A luxury brand’s sudden collapse
Unfortunate investors in the luxury jewellery brand, Vashi, faced heavy losses when the trading company was put into liquidation in April 2023 following a petition from the landlord of its Canary Wharf store in December 2022.
Since then, details have emerged of a large-scale fraud that conned sophisticated investors out of tens of millions of pounds. Despite clear criminality, investors have been unable to engage the interest of the police or Serious Fraud Office who both decided not to investigate. For many American investors, used to the (historically) swift justice metered out by the DOJ and the SEC, this has been quite a shock.
What else can these victims expect from justice in the UK? And what really happened in this fraud?
From ethical beginnings to rapid expansion
Diamond Manufacturers Ltd, the trading company of Vashi, was incorporated in the UK in October 2007. Its two shareholders were Vashi Dominguez and his wife, Tammy Litchfield. The company was founded to sell direct-to-consumer jewellery, including ethically sourced diamonds. Over the next few years, Mr Dominguez, who controlled the company, developed a high profile with several media appearance including on This Morning and Sky News.
Investor confidence and unprecedented growth
After a modest start, 2016 saw the company’s first material contribution from external investors with GBP 2.9m invested in the company. The company’s performance increased significantly from 2018 with recorded turnover and profit frequently doubling or more year on year. The amount of external funding also increased and as of 31 December 2021, share capital in the company totaled GBP 39.4 million, bank loans were GBP 5.0m and convertible loans were GBP 104.3m.
The fall of Vashi: from boom to liquidation
Despite reported net current assets of GBP 142.1m and cash at bank and in hand of over GBP 6.2m on 31 December 2021, on 20 December 2022 a winding up order was sought by Canary Wharf Retail Limited, the landlord of Vashi’s Canary Wharf shop. It was ordered that Diamond Manufacturers Ltd be wound-up and liquidators were appointed on 4 April 2023.
According to the latest liquidator’s report, the unsecured creditors’ claims, including shareholders, totals GBP 170m.
A fraud hidden in plain sight
Despite opening stores in premium locations in London, former staff reported to BBC Panorama that things were not going well, for example:
- The stores were empty and typically received no more than 4 customers a day;
- Mr Dominguez told staff to pretend to be customers so that the stores would look busy; and
- Sales staff were told to sit at work benches to pretend to be goldsmithing or diamond-setting;
- Former staff reported that the company purchased smaller or lower-quality diamonds than customers had paid for and scratched off the GIA numbers (the inscription which records size and quality).
False accounts showed a thriving business
The fraud included the preparation of allegedly false accounts, presumably to encourage greater investment. Whilst turnover of GBP 105.4m was reported as at 31 December 2021, the BBC Panorama report[1] stated that internal documents show the real figure was GBP 5m.
Red flags ignored
There were red flags when the numbers were considered carefully. In 2020, turnover increased from GBP 46.0m to GBP 53.6m despite all stores being closed for extended periods and the likely negative impact on the jewellery market brought by the COVID-19 pandemic. However, this was a business promoted for making a luxury market more accessible online which was a significant plank of the marketing campaign.
However, even more surprisingly, 2021 sales purportedly doubled from GBP 53.6m to GBP 105.4m despite all retail stores being closed from 1 January 2021 to 12 April 2021 under the COVID lockdown. Even with a transition to online sales, this level of growth during a global pandemic should have raised questions.
It wasn’t only turnover that was falsely reported. On 31 December 2021, the company reported net assets of GBP 142.1m, mostly due to stock valued at GBP 129.0m. Therefore, it should have been able to comfortably cover its liabilities, including what was owed to Canary Wharf Retail Limited, the company that sought the winding-up order. However, according to the BBC Panorama report, a diamond consultant brought in to value the gems in April 2023 provided a significantly lower value than that which had been reported in the financial statements.
Where did the money go?
This is the question every victim of the Vashi fraud wants answered. The company spent a lot of money and had invested heavily into its website and brand development as well as opening new stores and employing 195 staff, none of whom were furloughed during the pandemic.
As well as his salary, annual dividends were paid to Mr Dominguez, apparently peaking in 2021 at GBP £213,532. However, the BBC Panorama report alleges that the company also paid for Mr Dominguez’s fleet of luxury cars and the rent for several flats in central London.
This does not account for the GBP 170m of creditors’ claims. Where the rest of the money went is for the liquidators and their legal counsel to investigate. Ideally, Police would also be using their powers as otherwise victims of the fraud may want to consider seeking justice in the form of a private prosecution.
Diamond cases and public prosecutions
The backdrop of this case makes it more specialised; “simple” diamond heists are often investigated by the Police. For example, Tamara Ecclestone, the daughter of Bernie Ecclestone, had more than £25m worth of jewellery stolen that was thoroughly investigated (albeit has not yet been recovered).[2]
Similarly, the infamous Hatton Garden robbery was fully investigated (albeit limited recovery was made).[3]
However, when balance sheets are involved, specialists are needed. The SFO and COLP can only take on a limited number of cases per year. Whilst it seems this should be one, it isn’t so far.
Private prosecutions where there is a lack of State engagement
It is surprising given what appears, on the face of it, to be clear criminality with traceable assets in the United Kingdom, that the Metropolitan Police have decided not to investigate. Albeit, Mr Dominguez no longer seems to be in the jurisdiction, which makes life notably more difficult for prosecutors when dealing with the Extradition Act 2003 and international assistance.
In a case like this, where it appears a significant recovery could still to be made, victims may be forced to turn to a private prosecution to achieve the criminal redress that is so deserved by Vashi Dominguez and potentially, his wife, Tammy Litchfield.
A pathway to justice for victims of fraud.
Private prosecutors are able to apply for the issue of a summons (or an arrest warrant where an address cannot be established) under section 1 of the Magistrates Court Act 1980. Upon doing so, they are also able to apply for a Proceeds of Crime Act 2002 restraint order, ensuring that realisable property is not dealt with or hidden by the fraudsters. Once convicted, a fraudster’s assets can be confiscated to the value of the benefit he or she has obtained. The Crown Courts are, today, seeing more of these proceedings brought by private individuals and the cases are becoming increasingly complex. Just like fraud.
Kate McMahon, Partner, Mai Holdom Senior Associate and Richard Freeman, Forensic Accountant.
[1] Vashi: Jewellery boss in £170m scam told shop staff to pretend to be customers – BBC News
[2] How the Tamara Ecclestone diamonds case was cracked
[3] Where are the Hatton Garden heist robbers now? Life after the UK’s most notorious diamond robbery – The Sun | The Sun
