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Christopher J. Sullivan Jason A. D'Angelo HERRICK, FEINSTEIN LLP 2 Park Avenue New York, New York 10016 Tel: (212) 592-1400 Attorneys for Plaintiff Lazare Kaplan International Inc. UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK -----------------------------x LAZARE KAPLAN INTERNATIONAL INC., Civil Action No. Plaintiff, - against LP
I:?

KBC BANK N.V. and ANTWERP DIAMOND BANK N.y., Defendants. -----------------------------x

X/1 1)EMANDED

I

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TABLE OF CONTENTS Page TABLEOF CONTENTS.................................................................................................................i MEMBERS OF THE ENTERPRISE ..............................................................................................v DEFENDANTMEMBERS.............................................................................................................v DALEYOT ENTITY MEMBERS...................................................................................................v OTHER NON-DEFENDANT MEMBERS...................................................................................vi SUMMARY OF THE FRAUDULENT SCHEME.........................................................................I JURISDICTION AND VENUE....................................................................................................16 PARTIES.......................................................................................................................................17 RELEVANTNON-PARTIES .......................................................................................................20 FACTUALBACKGROUND........................................................................................................37 I. II. Lazare's Banking Relationship with ADB ........................................................................37 Defendants' Illicit Banking Relationship with the Daleyot Entities..................................40 A. Defendants Funnel Money from DD's Account at ADB through DDMH for Use in Central and Eastern European Real Estate Transactions in Which KBC Had an Interest...................................... 45 Defendants Funnel Money from DD's Account at ADB through DDMH to Allow Daleyot to Purchase Private Airplanes and a Yacht............................................................................................54 Defendants Deplete DD's Assets to Their Own Benefit ....................................... 56

B.

C. III.

Defendants Steal the LKI Diamonds in Order to Cover Up and Receive Payment for Their Illicit and Failed Loans to the Daleyot Entities ..................... 59 A. Defendants Misappropriate Money Belonging to Gulfdiam (and Lazare) for Investments in Central and Eastern European Real Estate Transactions........................................................................................ 59 The Daleyot Entities' Defaults Arising from the Illicit Relationship....................66

B.

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C.

To Benefit Themselves, Defendants Knowingly Steal the LKI Diamonds and Divert the Sales Proceeds ..............................................................68 (i) Misappropriation by ADB of "Formal Sector" Diamonds andSales Proceeds.....................................................................................68 Misappropriation by ADB of "Informal Sector" and "Sight Rough" Diamonds and Sales Proceeds......................................................78

(ii) IV.

ADB Manipulates Its Own Books and Maintains Contradictory Records for the Proceeds of the LKI Diamonds ..............................................................................83 Defendants Demand that Lazare Pay Down LKB's Credit Facility..................................89 Defendants Refuse to Undertake any Investigation into the Theft, MoneyLaundering and Fraud............................................................................................91 Defendants Refusal to Investigate Violates their Obligations to Lazare, LKBand Banking Laws.....................................................................................................98

V. VI.

VII.

VIII. Defendants' Efforts to Destroy Lazare to Cover Up the Theft, Money Launderingand Fraud......................................................................................................101 A. Defendants Manufacture False Defaults Under Lazare's and LKB's Credit Facilities........................................................................................101 Defendants Attempt to Force Lazare into Involuntary Bankruptcy.....................103 ADB Terminates Lazare' s and LKB '5 Credit Facilities......................................104 ADB Sues Lazare in Belgium Under False Pretenses.........................................110

B. C. D. IX.

The Illicit Relationship Allows Defendants' Executives to Enrich Themselves at Lazare's Expense.....................................................................................112 Lazare Suffers Enormous Injury to Businesses and Property as a Result of Defendants' Conduct........................................................................................113

X.

FIRST CLAIM FOR RELIEF VIOLATION OF 18 U.S.C. § 1962(c) (AGA[NST DEFENDANTS) ..................................................................................................... 113

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SECOND CLAIM FOR RELIEF VIOLATION OF 18 U.S.C. § 1962(d) BY CONSPIRACY TO VIOLATE 18 U.S.C. § 1962(c) (AGAINST DEFENDANTS)......................................................................................................129 THIRD CLAIM FOR RELIEF FRAUD (AGAINST DEFENDANTS) ................... . .................................................................................. 134 FOURTH CLAIM FOR RELIEF AIDING AND ABETTING FRAUD (AGAINST DEFENDANT KBC)............................................................................................... 136 FIFTH CLAIM FOR RELIEF AIDING AND ABETTING FRAUD (AGAINST DEFENDANTS)...................................................................................................... 138 SIXTH CLAIM FOR RELIEF TORTIOUS INTERFERENCE WITH PROSPECTIVE BUSINESS ADVANTAGE (AGAINST DEFENDANTS)...................................................................................................... 141 SEVENTH CLAIM FOR RELIEF COMMERCIAL BAD FAITH (AGAINST DEFENDANTS)...................................................................................................... 143 EIGHTH CLAIM FOR RELIEF CONVERSION (AGAINST DEFENDANTS)...................................................................................................... 145 NINTH CLAIM FOR RELIEF NEGLIGENCE (AGAINST DEFENDANTS)...................................................................................................... 146 TENTH CLAIM FOR RELIEF BREACH OF THE COVENANT OF GOOD FAITH AND FAIR DEALING (AGAINST DEFENDANT ADB)............................................................................................... 148 ELEVENTH CLAIM FOR RELIEF UNJUST ENRICHMENT (AGAINST DEFENDANTS)...................................................................................................... 149 TWELFTH CLAIM FOR RELIEF MONEY HAD AND RECEIVED (AGAINST DEFENDANTS)...................................................................................................... 150
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THIRTEENTH CLAIM FOR RELIEF DECLARATORY JUDGMENT (AGAINST DEFENDANT ADB) ................................................................................................ 151 FOURTEENTH CLAIM FOR RELIEF ACCOUNTING (AGAINST DEFENDANT ADB)............................................................................................... 152 FIFTEENTH CLAIM FOR RELIEF INJUNCTIVE RELIEF (AGAINST DEFENDANT ADB) ............................................................................................... 153 JURYDEMAND.........................................................................................................................155

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MEMBERS OF THE ENTERPRISE
The following persons and entities are members of the "Enterprise" as defined herein:

DEFENDANT MEMBERS
1. 2. Antwerp Diamond Bank N.V. ("ADB") KBC Bank N.V. ("KBC")

DALEYOT ENTITY MEMBERS
The following persons and entities are additional non-defendant Enterprise members defined herein as the "Daleyot Entities": 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19. Erez Daleyot ("Daleyot") DD Manufacturing N.V. ("DD") DD Manufacturing (Suisse) S.A. ("DD Suisse") DDM Holding CVA ("DDMH") Diamco Services S.A. a/k/a Diamco Services Sari ("Diamco") D.K.T. Diamonds Ltd. ("DKT") E.D. Gems Ltd.fik/a F.T.D. Diamonds Ltd. ("ED/FTD") EKT Air Services Ltd. ("EKT") The Equalia Group ("Equalia Group") Raphael Fass ("Fass") Gemport DMCC ("Gemport") Hatilem Enterprises Ltd. ("Hatilem") The IL Investment Trust ("IL Investment Trust") Jortec Development Ltd. ("Jortec") K.T. Collection BVBA ("KT") Kertalor Holding, N.V. ("Kertalor") Mauridiam Investment and Consulting Ltd. ("Mauridiam") v

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20. 21.

Pentolon Trading Ltd. ("Pentolon") David Salama ("Salama") OTHER NON-DEFENDANT MEMBERS

22. 23. 24.

Pierre De Bosscher ("Dc Bosscher") Luc Gijsens ("Gijsens") Guy Snoeks ("Snoeks")

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Plaintiff Lazare Kaplan International Inc. ("Plaintiff' or "Lazare"), by its attorneys, Herrick, Feinstein LLP, for its complaint against defendants KBC Bank N.V. ("KBC") and Antwerp Diamond Bank N.V. ("ADB") (together, "Defendants"), submits this Complaint based upon knowledge with respect to itself, its own acts, and much of the misconduct of Defendants and others, and upon information and belief as to all other matters. Due to the deceptive nature of Defendants' acts, and the complex structure of the racketeering enterprise described herein, certain information about the criminal money laundering and other illegal acts of the Defendants has been purposefully concealed from Lazare, and will therefore become available only through discovery. Lazare reserves its right to amend this Complaint as discovery is obtained and further information is learned.
SUMMARY OF THE FRAUDULENT SCHEME

1.

Lazare seeks redress under the Racketeer Influenced and Corrupt Organizations

Act ("RICO"), 18 U.S.C. § 1961, et seq., and state law, for catastrophic damages to its business and property that were caused and continue to be caused by a racketeering, fraud and moneylaundering scheme conducted by Defendants KBC and ADB, in concert with a complex web of individuals and entities controlled by or associated with Defendants' customer, Erez Daleyot ("Daleyot") 2. At all relevant times, Defendants and these individuals and entities collectively

formed an association-in-fact, referenced herein as the "Enterprise," that carried out a scheme through a pattern of illegal conduct that included, without limitation, acts of criminal money laundering, bribery, mail and wire fraud, international transportation of stolen property and

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extortion occurring within the United States and elsewhere (the "Illegal Scheme").' Between 2008 and 2010, Defendants, together with Daleyot and certain of the Daleyot Entities (defined below), stole and diverted in excess of $135 million worth of diamonds (the "LKI Diamonds") that Lazare and its subsidiaries and affiliated companies had purchased or financed through credit facilities maintained with Defendants and other lenders, including ABN AMRO Bank N.V. ("ABN-AMRO"). 2 4. Defendants KBC and ADB were at the very center of the Illegal Scheme, directed

the Illegal Scheme and were complicit in the actions of Daleyot and his companies in furtherance of the Illegal Scheme. 5. At every step of the way, Defendants and the other members of the Enterprise

worked in concert to: (i) plan the theft of the LKI Diamonds; (ii) transfer the diamonds through a series of legitimate and sham transactions that made them difficult to trace; (iii) launder the proceeds of the LKI Diamonds through a network of legitimate and illegitimate businesses and accounts; (iv) use such proceeds to repay certain financially disastrous loans that Defendants had made to Daleyot and his companies; (v) cover up their involvement in the Illegal Scheme; (vi)

The bank accounts and account numbers referenced herein are believed to have been used by Defendants and others as part of the Illegal Scheme. Upon information and belief, such accounts were used, among other things, to receive and disburse proceeds from the sale of diamonds misappropriated from Lazare and its affiliates, and to divert money from accounts at ADB for use in KBC-related real estate projects and for the purchase of fine art, private airplanes and a yacht. In October 2010, Lazare and ABN-AMRO settled all of Lazare's claims against ABN-AMRO, including those relating to ABN-AMRO's alleged participation in the Illegal Scheme. Under the settlement, which is disclosed in Lazare's public SEC filings under SEC Rule 8-K, ABN-AMRO deemed satisfied more than $50 million of Lazare's and its affiliates' obligations, returned 2,151,103 shares of Lazare's common stock (representing 26% of the outstanding shares of the corporation), and assigned to Lazare certain rights to insurance payments, and in turn received a general release from Lazare. In addition to its settlement with ABN, on July 1, 2011, Lazare settled certain claims relating to the theft and misappropriation of the LKI Diamonds with its insurance carriers, including Swiss Re and certain Lloyds of London Syndicates. Lazare has publicly disclosed the terms of this settlement in its 8-K filings. Both settlements were expressly without prejudice to Lazare's rights and claims against Defendants KBC and ADB. 2
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obstruct Lazare's investigation regarding the thefi of its diamonds and sales proceeds thereof, and (vii) attempt to put Lazare out of business. 6. Defendant KBC is a Belgian bank doing business in the United States, and is the

parent and sole shareholder of ADB. 7. Defendant ADB is a Belgian bank doing business in the United States that claims

to focus exclusively on the diamond and diamond jewelry sector. 8. 9. 10. executives. 11. For example, Luc Gijsens ("Gijsens"), a senior executive of KBC served on Defendant KBC controls and manages the operations of Defendant ADB Senior executives of KBC serve on the Board of Directors of ADB. At all relevant times, ADB's Board of Directors was controlled by KBC

ADB's Board of Directors, including as Chairman, as had his predecessors, Guido Segers (a senior executive at KBC) and Jan Vanhevel (KBC's current Chief Executive Officer). 12. Pieter Vandendriessche, until recently a senior executive officer of KBC, served

at all relevant times as the Chairman of the Audit Committee of ADB's Board of Directors. 13. At all relevant times, KBC executives were aware of, directed and participated in

the Illegal Scheme by exercising their authority over ADB to use it as an instrument for the implementation and cover up of the Illegal Scheme as described below. 14. Lazare is a publicly listed diamond trading and manufacturing company based in

New York City that financed its diamond operations in part through a $45 million line of credit with Defendant ADB's New York office. 15. Lazare's Belgian subsidiary, Lazare Kaplan Belgium N.V. ("LKB"), at relevant

times had a $25 million line of credit with Defendant ADB. 3

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16.

Daleyot is an important customer of Defendant KBC and one of the largest

customers of Defendant ADB, which also holds personal guarantees from Daleyot and his wife. 17. Defendants have loans outstanding to certain Daleyot Entities, and both ADB and

KBC are intimately familiar with the business operations and financial condition of Daleyot and the Daleyot Entities. 18. The overall purpose of the Enterprise was to facilitate and maintain diamond and

real estate operations throughout the world in which Defendants, Daleyot and the Daleyot Entities had an interest, and to obtain money to which Defendants, Daleyot, and the Daleyot Entities were not entitled, including through the theft of LKI diamonds and sales proceeds, and the laundering of such sales proceeds. 19. Defendants played a central role in the Enterprise in order to illicitly divert money

into the Daleyot Entities, including proceeds from the sales of the LKI Diamonds, to cover - and then cover up - enormous losses Defendants were facing on account of exceedingly large, unsustainable and illicit investments in companies in which they and certain of the Daleyot Entities had a financial interest. 20. Upon information and belief, as part of the Illegal Scheme, senior officers of

Defendants took illicit payments and bribes from the Daleyot Entities. 21. At all relevant times, Defendants, upon information and belief, sought to conceal

millions of dollars in illicit payments and bribes that Defendants' senior officers took as part of their active and knowing role in the management and operation of the Enterprise and the Illegal Scheme. 22. The Illegal Scheme that Defendants perpetrated, knowingly and jointly with the

Daleyot Entities and the other members of the Enterprise, is straightforward.

ru

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23.

According to its website, ADB is a specialized bank "focusing exclusively on the

diamond and the diamond jewelry sector." Lazare relied on this representation in its dealings with ADB and the Daleyot Entities. 24. In 2006, Defendants provided one of the Daleyot Entities, DD Manufacturing

N.V. ("DD"), with a $120 million credit facility purportedly for use in connection with its diamond business. 25. In direct contravention of ADB's stated purpose as a bank focusing exclusively on

the diamond and diamond jewelry sector, ADB, at the direction of its parent company, KBC, facilitated, operated and managed the fraudulent outflow of monies, ostensibly borrowed for use in the diamond industry, to Daleyot-controlled or affiliated companies that used such funds for speculative real estate transactions in Central and Eastern Europe as well as for other illicit purposes more fully described below. 26. equity holder. 27. Upon information and belief, at all relevant times, Gijsens headed KBC's group in KBC was involved in these real estate transactions as lender and/or advisor and/or

charge of lending relating to real estate transactions in Central and Eastern Europe, and at the same time served on ADB's Board of Directors, including as its Chairman. 28. KBC officers were in a position to direct the fraudulent outflow of funds from

ADB into various Daleyot Entities to facilitate their investment of those funds in, among other things, Central and Eastern European real estate transactions in which KBC had a financial interest. 29. One of KBC's main lines of business during the relevant time period (directly and

through, among others, its subsidiaries KJ3C Peel Hunt, Kredyt Bank and KBL) was serving as a 5

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lender or advisor for real estate transactions in Central and Eastern Europe. 30. Defendants diverted tens of millions of dollars into such real estate projects

through opaque corporate structures that they created with Daleyot. 31. In addition, beginning in 2007, Defendants enabled DD to borrow approximately

$36 million under its ADB credit line, which ADB then directly remitted from DD's account at ADB to various vendors in payment for Daleyot's purchases of fine art and other luxury items. 32. During 2008 alone, ADB directly made the payment of approximately $13.5

million from DD's account for fine art purchases made by and for Daleyot with funds borrowed under DD's line of credit with ADB. 33. In addition to directly diverting funds through certain Daleyot Entities,

Defendants knew or should have known that they were facilitating the diversion of funds from accounts at ADB through Daleyot' s offshore, layered shell companies for his personal expenses, including the purchase of private airplanes, fine art and a yacht. 34. ADB, at the direction of KBC, continued these practices notwithstanding the fact

that by late 2007, even before the global financial crisis began to unfold, KBC was markedly overextended. Over the course of the next two years, KBC had to borrow nearly $5 billion in emergency funding from the United States Federal Reserve through its Term Auction Facilities ("TAF") 35. At a later date, the Kingdom of Belgium and the Region of Flanders, with the

approval of the relevant authorities of the European Union, had to provide additional public funds of approximately €7 billion (approximately $10 billion) to bail out KBC. 36. When the global financial crisis hit in 2008, and both diamond prices and the

value of real estate in Central and Eastern Europe (and other assets) fell precipitously,

no

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Defendants realized that the Daleyot Entities would be unable to repay the improper loans that Defendants extended to DD (totaling more than $118 million at that time) and that Defendants would sustain massive losses. 37. A default by Daleyot's companies threatened to cause ADB to collapse and to

expose Defendants' mismanagement and the wrongdoing of their senior officers. 38. Upon information and belief, to cover up such exposure, Defendants and the

Daleyot Entities needed to find a source of funds to pay down DD's and other Daleyot Entities' debts. 39. The principal source of funds Defendants seized upon was the over $135 million

worth of LKI Diamonds. 40. Upon information and belief, Defendants targeted Lazare expecting that: (i)

Lazare would never discover Defendants' role in the Illegal Scheme; (ii) Defendants could exert substantial pressure on Lazare as its main creditor in collaboration with its other creditors; and (iii) Defendants could force Lazare to repay its outstanding obligations despite the loss of the LKI Diamonds. 41. Upon information and belief, Defendants calculated that even if Lazare could not

repay its outstanding obligations to ADB, the losses Defendants would suffer as a consequence of the collapse of the Daleyot Entities and the exposure of the Illegal Scheme were far greater than any consequences that Defendants would suffer if Lazare's business was destroyed. 42. As part of legitimate diamond transactions, and in the normal course of business,

Lazare consigned some of the LKI Diamonds to LKB, which in turn consigned the diamonds to two Daleyot Entities, DD and K.T. Collections BVBA ("KT"), for ultimate sale to third parties. 43. Lazare further financed the purchase of other LKI Diamonds through a Dubai 7

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venture with Daleyot known as Gulfdiam DMCC ("Gulfdiam"). 3 44. Lazare directly guaranteed payment of a portion of a credit facility from ABN-

AMRO that Gulfdiam used to purchase such LKI Diamonds. 45. After taking delivery of the LKI Diamonds, DD, KT and a Daleyot Entity called

Mauridiam Investment and Consulting Ltd. ("Mauridiam"), which purported to act on behalf of Gulfdiam, were to arrange for the sales of the LKI Diamonds to third party purchasers, whose payments would be applied to the repayment of Lazare's, LKB's and Gulfdiam's credit facilities. That never happened. 46. Instead, Defendants and the Daleyot Entities employed the Illegal Scheme to

defraud Lazare, LKB and Gulfdiam out of the sales proceeds of the LKI Diamonds and divert such proceeds to repay the Daleyot Entities' debts to Defendants and others. 4 47. In the Illegal Scheme, certain of the Daleyot Entities, at the direction and

participation of Defendants, took possession of the LKI Diamonds through various intermediary companies, including other clients of Defendants. Instead of paying for them, these entities shipped the LKI Diamonds across the Middle East, Asia, and Europe, from one shell company associated with Daleyot to another. 48. Upon information and belief, many of these shell companies have never had a

Gulfdiam is a company jointly owned by a Daleyot Entity, Mauridiam Investment and Consulting Ltd. ("Mauridiam"), Lazare and a third party. Gulfdiam was established pursuant to a Dubai Trading Shareholders Agreement, dated May 16, 2006, in the Dubai Multi Commodities Centre, Dubai, United Arab Emirates. At all relevant times, Gulfdiam has been controlled and managed by Mauridiam, which holds a 45% interest in Gulfdiam. Daleyot and his long-time business associate Raphael Fass manage the day-to-day affairs of Gulfdiam. Lazare's subsidiary, Serenity 2 Ltd. ("Serenity"), owns a 30% interest in Gulfdiam and a third party owns a 25% interest in Gulfdiam. With respect to the issues involving Gulfdiain described herein, Lazare seeks recovery from Defendants only to the extent that Defendants' Illegal Scheme has injured Lazare. Lazare is not asserting claims on behalf of Gulfdiam and does not seek to recover on behalf of Gulfdiam. With respect to issues involving Lazare's wholly owned subsidiary, LKB, Lazare is seeking damages based on the injury Defendants have caused to Lazare and LKB.

