SEC orders audit of Blue Diamonds books over fraud allegations

The Securities Exchange Commission (SEC) has appointed Ernst & Young to conduct an audit of the books of Blue Diamonds Jewellery Worldwide PLC to look into allegations of accounting frauds and misuse of funds. The SEC said that it had received a number of complaints from shareholders and investors of Blue Diamonds Jewellery Worldwide that the company had misled the shareholders and investors through its interim financial statements for the period ended September 30, 2015.

Allegations have also been levelled at the company over the misuse of funds generated through its recent rights issue to the benefit of related parties. The company last December admitted to noncompliance in its published interim statements for the September 2015 quarter, and published an amended interim statement recently.

The amended statement claimed that it had adhered to Sri Lanka Accounting Standards. The company had made a net profit of Rs.166, 000 for the quarter, improving from a net loss of Rs.16.87 million year-on-year (yoy). Revenue had increased to Rs.19.89 million from Rs.14.83 million yoy, while cost of sales had sharply declined to Rs.2.64 million from Rs.13.30 million yoy. The amended statement said that related parties owed Blue Diamonds Jewellery Worldwide a sum of Rs.6.41 million, as opposed to Rs.8.84 million in the original financial statement. The SEC said that the special purpose audit would attempt to verify the utilization of proceeds collected from the rights issue, identify and quantify related party transactions, and discover the extent to which the company has complied with Sri Lanka Accounting Standards.

An individual named Xia Liqiang is the largest shareholder in the company, owning 15.46 percent of the shares. V V S Lanka Holdings (Pvt) Ltd. owns 10.56 percent of the shares, while the Sri Lankan government owns 5.11 percent of shares through the Sri Lanka Insurance Corporation.