Samuels Jewelers to Shutter Stores, Creditors Object

Wilmington, Del.—Samuels Jewelers, an Austin, Texas-based retailer dating back to 1891, will shutter all its stores by Monday.

The retailer, which filed Chapter 11 in August, had hoped to sell its assets as a going concern, but a credit bid from Wells Fargo, the company’s primary lender, sent dreams of a sale up in smoke.

The $16 million credit bid covers all the company’s assets, including its intellectual property and websites.

As of Jan. 22, the company owed Wells Fargo $51.5 million under its revolving loan obligations, as per court documents.

Samuels Jewelers is not unfamiliar with bankruptcy court, having filed for Chapter 11 twice under its former name Barry’s and again as Samuels Jewelers in 2003.

Indian company Gitanjali Gems Ltd. bought the chain in 2006—later also acquiring Rogers Ltd. and then merging the two companies—and looked to vertically integrate the retailer by supplying the stores with jewelry crafted at its plants in India.

But the company struggled in the face of increasing competition from online and discount retailers, and then was ultimately felled earlier this year when news broke of a $2 billion bank scandal allegedly involving Gitanjali Chairman Mehul Choksi, a scandal that resulted in the chain losing its source of funding and product.

Punjab National Bank, a state-run Indian bank, told Indian authorities on Jan. 29, 2018 that Choksi was part of what the bank called one of the largest bank frauds in Indian history.

Court documents allege that Choksi, his nephew Nirav Modi, a jeweler and diamond merchant in his own right, and Samuels Chief Financial Officer Sunil Varma fraudulently borrowed approximately $2 billion from banks via letters of undertaking and foreign letters of credit.

“The alleged fraud consisted of obtaining bank loans by manufacturing sham transactions to ‘import’ jewelry into India using a web of secretly controlled shell entities,” court documents state.

Choksi and his nephew have denied the charges and reportedly left India before authorities could file charges against them.

An interesting note from the lengthy court documents filed in the Samuels bankruptcy case includes an email from Samuels CEO Farhad Wadia to Sunil Varma on May 10, 2017, entitled “Serious Issues at Samuels” along with 15 attachments describing “egregious issues” at the retailer.

The email detailed a number of concerns, including royalty payments of $5.4 million Wadia thought to be fraudulent from a Middle Eastern “paper company” and information about “circular transactions” that were inflating sales number to