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business purpose other than to facilitate the international transfer of goods and funds for carefully concealed owners. 49. In so doing, Defendants and the Daleyot Entities disguised the shipments by way

of bogus third party sales to conceal and legitimize the illicit movement of the LKI Diamonds and to allow the Daleyot Entities and Defendants to divert and misappropriate the sales proceeds from third party purchasers that were ultimately paid to various Daleyot Entities' accounts at

50.

These proceeds, which actually were owed to Lazare, LKB and Gulfdiam and

which should have been used in part to repay loans (guaranteed by Lazare) that were made from ADB and ABN-AMRO to Lazare, LKB and Gulfdiam, were instead diverted by Defendants and the Daleyot Entities to repay millions of dollars of debts owed by the Daleyot Entities to Defendants, and to invest in Central and European real estate projects in which KBC had a financial interest. 51. Upon information and belief, these proceeds were also used to make illicit

payments and bribes to key senior officers of Defendants and to finance Daleyot's activities, including the acquisition of private airplanes, fine art and a yacht. 52. 53. All sales of the LKI Diamonds were U.S. dollar denominated transactions. The purloined funds from the sales of the LKI Diamonds were funneled into and

out of ADB's U.S. dollar denominated accounts at KBC's branch in New York utilizing the U.S. banking system along with hundreds of millions of dollars of other funds that were cleared by KBC in New York as part of the Illegal Scheme.

54.

While transferring the LKI Diamonds to Daleyot's shell companies, Defendants,

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at KBC's direction, compounded the fraud by providing the Daleyot Entities with additional financing. 55. Defendants did so by manipulating ADB's books and records and accepting, as

collateral for loans, pledges of invoices for bogus sales of the LKI Diamonds that were stolen from Lazare and its affiliates. 56. Upon information and belief, to facilitate and cover up their wrongdoing,

Defendants, at KBC's direction, created and maintained two separate and contradictory sets of books and records. 57. ADB maintained one set of books and records that minored Lazare's and LKB's

records and in which transactions were accurately recorded. 58. ADB maintained a second (and fraudulent) set of books and records in which

ADB deliberately manipulated reported information and manually reallocated the application of Daleyot Entity payments to the detriment of Lazare and LKB. 59. After converting proceeds from the sales of the LKI Diamonds and wrongfully

using them to pay down and/or guarantee the Daleyot Entities' bank debts, Defendants took the fraud even further. 60. Defendants demanded that Lazare and LKB repay the lines of credit that Lazare

and LKB had bonowed or guaranteed for the purpose of making the original purchases of the very same LKI Diamonds that Defendants had stolen. 61. Lazare, unaware of the Illegal Scheme, responded by informing senior officers at

each of ADB and KBC, and their counsel, that it had not received from Defendants' clients (i.e., certain of the Daleyot Entities) any of the proceeds from the sales of the LKI Diamonds. 62. Lazare further responded by informing ADB that such proceeds, in part, appeared 10

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to have been paid by third parties to such Daleyot Entities' accounts at ADB. 63. ADB improperly applied such proceeds to reduce its exposure to the Daleyot

Entities instead of remitting such proceeds to Lazare and/or LKB. 64. Lazare repeatedly sought to enlist Defendants' assistance and cooperation in

investigating what had happened to the LKI Diamonds and proceeds from the sales of such diamonds (as the document trail related to such proceeds revealed that such proceeds had been deposited into accounts at ADB). Moreover, Lazare repeatedly sought to enlist Defendants' assistance and cooperation in pursuing a recovery, including under Lazare's insurance policies. 65. Among other things, Lazare requested on several occasions that ADB appoint its

own auditor, or support Lazare's efforts to appoint an independent third-party auditor to examine the books and records of Lazare, LKB, and Daleyot Entities, DD and KT. 66. Contravening their obligations to Lazare, Defendants concealed their complicity

and participation in the fraud and criminal money laundering. 67. Defendants refused Lazare's entreaties to conduct their own investigation and

actively obstructed Lazare' s investigation. 68. Based on information and documents revealed as a result of a three-year

investigation, Lazare ultimately uncovered the fraud and money-laundering scheme perpetrated by Defendants. 69. Lazare identified the shell companies used to transfer the LKI Diamonds and

proceeds thereof to accounts at ADB, including accounts of holding companies or trust structures that, upon information and belief, were publicly associated with criminal money laundering and

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other criminal activities, including those occurring in or targeting the United States. 5 70. At the very same time that Lazare was informing ADB that the LKI Diamonds and sales proceeds had been misappropriated and that Lazare's efforts to appoint an independent third-party auditor to examine the parties' respective books and records was being stonewalled, Defendants had arranged for and received: (a) at least $122 million from the sales proceeds of Formal Sector LKI

Diamonds (as defined below) stolen from Gulfdiam (and Lazare), including (i) $77 million collected from third party customers (who were themselves clients of ADB), (ii) $15 million directly from Mauridiam, and (iii) an additional $30 million indirectly from Mauridiam through a shell company funded by ADB; (b) at least $26 million received from DD on account of sales proceeds of the

Informal Sector and Sight Rough LKI Diamonds (as defined below) that were stolen from Lazare and LKB; and (c) an additional $20 million transferred from Daleyot's accounts at HSBC

(Genève) directly to accounts of DD at ADB pursuant to a back-to-back loan guarantee held by ADB and used in violation of applicable regulations. 71. Lazare immediately brought the details of the massive wrongdoing it had

uncovered to the attention of senior management of Defendants. 72. These details revealed that by their senior officers permitting and facilitating

According to published reports (e.g., Corse-Matin, Marches truqués: le cousin de Pierre Olmeta entendu aujourd'hUi, Jan. 12, 2011, available at http ://www.corsematin.comlarticle/corse/le-cousin-de-pierre-olmetaentendu-aujourdhui; La Provence, International Networks of Businessman Alexandre Guerin, Jan. 12, 2011) some of the companies and trusts in the Enterprise are likely the subjects of investigations in several jurisdictions as members of a broad international money laundering network separate and apart from the LKI Diamonds at issue herein, with the U.S. dollar proceeds of ongoing criminal activities moving to and from the United States through that network.

12

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myriad suspicious financial transactions and maintaining intimate banking relationships with Daleyot and his companies to accomplish the Illegal Scheme, Defendants had engaged in flagrant violations of their own internal anti-money laundering ("AML") and know your customer ("KYC") policies and procedures in addition to applicable AML and KYC laws, including the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001 (also known as the Title III of the "USA Patriot Act"). 73. Confronted with Lazare's compelling information about Defendants' fraud and

criminal money laundering, Defendants actively sought to cover up the Illegal Scheme and their own role and complicity in it by undermining Lazare and seeking to destroy its business. 74. Defendants tried to intimidate Lazare by threatening Lazare with false and

manufactured claims of defaults on Lazare's own (and its subsidiary's) lines of credit if Lazare continued to investigate the Illegal Scheme. In reality, there was no legitimate basis for any default. 75. Lazare and its affiliates had never missed a payment of interest or principal to

Defendants or any of Lazare's other lenders. 76. Lazare's loan from ADB remains outstanding on ADB's books because ADB

intentionally misapplied funds belonging to Lazare from the sale of the LKI Diamonds to the debts of the Daleyot Entities instead of properly applying such funds to Lazare's and its affiliates' debts. 77. As a result of ADB's actions, ADB has been more than fully paid for all amounts

Lazare may have owed to ADB. 78. Nonetheless, in a series of meetings and conversations in New York City and

elsewhere between representatives of Lazare and Defendants, Defendants threatened Lazare with 13

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an involuntary bankruptcy, urging Lazare's other lenders to join them. 79. When that did not materialize (due to the refusal of one of Lazare's other lenders

to go along with Defendants' plan), Defendants made good on their threats to terminate Lazare's and LKB's credit lines. 80. Termination of their credit lines had devastating effects on Lazare's and LKB's

ability to conduct their business - as Defendants, upon information and belief, knew and intended. 81. Defendants, however, took the fraud a step further. ADB sued Lazare in

Antwerp, Belgium seeking payment from Lazare on a line of credit used to buy certain of the LKI Diamonds (which should have been paid off by the funds ADB had misappropriated and applied to the Daleyot Entities' loans). 82. Moreover, ADB did so by filing court documents falsely stating, among other

things, that the credit agreement contained Belgian choice of law and jurisdictional provisions. 6 83. In fact, the credit agreement mandates the application of New York law, and that

all proceedings be brought in New York or a forum having jurisdiction under New York law over such proceedings. 7 84. ADB and KBC realized a direct financial benefit from the misappropriation of the

LKI Diamonds and sales proceeds therefrom. 85. 86. ADB was able to minimize its exposure to the Daleyot Entities. KBC benefited because ADB is a wholly owned subsidiary of KBC (and is

6

The hearing in that improper Belgian lawsuit has been postponed at the request of ADB until September 2012.

Lazare denies the allegations made by ADB in that lawsuit and has objected to ADB's lawsuit in Belgium on jurisdictional grounds. 14

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operated and controlled by executives of KBC), and because KBC irrevocably guarantees all of the obligations of ADB. 87. In addition, KBC was able to use ADB to make loans to the Daleyot Entities that

benefited KBC's business relating to Central and Eastern European real estate transactions. 88. In short, Defendants were knowing and intentional participants in, and managers

of, the Illegal Scheme to steal the LKI Diamonds and divert the proceeds thereof 89. Defendants then engaged in further illegal conduct expressly intended to

intimidate Lazare and destroy its business in an effort to cover up their participation in the Illegal Scheme and their participation in the Daleyot Entities' various other money laundering activities. 90. As a direct and proximate result of Defendants' illegal conduct, Lazare: (i)

suffered damages from the loss of the LKI Diamonds and sales proceeds; (ii) was deprived of funds needed to finance its ongoing business operations in the United States and around the world; (iii) was unable to obtain new lines of credit from other lenders; (iv) lost critical contracts, markets and funding; (v) was forced to discontinue business lines in major countries of operation; (vi) was unable to file required financial reports with the United States Securities and Exchange Commission ("SEC"); (vii) had its stock delisted from the American Stock Exchange ("AMEX"); (viii) suffered business interruptions, including the tennination and reduction of important operations, dramatic increases in insurance and other costs, and harm to its reputation and business prospects; (ix) lost its rough diamond sourcing abilities in several jurisdictions; and (x) lost some and had reduced other of its "Sight" allocations from Diamond Trading Company ("DTC") - the rough diamond sales and distribution arm of the De Beers Family of Companies

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("De Beers"). 8
JURISDICTION AND VENUE

91.

This Court has subject matter jurisdiction over this action: (a) pursuant to 28 U.S.C. § 1331 because claims herein arise under the laws of

the United States; (b) pursuant to the Racketeer Influenced and Corrupt Organizations Act

("RICO"), 18 U.S.C. § 1964(c), because claims herein seek recovery for violations of 18 U.S.C. § 1962; (c) pursuant to 18 U.S.C.A. § 1956(f), including extraterritorial jurisdiction,

because the claims herein seek recovery over conduct prohibited by that section, the conduct occurred in part in the United States and the transaction or series of related transactions involves funds or monetary instruments of a value exceeding $10,000; (d) pursuant to 28 U.S.C. § 1332 based on the diversity of the citizenship of

the parties, and the fact that the amount in controversy exceeds $75,000, exclusive of interest and costs; and (e) pursuant to 28 U.S.C. § 1367(a), because state law claims asserted herein

are so related to the claims arising under the laws of the United States that they form part of the same case or controversy. 92. This Court has personal jurisdiction over Defendants because: (a) each of the

Defendants maintains offices and does business in New York; (b) Defendant ADB's loan

DTC is the world's largest supplier (by value) of rough diamonds. DTC supplies De Beers rough diamonds on a 3year contract basis to "DTC Sightholders" (i.e., a select group of companies that are authorized bulk purchasers of rough diamonds).

16

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agreement with Lazare provides for jurisdiction in the New York state and federal courts; (c) pursuant to New York CPLR 301 and 302(a)(1), Defendants are and at all relevant times were doing business and transacting business within the State; (d) pursuant to CPLR 302(a)(3)(ii), Defendants committed tortious acts without the state causing injury to person or property within the state; and (e) they are co-conspirators with the Daleyot Entities and other Non-Defendant Members of the Enterprise in a racketeering scheme that involved moving funds through New York and that directly affects Lazare in New York. 93. Venue is proper in the Southern District of New York pursuant to 28 U.S.C.

§ 139 1(d) because Lazare and Defendants all maintain offices in this district and because each of the Defendants is a foreign corporation or citizen. 94. Venue is also proper pursuant to 28 U.S.C. § 1391(a)(3) because Defendants are

subject to personal jurisdiction in this district and there is no district in which the action may otherwise be brought. 95. In addition, Lazare and Defendant ADB have expressly agreed in various loan

agreements between them that the New York state and federal courts are the proper forum for any litigation between them pertaining to the matters in this Complaint, and that New York law governs such matters. PARTIES 96. Plaintiff Lazare is a publicly traded diamond manufacturing, distribution and

trading company based in New York City with offices at 19 West 44th Street, New York, New York. Lazare is a company with a 107-year history, and is engaged in the cutting and polishing of diamonds that it sells to retail jewelers throughout the United States and abroad. 97. Lazare was listed on the AMEX from 1972 until August 11, 2010 (when it was 17

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delisted as a result of the Illegal Scheme resulting in Lazare's inability to comply with its financial reporting obligations). 98. 99. Lazare does business in Belgium through its subsidiary LKB. During the relevant time period, Lazare and LKB financed their working capital

requirements through short-term lines of credit (principally with ADB) and long-term revolving loan agreements with different lenders. 100. Pursuant to such credit/loan facilities, Lazare made payments on behalf of itself and LKB in New York to ADB's dollar denominated account at the New York branch of KBC. 101. Defendant KBC, upon information and belief, is a foreign banking corporation established and existing under the laws of Belgium with a principal office at Havenlaan 2, Brussels 1080, and is the parent, sole owner, and guarantor of the obligations of Defendant ADB. 102. KBC is authorized to do business, and is doing business in New York, and maintains a branch and office in New York at 1177 Avenue of the Americas, (7th Floor) New York, New York. 103. At all relevant times, ADB's Board of Directors was controlled by KBC, and a senior officer of K]3C served as the Chairman of the Board of Directors of ADB. 104. According to Defendants' publicly filed annual reports, KBC irrevocably guarantees all of ADB's obligations. 105. Upon information and belief, KBC directed, assisted and directly benefited from ADB's activities relating to the Daleyot Entities and their involvement with the LKI Diamonds, including the diversion of the sales proceeds thereof. 106. KBC itself, and certain of its subsidiaries, were, at all relevant times, lenders to and creditors of certain of the Daleyot Entities and their subsidiaries. OR

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107.

Upon information and belief, KBC's New York branch cleared all of ADB's U.S.

dollar denominated transactions referenced herein, including those relating to sales proceeds from the LKI Diamonds. 108. Lazare made payments on its own and LKB's lines of credit with ADB by

depositing funds into ADB's account at KBC's New York branch. 109. KBC is a member of the Enterprise referenced herein and, upon information and

belief, knowingly and intentionally directed, facilitated and participated in the Illegal Scheme.

110.

Defendant ADB, upon information and belief, is a foreign banking corporation

established and existing under the laws of Belgium with a principal office at Pelikaanstraat 54, B-2018, Antwerpen 1, Belgium. 111. ADB is authorized to do business, and is doing business in New York, and

maintains a representative office at 1177 Avenue of the Americas (7th1 Floor), New York, New York (i.e., the same address as KBC in New York). 112. Upon information and belief, ADB has had over seventy-seven (77) years of

lending experience in the diamond industry. 113. According to ADB's own public statements, ADB claims to be a specialized bank

focusing exclusively on the diamond and the diamond jewelry sector, and is a major lender to diamond companies around the world. 114. 115. 116. ADB is the primary lender to various Daleyot Entities, including DD. According to ADB's website, ADB "is a fully owned subsidiary" of KBC. ADB is also the parent of Banque Diamantaire (Suisse) SA ("ADB (Suisse)"),

which was placed into liquidation at the end of 2008 for regulatory violations similar to those alleged in this Complaint. 19

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117. 118.

