V.S. Lanka Holdings (Pvt) Ltd was the second largest shareholder with 10.56 percent of the shares, and the third largest shareholder was the Sri Lanka Insurance Corporation with 5.11 percent of the shares. (SAA)