Several of the Daleyot Entities were clients of ADB (Suisse). Upon information and belief, ADB (Dubai), a Dubai subsidiary of ADB, presently

is under review by regulatory agencies for violations of banking and other regulations. 119. ADB is a member of the Enterprise referenced herein and, upon information and

belief, knowingly and intentionally directed, facilitated and participated in the Illegal Scheme.

RELEVANT NON-PARTIES Daleyot Entity Members of the Enterprise
120. The Daleyot Entity Members of the Enterprise referenced herein include the

following (collectively the "Daleyot Entities"): (a)

Erez Daleyot ("Daleyot"), upon information and belief, is a citizen of

Israel and Belgium with a last known address at Dennenlaan 25, 2610 Wilrijk, Belgium, a high profile businessman in the diamond industry and, through his company DD, a substantial customer of De Beers's rough diamond sales and distribution arm, DTC. In addition, upon information and belief: (i) Daleyot manages and/or controls the business affairs of a web of offshore, tax haven and shell companies, which, under the direction and with the knowledge and participation of Defendants, were used to carry out the Illegal Scheme through a pattern of illegal conduct that included, without limitation, acts of mail and wire fraud, money laundering, bribery, international transportation of stolen property and extortion occurring in the United States and elsewhere; (ii) Daleyot individually and certain of the Daleyot Entities have been major customers of ADB for many years;

FA

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(iii) Daleyot is or at all relevant times was doing business indirectly through a number of companies, including without limitation the Daleyot Entities and Jacob & Company alk/a Jacob the Jeweler; 9 (iv) on a number of occasions from 2006 through 2008, Daleyot traveled to the United States to transact business, including for the purpose of meeting with Lazare at its offices in New York City in regard to the diamonds at issue herein and in furtherance of the Illegal Scheme; (v) Daleyot maintained a personal account at KBC numbered 24-60; and (vi) Daleyot facilitated and participated in the Illegal Scheme. (b)
DDM Holding CVA ("DDMH"), upon information and belief, is a

Belgian shell company (company number 0886952261), created in 2007, with offices at Schupstraat 9-11, Antwerpen, B-20 18, Belgium. In addition, upon information and belief: (i) DDMH has a U.S. dollar account at ADB (number ********O1 14) and a Euro account at ADB (number *** *****01 13); (ii) DDMH is not involved in the diamond business; (iii) Defendants, together with Daleyot and the Daleyot Entities, used DDMH to effectuate the Illegal Scheme, and particularly as a conduit for Defendants to: (I) funnel money from ADB to KBC's Central and Eastern European real estate transactions in which both Daleyot and KBC had a financial interest; (2) funnel money for Daleyot's personal

Jacob & Company is a company owned in part by Yacov Arabov, a!kla "Jacob the Jeweler," who, according to published reports, pled guilty to tax evasion charges arising out of the money laundering of $270 million in proceeds from illegal drug dealing. According to published reports, Daleyot owned an approximately 51% voting interest in Arabov's business.

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expenditures including private airplanes, a yacht and fine art; and (3) channel and launder proceeds from the sales of the LKI Diamonds stolen from Lazare, LKB and Gulfdiam. (c)

D.D. Manufacturing N.Y. ("DD") and KT Collection BYBA ("KT"),

upon information and belief; are closely affiliated Belgian corporations (with company numbers 430019509 and 0479876024, respectively) under the common management and control of Daleyot, with common staff and offices at Schupstraat 9-11, Antwerpen, B-2018, Belgium. In addition, upon information and belief: (i) DD and KT: (1) are diamond wholesalers and manufacturers that

purchase rough diamonds from diamond producers and have cutting and polishing facilities worldwide; (2) finance their business operations, in part, through loans from ADB and other lenders, which are personally guaranteed by Daleyot and his wife; (3) were holders of accounts at ADB to which sales proceeds of the LKI Diamonds were diverted and from which they were misappropriated by Defendants; and (4) both purchase and sell diamonds in the United States; (ii) DD and KT were used by Defendants in effectuating the Illegal

Scheme, and, in particular, served as a conduit for the theft of the LKI Diamonds and sales proceeds, and for criminal money laundering; (iii) DD maintains accounts at ADB with the following account

numbers: Euro account number *****0030; U.S. Dollar account number ********0131; Japanese Yen account number ***.*****00..32 ; South African Rand account number *** *****0033; British Pound account number *** *****0034; and Swiss Franc account number

***.*****0035; and
(iv) DD maintains an account at KBC numbered ***.*****8019

Upon information and belief; KT maintains accounts at ADB with the following account 22

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numbers: ********01..69 and ***.*****0068 and KT maintains an account at KBC numbered

(d)

DD Manufacturing (Suisse) S.A. ("DD (Suisse)"), upon information and

belief is a Swiss shell company (company number CH-6602829006-5) with an address at 3 Rue Maurice, 1204 Genève, Switzerland. In addition, upon information and belief: (i) (Suisse); (ii) DD (Suisse) was used by Defendants in effectuating the Illegal David Salama, a close associate of Daleyot, is a director of DD

Scheme, and in particular, served as a conduit for the theft of the LKI Diamonds and sales proceeds, and criminal money laundering; (iii) DD (Suisse) maintained several accounts at HSBC (Suisse),

including account numbers ****3040 ; ****0998 ; and ****3135; and (iv) DD (Suisse) maintained accounts and a loan at ADB (Suisse)

numbered *************3738 (e)

Diamco Services SA a/k/a Diamco Services Sari ("Diamco"), upon

information and belief, is a Swiss company (company number 05896/2005) with a principal place of business
do

Equalia (Suisse) SA, 3 Rue Maurice, 1204 Genève, Switzerland (the same

address as DD (Suisse)). In addition, upon information and belief: (i) Diamco was involved in the purchase and sale of the LKI

Diamonds and was utilized by Daleyot as a shell company to facilitate the misappropriation of the LKI Diamonds; (ii) David Salama, a close Daleyot associate, is a director of Diamco,

the affiliated companies of which have been linked in published reports to criminal activities; 23

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(iii)

as early as 2007, Defendants knew that Diamco was part of the

Daleyot Entities that were involved in the Illegal Scheme; and (iv) Diamco maintained accounts at HSBC (Genève), including a U.S.

dollar account numbered ****7906 and a Swiss Franc account numbered ****7374 (f)
D.K.T. Diamonds Ltd. ("DKT"), upon information and belief, is an

Israeli shell company (company number 512774399), with a principal office at 6 Harkoon Street, Ramat Gan 52521, Israel. DKT has only one shareholder, ILDIA Holdings Ltd., an Israeli company (company number 513728832), which in turn has one shareholder, Equalia Services Trust Reg. Vaduz, a Liechtenstein entity (reference number PL-0002.083.385-4). In addition, upon information and belief: (i) (ii) David Salama is a director of Equalia Services Trust Reg. Vaduz; Defendants, together with Daleyot and the Daleyot Entities, used

DKT to effectuate the Illegal Scheme, and particularly as a conduit to divert (via DKT's U.S. dollar account number ****5843 at HSBC (Genève)) $20 million of sales proceeds of the LKI Diamonds stolen from Lazare to DD's account at ADB so that Defendants could misappropriate such funds in satisfaction of debts owed by the Daleyot Entities to Defendants; and (iii) DKT maintained a Euro denominated account number ****0915 at

HSBC (Genève) as well as back-to-back pledges' ° numbered ***6361, ***5510 and ***5721. (g)
E.D. Gems Ltd. (f/k/a F.T.D. Diamonds Ltd.) ("ED/FTD"), upon

information and belief, is an Israeli company engaged in the business of buying and selling

Pursuant to the back-to-back pledges, ADB gave a loan to DD and allowed DD to use as collateral assets of an offshore shell company, without bringing such assets to Belgium and without proper due diligence of the origins of such assets.

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diamonds (company number 513811091), with a principal place of business at Diamond Exchange Building, Jabotinsky 1, Ramat-Gan, 52520, Israel. In addition, upon information and belief: (i) ED/FTD is a wholly-owned subsidiary of the Daleyot owned and controlled company Mauridiam, which was utilized by Defendants and Daleyot as a conduit to divert the proceeds from the sales of LKI Diamonds away from Gulfdiam (and Lazare) directly

(ii)

ED/FTD was involved in the purchase and sale of the LKI

Diamonds stolen from Lazare, and was utilized by Daleyot and Defendants to facilitate the misappropriation of approximately $94 million of the missing LKI Diamonds; and (iii) le-Israel. (h) ED/FTD maintained account number *** **7686 at Bank Leumi

EKT Air Services Ltd. ("EKT"), upon information and belief, is a

Cyprus-based company (company number HE 195057), with a registered office address at Afroditis 42, Aglantzia, 2101 Nicosia, Cyprus, that invests in the acquisition of airplanes and other items. In addition, upon information and belief: (i) EKT's main shareholder and source of funding (through an ADB

account) was the Belgian shell company DDMH; (ii) EKT's three directors are David Salama (whose office address is 3

Rue Maurice, Equalia Suisse S.A., 1204 Genêve, Switzerland), and Zoe Kokoni and Soula Charilaou, both of whom are residents of Cyprus; (iii) Defendants, together with Daleyot and the Daleyot Entities, used

EKT to effectuate the Illegal Scheme, and particularly as a conduit for Defendants to: (1) funnel 25

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money from ADB to Daleyot for the purchase of luxury items including airplanes and a yacht; and (2) channel and launder proceeds from the sales of the LKI Diamonds stolen from Lazare; and (iv) EKT maintained an account at Credit Suisse (Genève) numbered

(i)

The Equalia Group ("Equalia Group"), upon information and belief,

has an office at 3 Rue Maurice 16, Genève, Switzerland (the same address as DD (Suisse)). In addition, upon information and belief: (i) Equalia Group is a global network of offshore companies under the

umbrella of Equalia (Suisse) SA Genève, which administers at least 19 companies owned or controlled by Daleyot, and plays a key role in the Illegal Scheme; at all relevant times herein, Equalia (Suisse) SA maintained accounts at UBS numbered USD ***.*****8 612 EURO *** *****860T; CHF ********8 OlD and CHF *** *****8 MIX according to public records in Israel, a member of the Equalia Group (Equalia Vaduz / Equalia Services Trust Reg. Vaduz ) was and is the owner of four Daleyot diamond companies through an Israeli company called ILDIA Holdings Ltd. that maintains accounts *** **63 85 and ***.**63 95 at Bank Leumi le-Israel; (iv) two Equalia Group executives, David Salama and Sidonie

Miramand Bieler, serve as Directors or Administrators of DDM (Suisse), which is owned by Daleyot' s associate, Raphael Fass; (v) Equalia Group and/or David Salama also have verifiable

relationships with a series of shell companies, including at least three members of the Enterprise 26

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DDM (Suisse), Diamco, and IL Investment Trust; (vi) the principal objective of the Equalia Group is to obscure the

origins of the sources of international finance and to hide the ownership of assets for its clients; and (vii) the Equalia Group, David Salama, and related companies and their

principals are the subject of ongoing law enforcement investigations in several countries. (j)

Raphael Fass ("Fass"), upon infonnation and belief, is a long-time

business associate of Daleyot, with a last known address at Oostesveldlaan 253, 2460 Mortsel, Belgium. In addition, upon information and belief: (i) Fass was the Chief Financial Officer responsible for managing the

day-to-day affairs of Gulfdiam, DD, KT, Mauridiam, Gemport, ED/FTD and other Daleyotrelated companies; (ii) DD (Suisse) and DDMH; and Fass facilitated and participated in the Illegal Scheme. (k) Fass was a shareholder in Daleyot-related companies, including

Gemport DMCC ("Gemport"), upon information and belief, is a wholly

owned Dubai subsidiary (registration number 0924) of Mauridiam, which in turn is owned and controlled by Daleyot. Gemport maintains offices at Emirates Tower, Level #41, Sheikh Zayed Road, Dubai, United Arab Emirates. In addition, upon information and belief: (i) Gemport maintained accounts at ABN-AMRO (Dubai) numbered

AED *.**.*8.939, USD *.**,**.*46.01, USD *.**.*8.497, EUR *.**.*8.795, and *.***7947; (ii) Gemport maintained accounts at ICICI Bank (UK) numbered GBP

***8806; USD ***8807; and EUR ***7808; and 27

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(iii)

Defendants and Daleyot used Gemport to effectuate the Illegal

Scheme, and particularly as a conduit for the theft of the LKI Diamonds and sales proceeds and for criminal money laundering. (1) Hatilem Enterprises Ltd. ("Hatilem"), upon information and belief, is a

Cyprus-based company (company number HE 172794), having its registered office at Greg Tower P.C., 1065 Nicosa, Cyprus, and is believed to invest in Central and Eastern European real estate, through a U.S. dollar account number ****..***..**1082 at Credit Suisse (Zurich). In addition, upon information and belief: (i) Defendants, together with Daleyot and the Daleyot Entities, used

Hatilem to effectuate the Illegal Scheme, and particularly as a conduit for Defendants to: (1) initially funnel money from ADB into Central and Eastern European real estate projects in which KBC and Daleyot had a financial interest; and (2) then channel and launder, from Mauridiam back to ADB, the proceeds from the sales of the LKI Diamonds stolen from Gulfdiam (and ultimately Lazare). (m) The IL Investment Trust ("IL Investment Trust"), upon information

and belief, is a British Virgin Islands irrevocable discretionary trust created by Daleyot and David Salama, that was used for, among other things, making illicit payments and bribes to senior officers of Defendants to aid and abet the movement of stolen diamonds and proceeds. In addition, upon information and belief: (i) held by IL Investment Trust; (ii) IL Investment Trust maintained accounts at HSBC (Genève) and at Daleyot and David Salama are the signatories on the bank accounts

Liechtenstein General Trust Bank ("LGT Bank"); and

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IL Investment Trust owned a British Virgin Islands company known as Modernisme International Ltd. ("Modemisme"), which held an account identified as 41***0227" at LGT Bank.
(n) Jortec Development Ltd. ("Jortec"), upon information and belief, is a

British Virgin Islands company (company number 541212) with multiple accounts at HSBC including account number ***5593 Upon information and belief, Jortec's accounts at HSBC were used to pay bribes to Defendants' senior officers.
(o) Kertalor Holding, N.V. ("Kertalor"), upon information and belief; is a

Belgian shell company (company number 0889293723), with offices at Schupstraat 9-11, Antwerpen, B-2018, Belgium, maintaining a U.S. dollar account number ********00..42 at ADB. Daleyot is the President and Managing Director of Kertalor. In addition, upon information and belief: (i) Defendants used Kertalor to effectuate the Illegal Scheme, and

particularly as a conduit for the theft of the sales proceeds of the LKI Diamonds, and for criminal money laundering to funnel money into real estate transactions in which KBC and Daleyot had a financial interest.
(p) Mauridiam Investment and Consulting Ltd. ("Mauridiam"), upon

information and belief, is a company incorporated in Mauritius (company number 63594) with a registered office at 8thi Floor, Max City Building, 21 Remy Oilier Street, Port Louis, Mauritius. Mauridiam is a 45% owner of Gulfdiam and is exclusively responsible for its management, including the purchase and sale of diamonds. In addition, upon information and belief: (i) Mauridiam is 97% owned, managed and controlled by Daleyot,

and serves as a holding company and controlling shareholder of Gulfdiam, Gemport and 29

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ED/FTD; Mauridiam maintained accounts numbered *******4495 USD, ***9822 EUR, ***7383 USD, and ***7413 USD at Barclays Bank (Mauritius); and (iii) at all relevant times, Defendants and the Daleyot Entities used Mauridiam to effectuate the Illegal Scheme, and in particular to funnel stolen proceeds from the sales of the LKI Diamonds to: (1) KBC financed or managed real estate projects in Eastern Europe; (2) ADB directly; and (3) ADB through Hatilem.

(q)

Pentolon Trading Ltd. ("Pentolon"), upon information and belief, is a

Cyprus company established in 2006 (company number HE 177527) with a U.S. dollar account numbered ****.****82.82 at Credit Suisse (Zurich). Upon information and belief, Pentolon invested in Eastern European real estate projects in which KBC had an economic interest and received proceeds from the sales of the stolen LKI Diamonds from Mauridiam.

(r)

David Salama ("Salama"), upon information and belief, is a French

national living in Switzerland, with an address at 116 Rue du Rhône, Genève, 1024 Switzerland, and an account at Credit Suisse numbered ****71..20. Upon information and belief, Salama is the subject of ongoing criminal investigations in multiple jurisdictions. In addition, upon information and belief: (i) Salama is the President of the Equalia Group; in 2008 Salama served in several capacities, including as a director andlor executive and/or shareholder of a number of companies that have been linked to individuals and companies with proven ties to the companies involved in the Illegal Scheme, including: (I) Comdiam Holding S.A. (Luxembourg) (Director); (2) DD Manufacturing (Suisse) SA (Genève) (Director); (3) Diamco (Director); (4) Diamond Mining Development (DMD) 30

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Gestion Inc Quebec (Administrator-Secretary);

(5) Diangle Holding S.A. Luxembourg

(Director); (6) Diangle Trading SA Genève (President); (7) Eastern Immo S.A. Luxembourg (Director); (8) Equalia (Suisse) SA Genève (President); (9) Equalia Capital S.A. Luxembourg (Director); (10) Equalia Services (Panama) SA Panama (President); (11) Equalia Vaduz I Equalia Services Trust Reg. Vaduz (Director); (12) Euro Investors Holding S.A. Luxembourg (Director); (13) ILDIA Holdings Ltd. (Director); and (14) Immo Creation SA Luxembourg (Director); and (iii) Salama is a former employee of HSBC Republic Trust Services

(Suisse), HSBC Guyerzeller Trust Company AG, and Bank Leumi le-Israel (Switzerland). (iv) Salama facilitated and participated in the Illegal Scheme. Other Non-Defendant Members of the Enterprise (a) Pierre Dc Bosscher ("De Bosscher"), upon information and belief, is the

Chief Executive Officer, Board Member, and a Managing Director of Defendant ADB. In addition, upon information and belief: (i) De Bosscher works out of ADB's offices at Pelikaanstraat 54, 13-

2018, Antwerp, Belgium, and is intimately familiar with the financial dealings of Daleyot and his companies; (ii) (iii) Dc Bosscher reported directly to Gijsens; at all relevant times, De Bosscher's actions detailed herein were

within the scope of his employment and served the interests of ADB and KBC; and (iv) De Bosscher knowingly and intentionally facilitated and

participated in the Illegal Scheme.

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(b)

Luc Gijsens ("Gijsens"), upon information and belief, is a member of the

Executive Committee and Chief Executive Officer of the Merchant Banking business unit of KBC and works out of KBC's offices at Havenlaan 12, 1080 Brussels, Belgium. In addition, upon information and belief: (i) at all relevant times, Gijsens headed KBC's group in charge of

Central and Eastern European real estate transactions, and simultaneously served on ADB's Board of Directors, including as Chairman; (ii) at all relevant times, Gijsens's actions detailed herein were within

the scope of his employment and served the interests of ADB and KBC; and Gijsens knowingly and intentionally facilitated and participated in the Illegal Scheme, and refused to comply with his legal obligations under applicable anti-money laundering and know your customer rules and regulations, or to investigate the information offered directly to him by Lazare regarding the Illegal Scheme. (c)
Guy Snoeks ("Snoeks"), upon information and belief, at all relevant

times, was a Managing Director of defendant ADB, and worked out of ADB's offices at Pelikaanstraat 54, B-201 8, Antwerp, Belgium. In addition, upon information and belief: (i) (ii) (iii) and his companies; (iv) at all relevant times, Snoeks' actions detailed herein were within Snoeks held a senior position at KBC before joining ADB; in 2011, Snoeks was transferred from ADB back to KBC; Snoeks is intimately familiar with the financial dealings of Daleyot

the scope of his employment and served the interests of Defendants; and (v) Snoeks knowingly and intentionally facilitated and participated in 32

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the Illegal Scheme.

Other Participants in the Illegal Scheme
121. In addition to Defendants, the Daleyot Entities, and the other Non-Defendant Members of the Enterprise, the following entities participated in the Illegal Scheme referred to herein: (a)

ABN Amro Bank N.Y. ("ABN-AMRO"), upon information and belief, is

a foreign banking corporation established and existing under the laws of the Netherlands, with offices in New York at Park Avenue Plaza, 55 East 52nd Street, New York, New York. In addition, upon information and belief, ABN-AMRO: (i) is a major lender to diamond companies around the world and is

authorized to do business, and is doing business, in New York; conducted its business with Lazare in New York; (iii) was a participant in the Illegal Scheme, but as noted above, Lazare

has settled all of its claims against ABN-AMRO; and (iv) remains subject to a deferred prosecution agreement with the U.S.

Department of Justice relating to activities similar to those alleged in this Complaint. (b)

Bank Leumi le-Israci B.M. ("Leumi"), upon information and belief, is a

public company, registered with the Registrar of Companies in Israel (company no. 52-0018078), with offices at 34 Yehuda Halevi Street, Tel-Aviv 65546, Israel. In addition, upon information and belief: (i) Leumi is defined as a banking corporation in accordance with the

Banking (Licensing) Law, 1981, and holds a banking license from the Bank of Israel. (ii) Leumi is the parent company of the Leumi Group, which is one of 33

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the largest banking groups in Israel; Leumi is a major creditor of ED/FTD (which maintained account number ***..**76..86 at Leumi), the Daleyot-owned Israeli company through which all stolen Formal Sector LKI Diamonds (approximately $94 million worth as defined below) were sent; (iv) by 2009, EDIFTD had accumulated $43 million of debt to Leumi

that needed to be restructured, and was partially paid with proceeds from the sales of the LKI Diamonds; (v) Leumi was also a major lender to several of the entities involved in

the same Central and Eastern European real estate transactions to which Defendants and the Daleyot Entities funneled money; (vi) in January 2008, Leumi loaned $25 million to one such entity

Olimpia Euro Construction ("Olimpia"), which also had an account at Bank Leumi U.K., and in connection therewith, Leumi worked with a KBC subsidiary that served as an adviser for Olimpia; (vii) Leumi conducted an internal investigation into the improper

issuance of credit, alleged money laundering, acceptance of bribes from customers, including Daleyot-related entities, and other criminal acts of one of Leumi's officers in connection with the LKI Diamonds; and (viii) (c) DD maintained account number **90/95 at Leumi.

HSBC Group ("HSBC"), is headquartered in London and is one of the

largest banking and financial services organization in the world. Upon information and belief, HSBC, together with Defendants, participated in the diversion of the sales proceeds of the LKI Diamonds. In addition, upon information and belief: 34

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(i)

HSBC's Private Bank (Genève), with offices at Quai Général-

Guisan 2, 1204 Genève, Switzerland, acquired the assets (and retained employees and officers) of ADB (Suisse) in Genève before and after ADB (Suisse) was placed into liquidation in 2008 for regulatory problems arising out of illegal money laundering activities by bank employees and customers; (ii) back-to-back loan guarantees were a standard practice at ADB

(Suisse), and ADB (Suisse) employees, involved in such back-to-back guarantees and responsible for certain Daleyot Entities' accounts, continued such practices when they were hired byHSBC; (iii) HSBC acted on behalf of the Israeli shell company DKT in

connection with suspicious transfers and back-to-back loan guarantees used as hidden offshore collateral for DD's Belgian credit line with ADB; (iv) Daleyot is a large customer of HSBC, and he and Certain Daleyot

Entities, including but not limited to DD Manufacturing (Suisse), DKT, Diamco, EKT, IL Investment Trust and Jortec, all had accounts at HSBC during the relevant time period; (v) Daleyot used accounts at HSBC to pay bribes to senior officers of

Defendants and to launder the proceeds of the stolen LKI Diamonds. At all relevant times herein, Daleyot's companies had more than 19 accounts at HSBC; (vi) HSBC's U.S. operations remain the subject of ongoing inquiries by

government agencies, including the U.S. Department of Justice; (vii) in October 2010, HSBC North America Holdings Inc. and its

subsidiary, HSBC Bank USA, reached agreements with the Office of the Comptroller of the Currency and the Federal Reserve Board to reform a program to comply with the Bank Secrecy 35

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Act, the U.S. law that combats money laundering, and regulators issued cease-and-desist orders after an investigation found that the program was ineffective and created significant potential for money laundering and terrorist financing; (viii) one of the regulators involved, the Office of the Comptroller of the

Currency, stated that HSBC "had deficiencies with respect to suspicious activity reporting, monitoring of bulk cash purchases and international funds transfers, customer due diligence concerning its foreign affiliates, and risk assessment with respect to politically-exposed persons and their associates;" and (ix) HSBC is also under investigation by the U.S. Department of

Justice and in several other jurisdictions, including Belgium, for various offenses including those relating to HSBC's financing of diamond transactions. 11 (d) LGT Group ("LGT"), upon information and belief, is the wealth and

asset management group of the Princely House of Liechtenstein. In addition, upon information and belief: (i) LGT Bank is an affiliated entity within LGT that provides private

banking and wealth management services to private clients; (ii) LGT is headquartered in Liechtenstein at Herrengasse 12, FL-

9490, Vaduz, Lichtenstein; and (iii) certain of the Daleyot Entities (including but not limited to IL

Investment Trust) maintained accounts at LGT Bank which were used to effectuate the Illegal

According to recent, publicly available infonnation (e.g., Kim van de Perre, Our Fraud Inspectors Are Kept Busy With Diamonds, DE MORGEN, Sept. 7, 2011; Lars Bové, Antwerp Prosecutor Targets Also HSBC, DE TIJD, Oct. 8, 2011), activities similar to those described in this Complaint are the subject of criminal investigations relating to ADB's and its clients' relationships with HSBC Group.

IR

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Scheme.

FACTUAL BACKGROUND I. Lazare's Banking Relationship with ADB
122. For more than 107 years, Lazare has been engaged in the buying and selling of

rough diamonds and the cutting, polishing and selling of branded and non-branded (or commercial) diamonds and jewelry. 123. 124. Lazare has been a public company in the United States since 1972. Lazare's premier product line is comprised of ideally proportioned polished

diamonds that it markets internationally under the brand name "Lazare Diamonds." 125. network. 126. Lazare has financed its working capital requirements through short-term lines of Lazare sells its diamond and jewelry products through a worldwide distribution

credit and long-term revolving loan agreements with various lenders. 127. 128. Defendant ADB has been one of Lazare's primary lenders for more than a decade. ADB holds itself out to be a specialized bank "focusing exclusively on the

diamond and the diamond jewelry sector" and one of the key lenders to the industry. 129. ADB is intimately familiar with the industry, the identification of various

categories of diamonds, the identity of the key companies in the industry and the special banking requirements of the industry. 130. In the diamond industry, financing is typically raised from banks by providing a

bank with documentary evidence of the purchase or sale of diamonds. 131. The invoices generated when diamonds are purchased or sold provide evidence of

such activity and of collateral pledged to obtain financing. 37

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132. Diamond financing banks generally require that their customers deposit proceeds of diamond sales into accounts at the financing bank. At all relevant times, ADB claimed to follow this policy. 133. By following this policy, banks like ADB can and do closely monitor the flow of payments for diamond sales so that they know that sales proceeds are being used to repay the loans made to finance such sales. 134. Lazare has always relied on its banks' good faith and fair dealing in ensuring that the deposited proceeds from the sales of diamonds belonging directly and indirectly to Lazare are applied to pay off Lazare's and its affiliates' respective lines of credit. 135. Due to its exceptional reputation for integrity, Lazare's line of credit with ADB was at all times unsecured. 136. Over the course of the past several years (and before becoming aware of the Illegal Scheme and Defendants' and the Daleyot Entities' role in fraud and money laundering), Lazare used the credit facilities obtained from ADB in transacting substantial business with wholesale diamond companies, including companies owned or controlled by Daleyot. 137. Lazare's business was and is, in all respects, separate and independent from Daleyot' s companies. 138. During the time period at issue herein, Lazare sold a substantial amount of diamonds directly to certain Daleyot Entities, including DD and KT, which entities also banked at ADB. Lazare also participated as a venture partner with Daleyot in companies such as Gulfdiam, which sourced and sold diamonds. 139. Lazare renewed its most recent unsecured $45 million credit facility with ADB in New York on February 20, 2008 (the "Lazare Credit Facility")

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140. The Lazare Credit Facility was extended to Lazare in New York, and was administered by ADB's New York office. 141. Lazare's Belgian subsidiary, LKB, also maintained a $25 million credit facility with ADB. 142. No money is currently due or outstanding under LKB's credit facility as a result of ADB's insistence in late 2008 that Lazare repay LKB's outstanding loan amounts with funds borrowed by Lazare through the Lazare Credit Facility in New York and from other banks. 143. Lazare repaid LKB's credit facility prior to understanding ADB's involvement in the Illegal Scheme. 144. Under the Lazare Credit Facility, ADB provided Lazare with a $45 million unsecured line of credit. The Lazare Credit Facility contained the following express choice of law/choice of forum provision: These General Credit Granting Conditions and any loan extended pursuant to the terms hereof shall be governed by and construed in accordance with the law of the State of New York of the United States of America. The foregoing choice of New York law to govern these General Credit Granting Conditions and any loan extended pursuant to the terms hereof shall prevail over any conflicting choice of law in any other document. The Bank may bring any legal action or proceeding with respect to these General Credit Granting Conditions or any loan extended pursuant to the terms hereof in the courts !f the State of New York in the Borough of Manhattan, City of New York, United States of America or in the courts of the United States of America for the Southern District of New York, and each of the borrower and any guarantor, surety, or pledgor in respect of the obligations of the borrower hereby accepts for itself, and in respect of its property, generally and unconditionally, the jurisdiction of the aforesaid courts. In addition, the Bank shall have the right to raise proceedings against any party before any other court having jurisdiction under applicable law. (Emphasis added). 39

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145.

The "applicable law" is New York law, and under New York law, the only proper

jurisdiction for a dispute under a loan agreement executed in New York between a bank in New York (ADB) and a New York based company (Lazare) is the State of New York. 146. Despite this clear language mandating that any case relating to the Lazare Credit

Facility be adjudicated in New York under New York law, ADB filed a lawsuit against Lazare in Belgium. 147. In that lawsuit, ADB falsely asserts that Belgian law applies to disputes regarding

the Lazare Credit Facility. ADB did so, upon information and belief, to prevent facts from coming to light in the United States and to avoid the discovery procedures of a lawsuit in the United States. 148. Payments relating to the Lazare Credit Facility were paid in U.S. dollars by

Lazare in New York to ADB's U.S. dollar account at the New York office of KBC. 149. Thus, the Lazare Credit Facility, used in many instances to purchase the very LKI

Diamonds at issue here, was a U.S. dollar, New York credit facility, and debt service payments relating thereto were made in New York to Defendant ADB's account maintained at KBC in New York. 150. Lazare at all times made all payments in full that were due under the Lazare

Credit Facility and has never been in monetary default of any of its loans. 151. None of Lazare's subsidiaries or affiliates is or was in monetary default on loans

from ADB or any other lenders at any time.

II.

Defendants' Illicit Banking Relationship with the Daleyot Entities
152. Before the financial crisis of 2008, Defendants and Daleyot improperly conspired

to divert, and in fact diverted, funds from diamond transactions to nondiamond-related real

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estate investments and lavish personal acquisitions. 153. Large loans made by ADB to the Daleyot Entities, at the direction of KBC, were used not to conduct the business of these entities - diamond buying and selling - but rather to speculate in Central and Eastern European real estate and fund Daleyot's purchases of extravagant, personal, luxury items, including private airplanes, a yacht and works of fine art. 154. The effect of these improper transactions was initially to increase Defendants' exposure to the Daleyot Entities' debts, and to allow Defendants to siphon money out of Daleyot's diamond businesses for the benefit of Defendants and Daleyot. 155. Later, when the Daleyot Entities were unable to repay their loans from ADB, ADB took assets purchased with the siphoned money as collateral. 156. ADB (and KBC as the guarantor of ADB's debts) thus placed itself in a superior position over the Daleyot Entities' other creditors, including ADB's client, Lazare. ADB also deprived the Daleyot Entities' creditors (including Lazare) of their security in the Daleyot Entities' collateral. 157. Lazare relied on ADB's representation that it focused exclusively on the diamond and diamond jewelry sector. 158. Based on that representation, Lazare understood that the Daleyot Entities should not have been exposed to non-diamond-related loans from ADB, and that Lazare would not have to compete with its creditor, ADB, for funds from the Daleyot Entities in order to be paid the proceeds from the sales of the LKI Diamonds. 159. When the financial crisis came to a head in 2008, the Daleyot Entities' debts to ADB became unsustainable. 160. In order to reduce Defendants' exposure to the Daleyot Entities, Defendants and 41

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Daleyot implemented a fraudulent scheme (a scheme they had used before as explained below) to divert proceeds from the sales of diamonds belonging to Lazare and its affiliates. 161. Because Defendants had conspired with Daleyot, had diverted so much money to non-diamond businesses and had siphoned so much money out of his diamond businesses to buy private airplanes, fine art, a yacht and other luxury goods, Defendants recognized that Daleyot' s diamond companies lacked the funds in their accounts at ADB to meet their debt obligations. 162. Defendants, upon information and belief, again conspired with Daleyot and the Daleyot Entities to steal the sales proceeds of the LKI Diamonds. 163. Defendants, upon information and belief, knew that funds from the sales of the LKI Diamonds should have gone toward paying down the debts of Lazare and its affiliates. 164. Nonetheless, ADB, upon information and belief, knowingly effected and facilitated the thefts and the misapplication of funds to pay down the Daleyot Entities' debts instead. 165. These improper banking transactions used to divert significant funds to nondiamond-related activities and the Daleyot Entities' inability to repay, both described in more detail below, provide a compelling motive for the thefts of money from Lazare described in this Complaint. 166. Defendants were so intent on creating a platform for the implementation of the Illegal Scheme that senior officers of Defendants ordered the violation of ADB's own internal rules in various ways, including with respect to the amount, purpose, level of risk and suspicious nature of the Daleyot Entities' transactions. 167. Between 2006 and 2008, Defendants extended to DD a $120 million credit facility.

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168.

This level of credit granted to DD was irresponsibly high in comparison to the

published net capital of ADB (which, according to ADB's public filings, was approximately $200 million) and appears to be a transgression of a series of internal rules that do not allow ADB to concentrate such a high level of risk in one client. 169. As of 2008, the outstanding amount owed by DD under that credit facility was

approximately $118 million or approximately 60% of ADB's total capital. 170. To make matters worse, the collusion between Defendants and Daleyot caused

DD's borrowings to be severely out of compliance with several material terms and conditions of DD's credit facility at ADB (including the fact that DD had a $77 million unsecured debt to ADB). 171. As early as 2007, ADB and Daleyot had shared information regarding the

offshore structure of the companies that were used in the Illegal Scheme. 172. Based on, among other things, a November 28, 2007 email from Fass to Kurt

Beckers at ADB, Defendants had firsthand knowledge of the companies directly involved in the misappropriation of the LKI Diamonds, including DD, DDMH, Diamco, Diangle, EDIFTD, ILDIA Holdings Ltd., IL Investment Trust, Kertalor, KT, and Mauridiam. 173. In addition, ADB is listed as a loss payee on a trade credit insurance policy issued

to DD by AIG UK Limited pursuant to which DD, KT, DKT, Diangle, Comdiam, Diamco and Gulfdiam, among others, are all named insureds. 174. Daleyot and ADB also shared a chart noting the ownership structure of those and

other Daleyot Entities, and throughout 2008, Defendants used this structure to misappropriate LKI Diamonds from Gulfdiam. 175. Upon information and belief, Defendants had full knowledge of Daleyot's 43

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finances and corporate structure as a result of their close business relationship with him and the personal guarantee given to ADB by Daleyot and his wife. 176. As explained below, Defendants and Daleyot used shell companies as instruments

to divert the proceeds from the sales of the stolen LKI Diamonds and repay themselves on the loans granted to the Daleyot Entities. 177. Moreover, Defendants, upon information and belief, knew that Daleyot

improperly concealed his companies' assets in foreign jurisdictions to avoid tax liabilities, and assisted him in doing so. 178. For example, upon information and belief, in 2006, DD and KT stepped up the

value of their inventory as part of a tax amnesty program by approximately €82.5 million (i.e., more than $100 million) or approximately 25 times the previous book value of such inventory. 179. Such red flags, which upon information and belief were known to Defendants,

were completely ignored by Defendants. 180. Indeed, ADB should have paid particular attention to such red flags as its client,

Omega Diamonds BVBA, was under criminal investigation in Belgium for similar activities involving a multi-billion Euro diamond tax evasion scheme and the trans-shipment of diamonds via Dubai, Switzerland, Israel and Belgium. 181. In addition, upon information and belief, Defendants actively facilitated Daleyot's

improper withdrawal of €27 million (approximately $36 million) from DD. The money withdrawn by Daleyot was borrowed under DD's credit line with ADB. 182. These funds were remitted by ADB directly to auction houses, art galleries, home

construction companies and other providers of personal luxury items contracted for by Daleyot. 183. During the January through July 2008 period alone (leading up to the global
WE

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financial crisis), remittances by ADB for Daleyot's purchases of fine art totaled approximately $13.5 million. 184. Defendants' intentional facilitation of the withdrawal of significant amounts of

money for non-diamond-related expenses, and Defendants' fraudulent receipt of collateral, undermined Lazare's security for the diamonds it had consigned to DD, and put ADB interests in direct conflict with the interests of DD's other creditors, including Lazare. 185. Due to Daleyot's personal guarantee to ADB, ADB's interests (and KBC's as

guarantor of ADB's debts) remained secured. 186. ADB's facilitation of Daleyot's looting of DD, however, further hindered the

ongoing efforts of Lazare and LKB to recover payment from DD for tens of millions of dollars of past due invoices, all of which had been pledged to ADB.

A.

Defendants Funnel Money from DD's Account at ADB through DDMH for Use in Central and Eastern European Real Estate Transactions in Which KBC Had an Interest
At the time it was conducting business with DD, Lazare understood that the

187.

purpose of DD's credit facility at ADB was for use in the diamond industry (which, according to ADB's own publicly available information - upon which Lazare relied - was ADB's exclusive business). 188. Lazare therefore understood that all amounts that the Daleyot Entities owed to

ADB were secured by diamonds and diamond sales proceeds as was customary in the industry. 189. Defendants and the Daleyot Entities, however, used DD's loan facility and

accounts at ADB for illicit financing of non-diamond-related transactions that were not secured by diamonds or diamond sales proceeds. 190. Defendants used DD's credit facility and accounts at ADB primarily to finance 45

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speculative real estate transactions in Central and Eastern Europe. 191. One of KBC's main lines of business during the relevant time period was serving

as a lender for real estate transactions in Central and Eastern Europe. 192. Upon information and belief, KBC directed its subsidiary, ADB, to fabricate a

sham corporate structure in collusion with DD in order to divert enormous amounts of money for use in speculative real estate transactions for which KBC or its subsidiaries served as a financial advisor and/or lender. 193. Upon information and belief, ADB and KBC received millions of dollars in fees

and interest relating to such loans and investments. 194. Defendants' diversion of money using DD's and KT's accounts at ADB

undermined Lazare's and LKB's ability to collect amounts due from DD and KT because such diversion of funds left DD and KT with insufficient assets to support their liabilities to Lazare and put ADB's interest as a creditor of DD in direct conflict with ADB's other clients that were creditors of DD, including Lazare. 195. Upon information and belief, among other transactions benefiting KBC-related

real estate projects, Defendants channeled funds borrowed via DD's credit facility at ADB through Daleyot Entities' accounts at ADB to another account at ADB (number ***.*****01 14) belonging to DDMH, a non-diamond shell entity created in 2007. 196. Upon information and belief, the main purpose of DDMH was to be an instrument

through which Defendants could divert monies to offshore locations and offshore bank accounts as described below. 197. Defendants channeled funds that DD and KT purportedly borrowed for diamond

business activities to DDMH's account at ADB.
Eno

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198.

Defendants then, among other things, channeled the funds from DDMH's account

at ADB to Hatilem, Kertalor, M.L.A.Z Finance Management Ltd. ("MLAZ") and Riverton Trading ("Riverton") for investment in Central and Eastern European real estate projects in which KBC had a financial interest. 199. Funds channeled through Hatilem, MLAZ and Riverton to KBC-related real

estate projects were routed through accounts at Credit Suisse (Zurich). 200. Funds channeled through Kertalor to KBC-related real estate projects were routed

through Kertalor's account at ADB. 201. Set forth below is a chart showing the flow of money from ADB through Daleyot

shell companies to KBC-related real estate projects:

47

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202. Upon information and belief, the following transactions are a few examples of the fraudulent flow of money that was laundered through DD's and DDMFI's accounts at ADB to Hatilem's account number ****.****1082 at Credit Suisse (Zurich) for investment in KBCrelated real estate projects: (a) on January 31, 2007, DD channeled $3 million from its ADI3 account to DDMH's account at ADB; the same day, January 31, 2007, DDMH channeled the same $3 million from its ADB account to the Credit Suisse (Zurich) account of Hatilem; on February 9, 2007, DD channeled $2 million from its ADB account to DDMH's account at ADB; the same day, February 9, 2007, DDMH channeled the same $2 million 48

(b)

(c)

(d)

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from its ADB account to the Credit Suisse (Zurich) account of Hatilem; (e) on July 2, 2007, DD channeled $1.5 million from its ADB account to DDMH's account at ADB; the same day, July 2, 2007, DDMH channeled the same $1.5 million from its ADB account to the Credit Suisse (Zurich) account of Hatilem; on September 11, 2007, DD channeled $1.7 million from its ADB account to DDMH's account at ADB; and the same day, September 11, 2007, DDMH channeled the same $1.7 million from its ADB account to the Credit Suisse (Zurich) account of Hatilem.

(f)

(g)

(h)

203.

Accordingly, in 2007, at least $8.2 million in funds ostensibly for use in the

diamond industry were improperly transferred from the ADB account of DD to the ADB account of the shell company DDMH to the Swiss account of Hatilem for investment in KBC-related Central and Eastern European real estate projects through a company known as "Longbridge," which is owned by Hatilem. 204. in Longbridge. 205. Upon information and belief, Kredyt Bank, an 80% subsidiary of KBC in Poland, Upon information and belief, KBC and/or its subsidiaries had a financial interest

was also serving as a lender to Longbridge at that time. Kredyt Bank's headquarters are located in "Chorzowska 50," a prestigious office building in Katowice, Poland that was developed by Longbridge. 206. DD of course remained in debt to ADB under the credit facility that was used to

borrow the funds funneled to Hatilem in the first place. 207. The scheme for diverting funds from Daleyot controlled accounts at ADB to

Kertalor was in essence very similar to the above described scheme involving Hatilem. 208. Upon information and belief, the transactions described below are a few examples 49

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of improper flows of money that was laundered through DD's and DDMH's accounts at ADB to Kertalor's account at ADB (account number ***.*****00.42). The money was then sent onward to: (i) an account at Bank Leumi (U.K.) (with international account number * * * * * * * *
**** **** **30 02) owned by Olimpia Euro Construction's ("Olimpia"), which used the funds

for KBC-related real estate projects; and (ii) Olimpia (Kiev), which also invested in Eastern European real estate projects in which KBC has an economic interest: (a) on May 10, 2007, DD channeled €5.8 million (approximately $7.9 million) from its ADB account to DDMH's account at ADB (number *****0l 14); the same day, May 10, 2007, DDMH channeled €5.8 million (approximately $7.9 million) from its account at ADB to Kertalor's account at ADB; also on the same day, May 10, 2007, Kertalor channeled €5.8 million (approximately $7.9 million) to the account of Olimpia at Bank Leumi (U.K.); on July 31, 2007, KT channeled €2.1 million (approximately $2.9 million) to DDMH's account at ADB; the next day, August 1, 2007, DDMH channeled €2.1 million (approximately $2.9 million)' 2 to Kertalor's account at ADB; the same day, August 1, 2007, Kertalor channeled €2.1 million (approximately $2.9 million) to Olimpia (Kiev); on September 10, 2007, DD channeled €3.75 million (approximately $5.2 million) from its ADB account to DDMH's account at ADB; the same day, September 10, 2007, DDMH channeled €3.75 million (approximately $5.2 million) from its account at ADB to Kertalor's account at ADB; the next day, September 11, 2007, Kertalor transferred €3.75 million (approximately $5.2 million) from its account at ADB to the account of

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

The total amount transferred was €3.9 million of which €2.1 million was transferred to Kertalor and €1.8 million was transferred to MLAZ.

2

50

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Olimpia at Bank Leumi (U.K.); (j) on February 11, 2008, KT channeled $3.7 million to DDMH's account at ADB; the same day, February 11, 2008, DD channeled $800,000 from its account at ADB to DDMH's account at ADB; the next day, February 12, 2008, DDMH channeled $4.5 million from its account at ADB to Kertalor's account at ADB; and the same day, February 12, 2008, Kertalor channeled the same $4.5 million from its ADB account to the account of Olimpia at Bank Leumi (U.K.).

(k)

(I)

(m)

209.

Accordingly, from May 2007 through February 2008, approximately $20.5

million ostensibly loaned to DD and KT for use in the diamond industry was sent to the ADB account of the shell company Kertalor and then on to the accounts of Olimpia and Olimpia (Kiev) for investment in Eastern European real estate in which KBC or its subsidiaries served as lender or advisor. 210. As ADB was transferring these amounts directly from DDMH's account at ADB

to Kertalor's account at ADB, Defendants should have known that their client Kertalor was a shareholder in Olimpia and Olimpia (Kiev), and that funds borrowed from ADB were channeled to Olimpia and Olimpia (Kiev). 211. Upon information and belief, the reason for Defendants' blatant disregard for

ADB's own charter (requiring it to focus "exclusively on the diamond and the diamond jewelry sector") and disregard for applicable laws in executing these transactions, is that KBC had a significant financial interest in the wellbeing of its clients Olimpia Real Estate Holdings Ltd. ("Olimpia RE"), an Israeli company, and that company's subsidiaries, Olimpia and Nanette Real Estate N.V. ("Nanette"). 212. Upon information and belief, KBC's executives thus ordered that ADB's charter

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be disregarded. 213. At the same time that ADB and Daleyot were improperly channeling funds into

Olimpia, KBC PEEL Hunt (at that time a subsidiary of Defendant KBC) was serving as an advisor to Olimpia RE. 214. 215. KBC Peel Hunt also served as a "liquidity provider" for Nanette. Daleyot similarly had significant debt and equity investment in, and exposure to,

Olimpia and Nannette. Moreover, an original shareholder in Nanette was the Daleyot Entity Equalia Group. 216. Defendants, together with Daleyot, used DDMH to channel funds to still other

Eastern European real estate projects in which Daleyot and/or Defendants had a financial interest. 217. Daleyot's investments in two such projects were channeled through the Cyprus-

based holding companies Riverton and MLAZ. 218. On March 1, 2007, KT channeled €2.5 million (approximately $3.2 million) to

DDMH's account at ADB. 219. On the same day, DDMH channeled €2.5 million (approximately $3.2 million) to

Riverton's account at Credit Suisse (Zurich). 220. In addition, between April 5, 2007 and May 15, 2008, DD and KT, channeled

€8.9 million (approximately $12.3 million) to DDMH's account at ADB. 221. DDMH immediately transferred all of those same ftmds to MLAZ's account at

Credit Suisse (Zurich). 222. Defendants and the Daleyot Entities all shared a common interest in investing in

such Central and Eastern European real estate projects. 52

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223.

Accordingly, KBC, ADB, and the Daleyot Entities had a common interest in, and

all benefited by, funneling diamond business money and assets out of ADB into the real estate projects of KBC clients Olimpia, Longbridge and Olimpia (Kiev). 224. The above transactions involving ADB, DD, KT, DDMH, Hatilem, Kertalor,

MLAZ, Riverton, Olimpia, Longbridge and Olimpia (Kiev) reflect money moving from the accounts of Daleyot-controlled diamond companies' to the accounts of Daleyot-controlled nondiamond companies' at ADB, and the further transfer of those same funds through shell companies into risky Eastern and Central European real estate ventures in which KBC and Daleyot had an interest. 225. The effect of these transactions was to extract money from Daleyot's heavily

leveraged diamond businesses on the eve of the global financial recession. 226. In late December 2008, in the midst of the global financial crisis, the outstanding

bonds of both Olimpia RE and Nanette were downgraded and their share price had plummeted by more than 70%. 227. As the financial condition of Olimpia RE, Olimpia, Nanette and KBC's other real

estate projects deteriorated, and as the value of diamonds plummeted, ADB, KBC and Daleyot all had a common interest in misappropriating the LKI Diamonds and their sales proceeds to plug the enormous financial hole created by losses from these investments. 228. According to an email from Kurt Beckers of ADB dated February 26, 2009,

despite lending tens of millions of dollars to Hatilem and Kertalor via DD and DDMH, ADB's employees in charge of ADB's relationship with Daleyot (other than Dc Bosscher and Snoeks) still did not know the ownership, corporate structure, governance or assets of Hatilem, Kertalor, Olimpia, Nanette, Longbridge, Riverton, or MLAZ, in clear violation of applicable AML/KYC 53

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and other banking practices and regulations. 229. Upon information and belief, ADB violated those regulations at the direction of

its parent, KBC.' 3

B.
230.

Defendants Funnel Money from DD's Account at ADB through DDMH to Allow Daleyot to Purchase Private Airplanes and a Yacht
In addition to using DD's credit facility to funnel money through DDMH to

support KBC' s Central and Eastern European real estate projects, Defendants, together with Daleyot, improperly used DD's credit facility and the ADB accounts of DD and DDMH for other non-diamond-related, improper expenses (such as for the purchase of Daleyot's private planes and a yacht), which further leveraged Daleyot's diamond companies. 231. Defendants' scheme for diverting funds (purportedly for diamond related

business) from ADB through DDMH and on to EKT (a non-diamond company and a wholly owned subsidiary of ADB's client DDMH) was similar to the scheme used to divert funds from ADB to Hatilem and Kertalor and then on to Olimpia, Longbridge, Olimpia (Kiev), MLAZ and Riverton. 232. Upon information and belief, the following transactions are a few examples of

improper flow of money that was transferred through DD's and DDMH's accounts at ADB to EKT's account number ****.****27.52 at Credit Suisse (Genève) for the purchase of Daleyot's luxury items: (a) (b) on July 16, 2007, DD channeled $3.3 million from its ADB account to DDMH's account at ADB (number *** *****0l 14); the same day, July 16, 2007, DDMH channeled the same $3.3 million

In November 2011, as a result of its nonpayment of debts, Olimpia, upon the request of its major creditor, Leumi, was put into liquidation.

13

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from its account at ADB to the Credit Suisse (Genève) account of EKT; (c) (d) (e) (f) (g) (h) (i) (j) (k) (I) (m) (n) on July 31, 2007, KT channeled $ 3 million from its account to DDMH's account at ADB; the next day, August 1, 2007, DDMH channeled the same $3 million from its ADB account to the Credit Suisse (Genève) account of EKT; on September 3, 2007, DD channeled $3 million from its account at ADB to DDMH's account at ADB; the same day, September 3, 2007, DDMH channeled the same $3 million from its account at ADB to the Credit Suisse (Genève) account of EKT; on October 8, 2007, DD channeled $0.5 million from its account at ADB to DDMH's account at ADB; the same day, October 8, 2007, DDMH channeled the same $0.5 million from its account at ADB to the Credit Suisse (Genève) account of EKT; on October 16, 2007, DD channeled $2.5 million from its account at ADB to DDMH's account at ADB; the same day, October 16, 2007, DDMH channeled the same $2.5 million from its account at ADB to the Credit Suisse (Genève) account of EKT; on December 10, 2007, KT channeled $1.8 million from its account to DDMH's account at ADB; on that same day, December 10, 2007, DDMH channeled that same $1.8 million to the Credit Suisse (Genève) account of EKT; on December 20, 2007, KT channeled $0.6 million from its account to DDMH's account at ADB; the next day, December 21, 2007, DDMH channeled the same $0.6 million from its account at ADB to the Credit Suisse (Genève) account of EKT; on January 7, 2008, KT channeled $0.5 million from its account to DDMH's account at ADB; and the same day, January 7, 2008, DDMH channeled the same $0.5 million from its account at ADB to the Credit Suisse (Genève) account of EKT.

(o) (p) 233.

The funds transferred by ADB from DDMH to EKT were intended for and/or
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used for the purchase and/or lease of, among other things, private airplanes and a yacht. 234. For example, beginning in or about July 2007, EKT negotiated for the acquisition

of a $48,750,000 airplane from Bombardier, Inc. 235. In addition, in or about March 2008, EKT negotiated for the purchase of a

$59,500,000 aircraft from Gulfstream Aerospace Corporation, and beginning in or about April

2008, EKT negotiated for the purchase of a yacht from SNP Boat Service S.A. at a purchase price of €27,000,000. 236. Between July 2007 and January 2008, at least $15.2 million in funds ostensibly

for use in the diamond industry were laundered by Defendants from the accounts of DD and KT to the ADB account of the shell company DDMH to the Swiss account of EKT for the purpose of buying Daleyot's luxury items. 237. DD, of course, remained in debt to ADB under the credit facility that was used to

borrow the funds funneled to EKT in the first place. C. 238. Defendants Deplete DD's Assets to Their Own Benefit In addition to using DD's credit facility to funnel money through DDMH to

support KBC's Central and Eastern European real estate projects, and using DD's credit facility and the ADB accounts of DD and DDMH for other non-diamond-related expenses (private airplanes and a yacht), Defendants used DD's credit facility and accounts at ADB to allow Daleyot to purchase fine art, home improvements, and other luxury items for himself and others. 239. In furtherance of the Illegal Scheme, Defendants enabled Daleyot personally to

borrow approximately $36 million under DD's line of credit at ADB. 240. ADB directly transferred the loan proceeds to auction houses, art galleries, home

construction companies and other providers of personal luxury items contracted for by Daleyot.
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241.

Defendants thereby knowingly used DD's corporate funds for non-diamond-

related business. 242. Equalia Group. 243. 244. ADB earned interest and fees on the amounts loaned to DD. Those payments, directly facilitated by ADB, were characterized as "loans from ADB instructed certain of these fine art purchases to be delivered directly to

DD to Daleyot" and, accordingly no Belgian income taxes were paid on the $36 million received by Daleyot. 245. Later, on January 22, 2009 (in the middle of the financial crisis and after Lazare

had informed ADB that DD and KT had failed to pay their debts to Lazare and LKB), ADB took personal pledges from Daleyot for fine art purportedly having a value of $28.1 million. 246. Upon information and belief, the value of the fine art pledged to ADB was

significantly less, particularly in light of the economic crisis. 247. This overvaluing of the fine art was done in continuation of the collusion between

Defendants and Daleyot in order to, among other things, cover up the diversion of funds from DD's account at ADB. 248. The pledge documents relating to the fine art state, in relevant part: Pledge #1 The undersigned Mr. Erez Daleyot ... (hereinafter called "the Pledgor") gives hereby in pledge to Antwerp Diamond Bank nv, the merchandise as set out in Annex I to this Agreement ... of which the declared value amounts to 10.000.000 USD The Pledgor warrants that he is the owner of the pledged merchandise and of all actual and future claims resulting from the sale of the merchandise. 57

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The merchandise is stored in a box held in the name of [ADB] with a custodian of [ADB] with custody of pledged property as bailee approved by [ADB] Pledge #2 The undersigned Mr. Erez Daleyot ... (hereinafter called "the Pledgor") gives hereby in pledge to Antwerp Diamond Bank nv, the merchandise as set out in Annex 1 to this Agreement .. of which the declared value amounts to 18.100.000 USD The Pledgor warrants that he is the owner of the pledged merchandise and of all actual and future claims resulting from the sale of the merchandise. The merchandise is stored in a box held in the name of [ADB] with a custodian of [ADB] with custody of pledged property as bailee approved by [ADB] 249. ADB thereby facilitated the transfer of DD's assets to Daleyot and then the

pledging of such assets in his personal capacity to ADB. 250. In doing so, ADB solidified its own security for some of the amounts that DD had

borrowed for non-diamond-related transactions while leaving DD's other creditors (including Lazare) with no ability to recover amounts owed to them by DD. 251. Though the funds used to purchase the pledged assets were borrowed from ADB

by DD, the pledge was in Daleyot's name. 252. In addition to using money from DD to purchase fine art in Daleyot's name, ADB

took as collateral from Daleyot fine art purchased using funds other than those provided by ADB, including funds from Gemport that also had been misappropriated from Lazare and its affiliates. 253. Notably, ADB took pledges of fine art for which it did not provide funding yet did

not take pledges for some of the fine art that it had funded. 254. ADB should have known that DD's loan to Daleyot was a sham intended to allow
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Daleyot to launder money and avoid taxes in Belgium (as explained below). 255. 256. Ultimately, Defendants engaged in a cover up to conceal their illicit conduct. The effect of the above detailed transactions was to: (i) extract money from

Daleyot's heavily leveraged diamond businesses on the eve of the global financial crisis and economic recession while enabling Defendants to earn huge profits from interest and fees; (ii) loot DD of assets and thereby undermine DD's ability to repay Lazare and other creditors; (iii) maintain and prioritize ADB's security interests via Daleyot's personal guarantee to ADB; (iv) create significant indebtedness of DD to ADB that was not secured by diamonds, diamond proceeds or other DD assets; and (v) put ADB in direct conflict with DD's other creditors, including Lazare, with regard to the ability to collect on outstanding obligations. 257. As a result of these activities (and despite ADB's improper conduct in securing

additional security via the aforementioned pledges from Daleyot), Defendants and Daleyot needed to find another source of cash to satisfy the outsized obligations of DD to ADB that existed as a consequence of the improper and illicit loans from ADB to DD for non-diamondrelated transactions.

III. Defendants Steal the LKI Diamonds in Order to Cover Up and Receive Payment for Their Illicit and Failed Loans to the Daleyot Entities A.
258.

Defendants Misappropriate Money Belonging to Gulfdiam (and Lazare) for Investments in Central and Eastern European Real Estate Transactions
Even before the financial crisis of 2008, during the period from October 2007

through August 2008, Gemport transferred approximately $70 million to Mauridiam. 259. These monies were laundered proceeds from the sales of Formal Sector LKI

Diamonds stolen from Gulfdiam (and ultimately Lazare). 260. These funds fall into three categories: (i) $15 million diverted directly by

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Mauridiam to DD's account at ADB (cleared via KBC in New York); (ii) approximately $30 million diverted from Mauridiam through Hatilem and then to ADB; and (iii) approximately $24 million diverted to Olimpia via an entity known as Pentolon Trading Limited ("Pentolon"), which maintained a U.S. dollar account numbered 261.

****8282 at Credit Suisse (Zurich).

Defendants did so in order to plug the hole they created due to the improper loans

to the Daleyot Entities for investments in KBC-related real estate projects and Daleyot' s personal luxury items. 262. The chart below summarizes the flow of funds Defendants diverted away from

Gulfdiam (and Lazare) using Mauridiam as a conduit:

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G ulfd lam

Gem port

$71,1MM

kATrnTIIEThT

$30.4MM

I

$23.7MM

Hatilem

I

I $15.OMM

$30.4MM

DDMH (ADB A/c)
$30.OMM

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263.

On June 6, June 26 and August 4, 2008, Defendants and Daleyot orchestrated a

transfer of $15 million in the aggregate via three $5 million transfers from Mauridiam, ostensibly as "loans from Mauridiam to Daleyot." 14 264. Upon information and belief, these wire transfers were executed in U.S. dollars,

processed through the U.S. financial system by KBC's New York branch and deposited into ADB's account at KBC in New York for the benefit of DD. 265. Mauridiam, working in concert with Defendants, transferred these funds to ADB

from its account (number ***7383) at the Barclays Bank in Mauritius. 266. Thus, Defendants used proceeds from the sales of the stolen LKI Diamonds in a

subsequent transaction routed through the U.S. financial system to disguise the origin of the funds and clandestinely repatriate funds into Belgium on a tax-free basis. 267. in Mauritius. 268. ADB and Daleyot now had "cleai" money that would be used illicitly to reduce The effect of these transfers was to launder $15 million of ill-gotten proceeds held

Defendants' exposure to ADB's improper loans to DD. 269. ADB was an essential and knowing participant in the scheme to divert and

launder $15 million from Gulfdiam via Mauridiam directly into DD's account at ADB. Moreover, this may not have been the first time it did so. 270. As stated in an email sent on July 28, 2008 by Pass (who was simultaneously an

officer of Gulfdiam, Gemport, Mauridiam and DD) to Kurt Beckers (ADB's Head of Antwerp Relations):
14

The "loans" from Mauridiam to Daleyot included provisions stating "The loan shall be interest free" and "The loan will be unsecured."

62

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"3. wat Erezprivé betreft zend ik nogmaals $ 15M van mauridiam naar l/r erez Dc eerste 5M zzjn in gang. 4. (in cauda venenum) wzj zouden de splitsing en de vrzjgeving van de guaranties in gang moeten zetten in augustus"
glish Translation:

"3. Regarding Erez private Isend again $ 15Mfrom Mauridiam to c/a Erez The first 5M are under way. 4, (the poison is in the tail) we should start the splitting and release of the guarantees in August"
271. Accordingly, Defendants orchestrated and participated in a sophisticated scheme

to misappropriate funds through the U.S. financial system utilizing an offshore shell company. 272. Mauridiam, through its control over Gulfdiam and at Defendants' direction, also

took funds belonging to Gulfdiam (and ultimately Lazare) and transferred such funds to Hatilem. 273. Upon information and belief, at the direction of Defendants and the Daleyot

Entities Mauridiam made the following transfers to Hatilem on the following dates:

Date of Transfer From Mauridiam (Barclays Bank PLC Mauritius Account Number ***7383)
October 21, 2007 December 19, 2007 March 25, 2008 April 11, 2008 April 21, 2008 May 27, 2008 August 4, 2008 63

Amount Transferred To Hatilem (Credit Suisse (Zurich) Account Number *********1082)
$ 4,000,000.00 $ 3,250,000.00 $ 2,500,000.00 $ 3,000,000.00

$11,000,000.00
$ 4,200,000.00 $ 2,513,508.00

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Date of Transfer From Mauridiam (Barclays Bank PLC Mauritius Account Number ***7383) Total

Amount Transferred To Hatilem (Credit Suisse (Zurich) Account Number *********1082) $30,463,508.00

274.

From Hatilem, $30 million of funds quickly traveled back to DDMH's account at

ADB and then to DD's account at ADB. 15 275. Those funds were then applied to reduce DD's debts to ADB despite the fact that,

upon information and belief, Defendants knew such funds belonged to Gulfdiam and Lazare. 276. Upon information and belief, Defendants and the Daleyot Entities caused

Mauridiam (the 45% owner of Gulfdiam) to transfer $30 million first to Hatilem and then (through DDMH's account at ADB) to DD's account at ADB in order to: (i) give the false appearance that such funds were the legitimate return on the loans previously made by ADB to DD; (ii) disguise the fact that such funds were actually stolen proceeds from the sales of the LKI Diamonds; and (iii) use such funds to reduce Defendants' exposure to the Daleyot Entities and facilitate the reinvestment of such funds in KBC-related real estate projects. 277. In other words, Defendants - having already developed an effective route that

obscured the movement of funds drawn from DD's credit line at ADB through DDMH and Hatilem into KBC-related real estate projects - simply used the same obscure route in reverse to send siphoned off, ill-gotten cash stolen by Mauridiam from Gulfdiam (and Lazare) back to DD's account at ADB. 278. Defendants thereby assisted Daleyot in avoiding Belgian taxes in what was, in

' In addition, $0.4 million transferred from Hatilem to DDMH was converted from U.S. dollars to Euro and then transferred from Hatilem to MLAZ.

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effect, a clandestine, tax-free repatriation of monies, used such funds to reduce Defendants' exposure to DD, and facilitated the subsequent reinvestment of such funds in KBC-related real estate projects. 279. Mauridiam, through its control over Gulfdiam, and at Defendants' direction, also

took funds belonging to Gulfdiam and transferred such funds to Pentolon, which then invested those funds in Olimpia. 280. Upon information and belief, at the direction of Defendants and the Daleyot

Entities, Mauridiam made the following transfers to Pentolon on the following dates:

Date of Transfer From Mauridiarn (Barclays Bank PLC Mauritius Account Number ***7383)
November 20, 2007 November 23, 2007

Amount Transferred To Pentolon Trading Limited (Credit Suisse (Zurich) Account Number ****..****82..82)
$

7,100,000.00

$16,650,000.00

Total

$23,750,000.00

281.

Upon information and belief, Defendants and the Daleyot Entities caused

Mauridiam to transfer $23.75 million to Pentolon in order to further transfer such funds into KBC-related real estate projects. 282. The ongoing and systematic scheme to divert funds from Gulfdiam, via

Mauridiam, into real estate projects, and to funnel $45 million from Gulfdiam, via Mauridiam, (i.e., $15 million directly and $30 million indirectly) to ADB, provided Defendants a proven, secretive structure within which to conduct their Illegal Scheme. 65

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283.

But for the onset of the worldwide financial crisis, which exposed the Daleyot

Entities' financial hole and revealed Defendants' improper dealings, Defendants' Illegal Scheme may have continued undetected. 284. As of the end of 2010, according to an auditor's confirmation letter, Mauridiam

still had a $71 million unpaid debt to Gemport, representing the Formal Sector LKI Diamonds sales diverted from Gulfdiam into Gemport and then over to Mauridiam (and ultimately to Defendants) in connection with the above referenced scheme. 285. Because Mauridiam never repaid Gemport, Gemport never repaid Gulfdiam, and

Lazare (via its affiliate's ownership interest in Gulfdiam) was denied its interest in the Formal Sector LKI Diamonds. 286.
B.

That money instead went to ADB and to KBC-related real estate projects.
The Daleyot Entities' Defaults Arising from the Illicit Relationship

287.

In 2008, a series of events led to the worldwide financial crisis, a severe downturn

in the diamond industry and the massive devaluation of Central and Eastern European real estate and luxury assets such as private airplanes and yachts. 288. As a result, Hatilem, Kertalor, MLAZ, Riverton and EKT could not repay

DDMH, and DDMH therefore was not able to repay DD and KT. 289. Accordingly, DD and KT could not repay the amounts borrowed under their

credit facilities that had been diverted into KBC's Central and Eastern European real estate transactions and other unsecured, non-diamond purchases. 290. Defendants' exposure to losses sustained by Daleyot and the other Daleyot

Entities was enormous, and the debt owed by the Daleyot Entities was unlikely to be repaid. 291. As ADB's loans to DD amounted to approximately 60% of ADB's capital, ADB 66

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was facing the prospect of serious regulatory problems, and the likelihood that Defendants' improper activities would be exposed. 292. According to a January 29, 2009 letter to DD from Snoeks and Theo Strous

("Strous"), both Managing Directors and Members of the Executive Committee of ADB at that time, ADB's outstanding unsecured exposure to DD was almost $77 million. 293. This amount represented at least 40% of ADB 's total capital and (in addition to

the amounts misappropriated through Mauridiam, as described above) is comparable to the amount misappropriated by ADB from the sales of the Formal Sector LKI Diamonds as described below. 294. In the same January 29, 2009 letter from Snoeks and Strous, ADB also stated that

there was an increase of €16 million to €25 million in one of Daleyot's personal accounts with such funds coming from DD's account (as discussed above, ADB itself facilitated the withdrawal of approximately $34 million (approximately €25 million) from DD's account, to finance Daleyot's purchases of fine art and other luxury items, by directly sending payment to the various vendors of such items). 295. The letter goes on to note that DDMH had an unsecured current account balance outstanding of €8 million (approximately $11 million) with DD, constituting additional exposure for Defendants to the Daleyot Entities. 296. As discussed below, ADB, at the direction of its parent KBC, manipulated its

books to cover up its exposure to Daleyot, but Defendants remained in desperate need of other sources of funds to reduce their massive exposure. 297. To remedy their joint problem, Defendants and the Daleyot Entities decided to

misappropriate the LKI Diamonds and proceeds from the sales thereof. 67

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C.
298.

To Benefit Themselves, Defendants Knowingly Steal the LXI Diamonds and Divert the Sales Proceeds
The LKI Diamonds stolen from Lazare were diamonds known as "rough

diamonds" (i.e., natural, unpolished diamonds). 299. The LKI Diamonds came from three separate sources: (i) industrial scale mines

in Angola, known as the "Formal Sector;" (ii) local, government licensed, artisanal miners in Angola, known as the "Informal Sector;" and (iii) elsewhere in the world (the "Sight Rough") acquired directly from DTC, the rough diamond sales and distribution arm of De Beers. 300. Lazare and Gulfdiam purchased Formal Sector LKI Diamonds primarily with the

use of credit facilities from ABN-AMRO. 301. Lazare and LKB purchased the Informal Sector LKI Diamonds and the Sight

Rough LKI Diamonds through the use of their credit facilities, including their credit facilities at

302.

Defendants, through the Enterprise, stole the sales proceeds of the Formal Sector

LKI Diamonds, Informal Sector LKI Diamonds and Sight Rough LKI Diamonds. 303. Defendants used such proceeds to pay down the debts owed to them by the

Daleyot Entities, which had been incurred as a result of: (i) Defendants' scheme to funnel money into KBC's Central and Eastern European real estate projects; and (ii) the purchase of Daleyot's own luxury items such as private airplanes, fine art, and a yacht.

(i)
304.

Misappropriation by ADB of "Formal Sector" Diamonds and Sales Proceeds

In continuation of their above noted scheme involving the misappropriation of: (i)

the $15 million of Gulfdiam funds laundered through Mauridiam directly to ADB; (ii) the aforementioned $30 million laundered through Mauridiam to Hatilem and back to ADB; and (iii)

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approximately $24 million from Mauridiam to Pentolon and to KBC-related real estate projects, Defendants, together with the Daleyot Entities, also diverted other funds belonging to Gulfdiam (and Lazare). 305. Defendants did so to reduce Defendants' exposure to the Daleyot Entities and

create the illusion that legitimate diamond transactions collateralized and formed the basis for the outstanding loans to the Daleyot Entities. 306. Between July 2008 and January 2009, at the direction of Defendants, DD

instructed its customers to make deposits of funds in payment for the LKI Diamonds totaling at least $77,736,872.31 into accounts at ADB, which accounts were pledged to ADB as collateral for ADB's loans to DD. 307. When DD deposited those funds into accounts at ADB, Defendants, upon

information and belief, knew that the funds belonged indirectly to Lazare through its ownership interest in Gulfdiam. 308. 309. deposits: All such transfers cleared through KBC's branch in New York. The chart below describes invoices issued by DD payable to ADB relating to such

Invoice Date 07/24/08 07/25/08 07/25/08 08/22/08

Invoice Due Date 09/22/08 08/14/08 08/22/08 09/19/08

Invoice # 08/0372 08/0373 08/0375 08/0402

Carats 20,366.00 4,375.00 437.09 503.31

U.S. $ Payable to ADB 7,452,600.00 9,857,000.00 1,232,337.03 4,473,842.20

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Invoice Date 09/05/08 09/12/08 09/22/08 09/26/08 10/03/08 10/27/08 10/27/08 10/29/08 11/05/08 11/12/08 01/29/09

Invoice Due Date 10/20/08 09/12/08 11/21/08 11/25/08 12/02/08 12/26/08 12/26/08 12/28/08 01/04/09 01/11/09 01/29/09

Invoice # 08/0424 08/0443 08/0463 08/0480 08/0486 08/0522 08/0521 08/0530 08/0544 08/0556 09/0019 Total

Carats 2,220.23 1,332.15 1,829.46 60,124.98 30,061.57 34,633.00 241,697.79 47,543.00 4,295.71 6,986.79 44,937.11 5Oi343. 19

U.S. $ Payable to ADB 5,002,244.80 3,000,000.00 4,000,039.00 5,010,214.58 11,002,534.62 5,194,950.00 290,021.10 7,131,450.00 6,070,611.46 7,913,823.35 105,204.17

$77,736.872.31

310.

Through its investigation into the whereabouts of the missing LKI Diamonds and

sales proceeds, Lazare has been able to trace the flow of those diamonds through various Daleyot related entities to the final deposit of over $77 million of such proceeds into DD's account at ADB as outlined above. 311. The flow of diamonds, and ultimately the proceeds from the sales thereof, was

organized by Defendants and Daleyot through Mauridiam (the same company that Defendants and Daleyot had previously used as described above). 312. Set forth below is a chart showing Mauridiam's ownership of key Daleyot Entities 70

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and the destination of funds stolen from Lazare and Gulfdiam and received by ADB:

313. Set forth below is a chart showing the path of the stolen Formal Sector LKI Diamonds purchased in 2008 by Gulfdiam (in part with funds guaranteed by Lazare) to their ultimate destination and the destination of the sales proceeds therefrom:

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Formal Sector (K! Diamonds Purchased By Gulfdiam:

ADME (UAE)

k
Diamco (Switzerland)

I

DD (Belgium)

H

ADB ($77.7 Million)

Gulfdiam (UAE)

Gemport (UAE)

[J

ED/FTD (Israel)

K
E (Belff

teumi

ODHK Kong

__.IA4 .AMROI

314.

The entities referenced in the above chart as "ODHK" (a/k/a "Overseas Diamond

Hong Kong Ltd."), "ADME" (a/k/a "A.D. Middle East FZE"), DD and KT are all clients of Defendants.

The Bogus Chain of Sales of Formal Sector LKI Diamonds Fraudulently Acquired from Gulfdiam
315. ADB misappropriated the sales proceeds of the Formal Sector LKI Diamonds

primarily through the theft of nine shipments of Formal Sector LKI Diamonds purchased by Gulfdiam in 2008. 316. Between July and October 2008, Gulfdiam purchased in excess of $108 million

worth of Formal Sector diamonds in Angola, using in part the money it borrowed under its credit facility with ABN-AMRO (which was partially guaranteed by Lazare). 317. Defendants and Daleyot, using Mauridiam (which had operational control of

Gulfdiam and was the 100% owner of Gemport and ED/FTD), defrauded Lazare and Gulfdiam out of approximately $94 million worth of diamonds and proceeds from the sale of those diamonds. 318. At least $77 million of such funds were laundered and misappropriated by 72

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Defendants, used by them to reduce their exposure to the Daleyot Entities, and used by them to create the illusion that legitimate diamond transactions collateralized and formed the basis for outstanding loans to the Daleyot Entities. 319. As described above, Mauridiam is the very same entity that Defendants

previously used to divert to themselves or their projects approximately $70 million from Gulfdiam. 320. The trail of the diamonds proceeded as follows. To begin with, ostensibly on

behalf of Gulfdiam, Mauridiain delivered the diamonds in nine shipments to three different entities: (i) five shipments to Gemport, in Dubai; (ii) two shipments to ADME, in Dubai; and (iii) two shipments to ODHK, in Hong Kong. 321. The shipments by Gulfdiam to ODHK were exports and thus required Kimberley

Process Certificates.' 6 322. The shipments from Gulfdiam to Gemport and ADME were domestic sales within

Dubai and thus did not require Kimberley Process Certificates. 323. All shipments from Gemport and ADME out of Dubai, however, required

Kimberley Process Certificates. 324. Under the KPCS, each company, shipper and national Kimberley Process office

must maintain copies of all shipping/invoicing documents for three to five years. 325. Lenders such as ADB also require these records because the diamonds are

The Kimberley Process Certification System ("KPCS") is a system of warranties currently enforced by 76 nations worldwide to track cross border movement of diamonds to ensure the diamonds entering into the global market place are "conflict-free," meaning not used by rebel forces to finance wars against internationally recognized governments.

73

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collateral for their loans. 326. In addition, ADB had a contractual right that allowed it, at any time, to insist upon

the production and inspection of documents relating to the movement of the diamond shipments that its clients (and its clients' secured carriers) are required to maintain. 327. Because all companies involved were ADB's clients, and ADB received the sales

proceeds, ADB could have and should have (considering the amounts involved and that Lazare provided ADB with relevant documents in the context of Lazare's repeated requests for an investigation) readily tracked the origin and movement of these diamonds. The Gemport Sales 328. The five shipments of LKI Diamonds that Mauridiam, on behalf of Gulfdiam,

delivered to its subsidiary, Gemport, were invoiced at $79.7 million. 329. As part of the Illegal Scheme neither Gemport nor ED/FTD (both 100% owned by

Mauridiam) paid for most of the diamonds received from Gulfdiam, nor did they return the diamonds or explain what happened to them. 330. Instead, such diamonds were shipped to several shell companies and then to DD

and KT in Belgium (both clients of ADB), at which point the LKI Diamonds were sold to third party customers who were instructed to pay the proceeds directly to accounts at ADB. 331. Following the theft of the diamonds, as orchestrated by Defendants together with

the Daleyot Entities, Lazare obtained inforniation regarding the movement of those diamonds. 332. Lazare learned that the theft of those diamonds was conducted through the

corporate structure that ADB developed with Daleyot as early as 2007. 333. The LKI Diamonds initially invoiced by Gulfdiam to Gemport were shipped to

Diamco in Switzerland, and then shipped to ED/FTD (another company owned entirely by 74

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Mauridiam) in Israel. 334. ED/FTD then transferred the Formal Sector LKI Diamonds to DD, KT and

directly or indirectly to various third-party buyers. 335. The sales proceeds for such diamonds invoiced by DD were required to be

deposited into DD's account at ADB. 336. The table below describes the movement of the LKI Diamonds and the step-up in

value secretly realized by the Daleyot Entities and Defendants:
Date of Shipping Invoice from Gulfdiam to Gemport 7/27/08 Receiving Party in Tel Aviv ED/FTD Date of Arrival in Tel Aviv 7/30/08 Amount Invoiced to Gemport $26,404,350 Value of Shipment Stated Upon Arrival in Tel Aviv $29,438,460

Carat Amount 217,193.90

Shipped From: Diamco, Genève Diamco, Genève Diamco, Genève Diamco, Genève Diamco, Genève

8/6/08

27,701.40

ED/FTD

8/9/08

$17,669,840

$17,314,140

8/21/08

7,618.90

ED/FTD

8/23/08

$ 2,339,966

$ 2,531,394

9/28/08

6,409.47

ED/FTD

10/2/08

$ 1,249,319

$ 1,352,271

9/28/08 Total

359,798.45

ED/FTD

10/2/08

$32,058,101

$42,570,813 $93,207,078

$79,721,576

337.

All LKI Diamonds invoiced by Gulfdiam to Gemport were provided on the

expressly stated condition that "until full receipt of payment of this document the mentioned merchandise will be considered in consignment and remain our exclusive property." 338. As Defendants planned, proceeds from the sales of these LKI Diamonds were

deposited in DD's accounts at ADB, and were misappropriated by ADB to pay back its loans to DD, including the improper loans used for Central and Eastern European real estate investments
75

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in which KBC had an interest, as well as for the acquisition of private airplanes, fine art, a yacht and other luxury items.

Misappropriation by ADB of Sales Proceeds of Diamonds Shipped to ADB's Clients ODHK and ADME
339. In addition to the diamonds that Gulfdiam invoiced to Gemport, Gulfdiam

invoiced approximately $37.6 million in diamonds to ODHK and ADME for which Gulfdiam has been paid only a small portion. 340. Following the theft of the LKI Diamonds as orchestrated by Defendants together

with the Daleyot Entities, Lazare obtained infonnation regarding the movement of those Formal Sector LKI Diamonds. 341. Specifically, Gulfdiam, at the direction of Mauridiam, invoiced approximately

$17.3 million worth of diamonds in two shipments to ODHK on October 26, 2008, for which Gulfdiam has not been paid. 342. Invoice Date 10/26/08 10/26/08 The specific invoices at issue between Gulfdiam and ODHK are described below: Invoice # 08/028 08/029 Carat Amount 31,179.43 5,903.80 37,083.23 343. Invoice Amount Due Date of Invoice $16,058,922.56 $ 1,240,101.67 $17,299,024.22 12/25/08 12/25/08

Similarly, Gulfdiam, at the direction of Mauridiam, invoiced approximately $20.3

million worth of diamonds in two shipments to ADME on September 24, 2008, for which Gulfdiam has received substantially no payment. 344. Invoice Date The specific invoices at issue between Gulfdiam and ADME are described below: Invoice # Carat Amount Invoice Amount Due Date of Invoice

76

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09/24/08 09/24/08

08/024 08/025

33,816.25 5,168.57 38,984.82

$19,047,659.36
$

11/23/08 11/23/08

1,274,632.73

$20,322,292.09

345.

After the theft, through extensive efforts and the cooperation of whistle-blowers,

Lazare has been able to fully document the movement of the diamonds from Gulfdiam to ODHK and from ODHK to ED/FTD. 346. In the case of the diamonds sold to ADME, Lazare has tracked the diamonds to

Diamco in Switzerland, and then to ED/FTD in Israel. 347. Lazare has learned that, in order to funnel the money to Defendants, Fass

instructed both ODHK and ADME in writing that they did not owe or need to pay any money to Gulfdiam. 348. Upon information and belief, the diamond transfers to ED/FTD, through ODHK

and ADME, were arranged with the fraudulent intent and understanding that ODHK, ADME and ED/FTD would not pay Gulfdiam for the diamonds, but instead payments would go to ADB and others. 349. Defendants, together with the Daleyot Entities, thus orchestrated the theft of these

diamonds by Gemport, ODHK and ADME, the depositing of proceeds of the sales of such diamonds into DD's accounts at ADB, and the misappropriation of such sales proceeds by Defendants. 350. Defendants then used such proceeds to satisfy part of DD's debts to ADB that

were incurred, in part, as a result of the improper loans Defendants made to the Daleyot Entities for use in Central and Eastern European real estate investments in which KBC had an interest, and for the purchase of Daleyot's luxury items.
77

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351.

In line with Defendants' plan to plug the financial hole created by their improper

loans and improper funneling of monies out of ADB to DDMH, Hatilem, Kertalor, EKT, Longbridge, Olimpia, Riverton and MLAZ (for use in connection with KBC's Central and Eastern European real estate projects and for the purchase of certain of Daleyot' s luxury items),
ADB instructed DD to sell the Formal Sector LKI Diamonds, and to deposit the proceeds in its

accounts pledged to ADB, where Defendants used the funds to pay down DD's debts to ADB. 352. As a result of Defendants' scheme, Gulfdiam and Lazare were never paid the amounts owed to them for the Formal Sector LKI Diamonds, leaving Gulfdiam and Lazare unable to repay their own credit facilities (and leaving Lazare responsible, as guarantor, for Gulfdiam's credit facility with ABN-AMRO).
(ii) Misappropriation by ADB of "Informal Sector" and "Sight Rough" Diamonds and Sales Proceeds

353.

Defendants colluded with Daleyot to misappropriate Informal Sector Diamonds

and Sight Rough Diamonds and sales proceeds thereof belonging to Lazare. 354. In the Angolan Informal Sector, Lazare was licensed by the government to make

cash purchases of diamonds from local Angolan diamond sellers who mine diamonds from smaller (non-industrial) scale alluvial operations. 355. Between May 2008 and November 2008, Lazare purchased approximately $28.2

million of the LKI Diamonds in the "Informal Sector" (the "Informal Sector LKI Diamonds") 356. To make these purchases, Lazare wired money that it borrowed primarily under the Lazare Credit Facility from ADB in New York. 357. In addition to purchasing rough diamonds in the Informal Sector, Lazare also

purchased diamonds from elsewhere in the world (the "Sight Rough LKI Diamonds"), including

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directly from DTC. 358. Between August 2008 and October 2008, LKB paid DTC approximately $14

million for the purchase of the Sight Rough LKI Diamonds. 359. The funds used to purchase such diamonds were borrowed by LKB (on behalf of

Lazare) via its line of credit with ADB, and all invoices relating to such diamonds were pledged to ADB as collateral for such borrowings. 360. 361. At all relevant times Lazare was a guarantor of LKB's line of credit with ADB. Lazare consigned the Informal Sector LKI Diamonds and the Sight Rough LKI

Diamonds to LKB, which in turn consigned the Informal Sector LKI Diamonds and the Sight Rough LKI Diamonds to DD and/or KT. 362. With regard to the Informal Sector LKI Diamonds, between June and October

2008, LKB delivered such diamonds to DD and KT in Antwerp, Belgium for sale to third parties on the condition that title would not pass until full payment was made to LKB (and ultimately to Lazare). 363. DD and KT signed a consignment note under which LKB retained title to the

Informal Sector LKI Diamonds. 364. DD or KT would then report back to LKB when they invoiced (with full

reservation of title) the Informal Sector LKI Diamonds to a third party, at which time LKB would send an invoice (with full reservation of title) to DD or KT for the amount due. 365. LKB would then notify Lazare and then Lazare would invoice LKB for such

Informal Sector Diamonds. 366. The sales invoices for all Informal Sector LKI Diamonds were pledged by LKB to

ADB as security for LKB's credit facility at ADB. 79

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367. Following their receipt of the Informal Sector LKI Diamonds, DD and KT reported to LKB that they had customers that wanted to buy a total (in the aggregate) of $24,388,547.16 of the Informal Sector LKI Diamonds. 368. Accordingly, LKB sent invoices to DD and KT for such diamonds. 369. DD and KT then invoiced those diamonds to third party customers. 370. On June 30, 2008 and July 24, 2008, LKB issued two invoices to KT totaling

$11,618,294.00, and from September 18, 2008 through October 31, 2008, LKB issued four invoices to DD totaling $12,770,253.16. 371. The total owed to LKB by DD and KT for such Informal Sector LKI Diamonds is $24,388,547.16 (excluding interest and indemnity), which was pledged by LKB to ADB as collateral for LKB's line of credit at ADB. 372. Neither DD nor KT paid LKB or Lazare for any of the amounts invoiced for the

Informal Sector LKI Diamonds. 373. In addition, DD did not pay $4,073,210.00 for the remaining Informal Sector LKI

Diamonds that it held on consignment. 374. Upon information and belief, Defendants directed the Daleyot Entities to deposit

at least $12.7 million of the funds obtained from the sales of the Informal Sector LKI Diamonds into DD's account at ADB instead of paying such funds to LKB. 375. Instead of transferring those funds to Lazare or LKB, Defendants, upon

information and belief, knowingly misappropriated the proceeds of the Informal Sector LKI Diamonds to pay DD's obligations to ADB, including obligations resulting from ADB's illicit financing of DDMH, Hatilem, EKT, Kertalor, MLAZ and Olimpia. 376. Defendants did so despite being informed that the invoices for the sale of those

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same Informal Sector LKI Diamonds to DD and KT supported LKB's and Lazare's credit facilities at ADB. 377. With respect to the Sight Rough LKI Diamonds, after receiving notice from DD

that it had invoiced the Sight Rough LKI Diamonds to third parties, on August 31, 2008 and October 30, 2008, LKB invoiced DD $6,951,419.90 and $6,935,698.58, respectively, for a total of$13,887,118.48, representing LKB's gross interest in such diamonds. 378. Upon information and belief, and consistent with past practices, DD, upon selling

the Sight Rough LKI Diamonds to the third parties, and upon instruction from ADB, invoiced the third parties (with a reservation of title) indicating that such invoices were payable to DD's account at ADB. 379. Upon information and belief, upon receipt of the third party payments to DD's

account at ADB, ADB knew that it should process an intrabank transfer of the funds from DD's account to LKB's account. ADB failed to do so. 380. Upon information and belie1, Defendants had ready access to and reviewed and

obtained copies of documentation, including documents provided by Lazare and the invoices ADB held as collateral from LKB, establishing that the sales proceeds that Defendants misappropriated were the proceeds from the sales of the Informal Sector LKI Diamonds and the Sight Rough LKI Diamonds. 381. Indeed, as ADB was well aware, it was LKB's practice that when it received

payments from DD on invoices that it pledged to ADB as collateral, LKB explicitly applied them to the specific outstanding invoices due from DD/KT that related to these payments. 382. LKB would then promptly advise ADB accordingly in writing, and reconfirm the

still outstanding invoices in monthly reports to ADB as required by its loan agreement with F:"

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383.

Because the funds Defendants misappropriated (including payments to DD from

third party customers for the Informal Sector LKI Diamonds and Sight Rough LKI Diamonds identified on the LKB invoices) were pledged to ADB as collateral under LKB's credit line, Defendants' misappropriation of those funds prevented LKB from receiving those funds and rendered the pledged invoices worthless. 384. Instead of transferring those funds to LKB or Lazare, ADB misappropriated those

proceeds to pay DD's obligations to ADB, including those resulting from Defendants' improper financing of DDMH, Hatilern, EKT, Kertalor, Longbridge and Olimpia. 385. Upon information and be1ief, ADB made a conscious decision to misapply the

sales proceeds of the Informal Sector LKI Diamonds and Sight Rough LKI Diamonds to cover debts owed by the Daleyot Entities to ADB rather than properly apply such sales proceeds to repay LKB's credit facility at ADB. 386. On behalf of Lazare and itself, LKB sent a letter to DD and KT demanding

payment of the unpaid invoices due and payable to LKB or a return of the Informal Sector LKI Diamonds and Sight Rough LKI Diamonds. 387. Neither LKB nor Lazare ever received the invoiced amounts or the interest and

fees due thereon, or a return of the diamonds. 388. To cover up the fact that the funds ADB had misappropriated belonged to LKB (and ultimately Lazare), Defendants created and maintained two separate and contradictory sets of books and records. 389. ADB maintained one set of books and records in which transactions were

accurately recorded and, as such, confirmed activity and balances mirroring Lazare's and LKB's

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records. 390. In its second, and fraudulent set of books and records, ADB deliberately

manipulated reported information and manually reallocated the application of Daleyot Entity payments to the detriment of Lazare and LKB. IV. ADB Manipulates Its Own Books and Maintains Contradictory Records for the Proceeds of the LKI Diamonds 391. When LKB received payments from DD or KT, LKB's process was to apply them

to the specific outstanding invoices due from DD/KT to which they related. 392. LKB then promptly advised ADB in writing of the precise manner in which such

payments were to be applied. 393. After receipt of such funds, LKB would confirm the details of all invoices that

remained outstanding in monthly reports that LKB would deliver to ADB. 394. 395. ADB maintained one set of books to this effect. Unbeknownst to LKB, however, ADB, upon information and belief, was secretly

maintaining a second, very different, set of books on behalf of itself and DD for the very same transactions. 396. In this second set of books, ADB carefully manipulated the application of cash

payments which it made to LKB on behalf of DD in order to: (i) artificially allow DD to continue drawing on its own credit line with ADB; (ii) create an opportunity for DD and KT to pretend that LKB's US $38 million worth of outstanding invoices had been paid; and (iii) keep LKB and Lazare from learning of Defendants' broader Illegal Scheme. 397. The following example illustrates ADB's manipulation of cash payments:
Cash Application by ADB and LKB, the "First Set of Books"

(a)

On July 23, 2008, LKB invoiced DD $9,467,528.76 on invoice number 83

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R05-8019 with a due date of September 30, 2008. (b) The invoice was pledged by LKB to ADB as collateral for its loan used to

acquire those diamonds and, as such, payment of this pledged invoice was monitored by ADB. (c) installments. (d) Specifically, on October 29, 2008, one month after it was due, a bank This invoice was paid to LKB by ADB on behalf of DD in two

transfer in the amount of $3 million was made to LKB by ADB on behalf of DD with ADB bank reference number 000FBKS083030080. (e) On October 30, 2008, within 24 hours after having received the $3

million, LKB sent an email to ADB, which directed ADB to allocate such payment to invoice R05-8019.

(0

As a result, an amount of $6,467,528.76 remained open on the invoiced

amount of $9,467,528.76. (g) The next day, October 31, 2008, a second bank transfer in the amount of

$6,467,528.76 was made to LKB by ADB on behalf of DD (with ADB bank reference number

000FBKS083050042), exactly matching the remaining open part of invoice R05-8019. (h) The same day, LKB sent an e-mail to ADB directing ADB to allocate such

payment to invoice R05-8019. (i) As a result of this cash receipt, invoice R05-8019 had been fuily paid and

recorded as such in both the books of LKB and ADB. (j) Accordingly, invoice R05-8019 was removed from LKB's borrowing base

(i.e., the amount of money a lender will loan to a company based on the value of the collateral

pledged) with ADB.

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(k)

Based on the recording of transactions as described above, the records of

LKB and ADB reflected the following activity: Invoice No. R05-8019 Less Payments: Date July 23, 2008 October 29, 2008 October 31, 2008 Remaining Balance: (1) Amount $9,467,528.76 (3,000,000.00) (6,467,528.76) $ 0.00

Pursuant to its loan agreement with ADB, LKB was required to provide a

monthly aged accounts receivables report to ADB. (m) (n) This report was regularly e-mailed to Dini Gistelinck at ADB. The report specified the outstanding invoices, invoice due dates, amounts,

and whether or not these invoices were financed by ADB. (o) In LKB's report for September 2008 (c-mailed to ADB by LKB on

October 16, 2008) invoice R05-8019 was still listed as an outstanding account receivable. (p) This is consistent with the fact that this invoice was not paid by DD until

October 29 and 31, 2008, as described above. (q) As would be expected, the LKB report for October 2008 (c-mailed to Dini

Gistelinck at ADB by LKB on November 26, 2008) no longer listed invoice R05-8019 as it was considered fully paid both by LKB and ADB. (r) Unbeknownst to Lazare or LKB, on October 27, 2008, ADB's Kurt

Beckers sent an email to Fass (Chief Financial Officer of DD) and to Ronit Berenblit (assistant Chief Financial Officer of DD) with a copy to Ms. Linda Anthoni of ADB and to Daleyot, entitled "D.D.M. Shortage of cover." ROR

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(s)

The email explains that unless a new invoice showing recent activity is

pledged by DD to ADB, DD would be in imminent danger of defaulting on its credit facility with

(t)

The email also notes that DD had already drawn approximately $118

million on its credit facility and was facing a shortage of approximately $17 million needed to be in conformity with its obligations. (u) The email went on to state that DD had been for "73 days during the last

365 days" a "7 days non-conform credit," meaning that DD was out of formula under its credit

facility (i.e., DD had not provided enough valid recent collateral to ADB to support its current level of outstanding borrowings). (v) Thus, as the email explains, unless DD provided evidence of new

collateral it was faced with the possibility of having to immediately repay approximately $17 million or default on its credit facility.
Cash Application by ADB and DD, the "Second Set of Books"

398.

To resolve this situation, and to avoid DD's default and resulting scrutiny by

LKB, Lazare and regulatory and banking authorities that would lead to discovery of Defendants' broader Illegal Scheme, ADB manipulated its record keeping by fraudulently misapplying cash payments made by ADB on behalf of DD. 399. Working closely with DD, ADB intentionally misapplied the aforementioned

$3,000,000.00 payment of October 29, 2008 and the $6,467,528.76 payment of October 31, 2008 to more recent (in fact just issued and not due for another two months), wholly unrelated invoices, as follows: (a)
Misapplication of $3, 000, 000. 00 — Contrary to LKB's written instructions,
[U4

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ADB applied $2,705,343.10 of the $3,000,000.00 payment of October 29, 2008 to invoice R02800016 which, by its terms, was not due to be paid until November 30, 2008. (b) This improper application, however, created a problem for ADB in that

the payment amount exceeded the invoice amount by $294,656.90. (c) To solve this problem, ADB recorded the remaining $294,656.90 as a

partial payment of an even more recent invoice R05-8023 for $6,935,698.58 issued by LKB on October 30, 2008 (i.e., an invoice which did not even exist until the day after ADB remitted $3,000,000.00). (d) NM (e) These false "prepayments" enabled ADB to create the illusion of "fresh By its terms, this invoice was not due for payment until December 31,

collateral" having been acquired by DD thereby enabling ADB to release the $3 million while at the same time distorting and falsifying DD's available borrowing base. (f) This fraudulent application of funds was manually inserted by Marc
'S

Houben of ADB on October 31, 2008 at 12:07: 56h and is in total contradiction with ADB

first

set of books showing LKB receiving the transfer of $3 million for payment of invoice R05-8019.
(g) Misapplication of $6,467,528.76 - On October 31, 2008, contrary to

written instructions from LIKE, ADB again knowingly misapplied a payment from DD to LKB in the amount of $6,467,528.76 (ADB bank reference number 000FBKS83050042). (h) This payment was recorded by ADB (in its second set of books) as

payment of invoice R02-800017 for $2,475,406.62, due by its terms on December 29, 2008, and as a partial payment of $3,992,122.14 against invoice R05-8023 (the same invoice to which
$294,656.90 of the aforementioned $3,000,000.00 payment was also misapplied).

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(i)

Again, this fraudulent application was manually inserted by Marc Houben

of ADB on October 31, 2008 at 12:08:32h and is in contradiction with ADB's first set of books showing LKB receiving the transfer of $6,467,528.76 for payment of invoice R05-8019. 400. Thus, as described above, the very same transactions with the very same bank

reference numbers were deliberately and surreptitiously misapplied by ADB as part of a conspiracy, which in addition to causing LKB/Lazare significant monetary damages, created an artificial basis for DD to dispute its obligation to pay invoices properly due and owing to LKB. 401. Upon information and belief, Defendants have knowingly deceived LKB by

fraudulently manipulating ADB's books and records to assist DD at the expense of LKB and Lazare. 402. In continuation of the Illegal Scheme, ADB continued to cover up its illicit

activities. ADB attested in writing on September 21, 2009 to the certified auditor of LKB that as of May 31, 2009, LKB had open invoices of $38 million on local claims domiciled at ADB. 403. This corresponds to the amount of $38 million in invoices that LKB claims were

never paid by DD and KT. Simultaneously and without LKB's knowledge or consent, ADB intentionally recorded those same invoices as paid in a separate set of books and records which it maintained for the benefit of itself and DD. 404. Throughout the period in which ADB was intentionally misapplying payments

and keeping two contradictory sets of books, ADB sought to punish LKB and Lazare for their alleged failure to collect the open invoices from DD that were pledged to ADB. 405. At the very same time, ADB made the direct collection of these invoices

impossible by misapplying cash payments from DD to those invoices rather than to the correct outstanding invoices thereby providing a fabricated excuse for DD not to pay valid invoices
[.I

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due and owing to LKB. 406. Throughout, ADB objected to and vigorously fought Lazare's and LKB's

attempts to have an independent forensic auditor determine the proper accounting as among DD, KT, ADB, Lazare and LKB. 407. ADB consistently and vigorously opposed Lazare's and LKB's attempts to obtain

from ADB (including voluntarily from ADB, via the courts in Belgium and through subpoenas issued in the Southern District of New York), the relevant underlying documentation that would have revealed Defendants' wrongdoing and would have allowed for the prompt resolution of the entire dispute. V. Defendants Demand that Lazare Pay Down LKB's Credit Facility 408. Defendants facilitated the diversion of diamonds and money from Lazare, LKB

and Gulfdiam, engineered the illicit repatriation of funds by the Daleyot Entities into Belgium without tax, used the stolen repatriated funds to repay outstanding DD loans for its benefit, and then conspired to use its position as a creditor of Lazare/LKB to attempt to collect this same money a second time. 409. Defendants then conspired to cover their actions by obstructing an investigation

and trying to put Lazare and LKB out of business. 410. In the process, Defendants engaged in blatant violations of Belgian, United States

and international law. 411. Afler wrongfully misappropriating and applying to DD's credit line the proceeds

from the sales of the Informal Sector and Sight Rough LKI Diamonds (which should have been paid by DD to LKB and then applied to LKB's credit line at ADB), Defendants attempted to collect on this same debt a second time by demanding that Lazare pay the balances due under

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LKB's line of credit at ADB. 412. As ADB manipulated and misapplied the proceeds of these invoices, ADB, upon information and belief, knew that, in time, LKB would not receive payment from DDIKT on such invoices and that therefore such invoices would not be adequate security for ADB's loans to

413.

In late 2008, ADB advised LKB that accounts receivable from DD and KT would

no longer qualify as collateral for LKB's loans from ADB, and that, as a result, no new borrowings would be permitted without new collateral. 414. 415. ADB further required that LKB's credit line be repaid by Lazare in New York. Incredibly, despite telling LKB that accounts receivable from DD and KT could

no longer be used by LKB as collateral for LKB's line of credit, ADB continued to finance DD. 416. Unaware of Defendants' duplicity, Lazare provided additional liquidity to LKB in

the form of diamonds. 417. In addition, Lazare drew down on its own line of credit from ADB in New York

and from other banks to further collateralize and pay off entirely the balance ADB claimed was due under LKB's credit facility with ADB. 418. For example, at the insistence of Philippe Loral (a Senior Vice President at ADB),

at a meeting in Lazare's offices in New York, Lazare borrowed $1,550,000 from ADB in New York to repay LKB's credit facility at ADB. 419. As a result, at the end of 2009, when ADB maliciously terminated the Lazare

Credit Facility and LKB's credit facility, LKB's credit facility was fully repaid while the Lazare Credit Facility was almost fully drawn. 420. ADB thereby saddled Lazare with the unfinanceable, unpaid invoices of DDIKT

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that were owed to LKB, which ADB knew would not be repaid due to ADB's manipulation of its books falsely showing such invoices as having already been paid. 421. In light of ADB's illicit conduct detailed herein, both LKB's credit facility and

the Lazare Credit Facility were repaid in full notwithstanding ADB 's refusal to recognize on its books and records that it had been repaid with funds belonging to Lazare and Lazare's affiliates.
VI. Defendants Refuse to Undertake any Investigation into the Theft, Money Laundering and Fraud

422.

By letter dated January 8, 2009, LKB formally notified ADB that DD and KT had

failed to pay $42,793,317.89 that was due and owing (including interest and contractual 10% indemnity) under invoices for diamonds that LKB had invoiced to DD and KT with a reservation of title. 423. Pursuant to the tenns of LKB's credit facility at ADB, the accounts receivable due

from DD and KT to LKB were pledged as collateral to ADB to secure the monies advanced under LKB ' s credit facility. 424. LKB's credit facility was supported almost exclusively by accounts receivable

from DD and KT. 425. In late 2008 and throughout 2009 and 2010, Lazare, unaware of Defendants' role

in orchestrating and executing the Illegal Scheme, informed Defendants' senior officers and Defendants' counsel of Daleyot's financial difficulties and failure to pay for diamonds belonging to Lazare, and provided them with supporting documents. 426. Lazare also informed Defendants in great detail about the fraud and money-

laundering scheme. 427. At meetings with senior officers of the Defendants, Lazare sought Defendants' 91

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cooperation and made clear that their failure to assist in the recovery of the missing LKI Diamonds would have serious, negative financial consequences for Lazare. 428. In early 2009, Lazare urgently sought to meet with De Bosscher and Snoeks of

ADB to discuss the problems that Lazare believed, at the time, were created solely by the Daleyot Entities, and to request ADB's cooperation in conducting an audit of DD's and KT's books and records to which ADB (as lender and creditor to DD and KT) was entitled without Daleyot's consent. 429. Upon information and belief, under normal circumstances, ADB would insist on

such information to reconcile its own books and records. 430. In fact, according to a letter from ADB to DD and KT dated March 13, 2009,

"two company experts from KBC Bank nv" (emphasis added) were to visit DD and KT to review DD's and KT's activities and obtain documentation from DD and KT regarding both the Eastern and Central European real estate transactions of the Daleyot Entities and DD's and KT's net position toward Lazare and LKB. 431. Upon information and belief, DD in early April 2009 sent a report concerning its

financial situation to KBC. 432. Accordingly, both KBC and ADB were informed and advised of both these issues

(i.e., the diversion of money into KBC-related real estate projects and the diversion of proceeds

from the LKI Diamonds) before Lazare was even aware of or raised issues relating to the diversion of funds by ADB to such real estate projects. 433. Nonetheless, neither KBC nor ADB ever admitted such knowledge and repeatedly

denied any need to even review DD's accounts. 434. Upon information and belief, Defendants made certain that no KBC experts ever 92

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conducted an objective audit of DD's activities; as such an audit would have uncovered Defendants' collusion with the Daleyot Entities. 435. Upon information and belief, lower level employees at KBC/ADB, who may not

have been aware of the Illegal Scheme but saw the outsized exposure to DD and the irregular lending practices relating thereto, sought to commence an internal investigation. 436. Upon information and belief, more senior officers at KBC/ADB, who were

familiar with the Illegal Scheme and may have benefited from the Illegal Scheme, halted the investigation before Defendants' wrongdoing could be revealed. 437. By numerous emails and letters from March 2009 to June 2009, Lazare and its

affiliates continued to urge ADB to help audit and investigate Daleyot's companies' financial dealings and the disappearance of the diamonds. 438. To that end, Lazare provided ADB with a wealth of information and relevant

books and records. 439. Additionally, Lazare brought to ADB's attention the fact that certain invoices that

DD had filed in the Antwerp Commercial Court (in another action relating to amounts disputed between the parties) totaling $6,437,719.48 were fraudulent. 440. Specifically, on their face, the fraudulent invoices purported to instruct that

payment be made by LKB for a non-existent sale of diamonds by DD, and that payment be directed to DD's loan account at ADB (i.e., the same account to which $77,736,872.31 of proceeds from the missing LKI Diamonds had previously been directed by Defendants and the Daleyot Entities). 441. Upon information and belief, rather than investigate these false invoices, ADB

knowingly accepted the fraudulent invoices as collateral for its loan to DD in order to inflate 93

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DD's available borrowing base with the bank and thereby forestall the potential consequences of DD defaulting on its loans.
ADB Takes $20 Million from HSBC (Genève) Through Back to Back Loan Guarantee

442.

Unbeknownst to Lazare, in June 2009, with full knowledge of Lazare's complaint

that the LKI Diamonds and sales proceeds thereof had been stolen, Defendants arranged for ADB to receive $20 million in 6 installments directly from the HSBC (Genève) account (number ****5843) of DKT. 443. The $20 million was to be deposited in DD's account at ADB pursuant to Letters

of Guarantee (numbers ***5510 and ***6361) from HSBC (Genève) to ADB guaranteeing DD's debts to ADB, and used in violation of applicable regulations. The back-to-back guarantees from HSBC (Genève) were issued on behalf of DKT for the benefit of DD. 444. Upon information and belief, DKT is a shell company that has only one

shareholder, the Israeli company ILDIA Holdings Ltd., which in its turn has only one shareholder, Equalia Services Trust Reg. Vaduz in Liechtenstein. 445. Upon information and belief, the following six transactions arranged by

Defendants demonstrate laundering of $20 million in sales proceeds from the LKI Diamonds stolen from Lazare and used to reduce Defendants' exposure to the Daleyot Entities:
Date Of Transfer From DKT's Account Number ****5843 at HSBC (Genève) Amount Transferred To DD's Account Numbered ***..*****01.31 at ADB
$ $ $

June 2, 2009 June 8, 2009 June 11, 2009

4,000,000.00 3,500,000.00 3,000,000.00

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Date Of Transfer From DKT's Account Number ****5843 at HSBC (Geneve) June 19, 2009 June 26, 2009 June 30, 2009 Total

Amount Transferred To DD's Account Numbered ***.*****01_31 at ADB
$ $ $

3,500,000.00 3,000,000.00 3,000,000.00

$20,000,000.00

446.

Upon information and belief, the above described back-to-back guarantee

arrangement involving DKT and its account at HSBC and DD's account at ADB (and the repatriation of illicit funds into Belgium as outlined above) was executed in violation of multiple banking laws and regulations (e.g., ADB was required to check the ownership of DKT and the origin of the funds), and was done in the face of Lazare's contemporaneous alerting of Defendants to the misappropriation of the LKJ Diamonds and sales proceeds thereof. 447. Each of the aforementioned transfers from DKT's account at HSBC to DD's

account at ADB was authorized in writing by Daleyot's associate, Salama, and was evidenced by an HSBC advice stating: (i) "Details of Payment: In decrease of our guarantee ***5510 issued by HSBC Geneva" or (ii) "Details of Payment: In decrease of our guarantee ***6361 issued by HSBC Geneva." 448. In the face of Defendants' refusal to conduct an audit, Lazare was forced to file a

lawsuit in Belgium seeking a review of DD's books and records. 449. At that time, ADB was already fully aware that it had manipulated its books

relating to transactions with the Daleyot Entities and had received illicit transfers of cash from the Daleyot Entities' accounts at HSBC.
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450.

On June 11, 2009, at a meeting with Lazare's management and after ADB began

to receive such illicit funds from the Daleyot Entities' accounts at HSBC, ADB's Snoeks announced to Lazare that ADB had decided not to conduct a forensic audit of DD and KT. 451. Snoeks' stated reason to Lazare was that DD and KT were supposedly companies

in good financial standing and that there was "no need for an audit" as Lazare's charges "did not warrant an investigation." 452. The statements by Snoeks were knowingly false and intended to deceive Lazare.

Incredibly, those statements were made against the background of ADB itself refusing to accept invoices from DD and KT as collateral from LKB because of their questionable legitimacy and/or collectability and Lazare' s demonstration that DD was submitting false invoices to the Belgian court. 453. 454. ADB nonetheless has continued to finance Daleyot's companies to this day. On July 9, 2009, members of Lazare's management again traveled from the

United States to meet with senior management of ADB at ADB's offices in Antwerp, Belgium. 455. At that meeting, Lazare brought to the attention of ADB's senior management

invoices and related documentation pertaining to Lazare's consignments to DD and KT, explained to ADB why DD's and KT's records were fraudulent, and updated ADB on Lazare's efforts to obtain an accounting from DD and KT. 456. By letter and facsimile to Lazare from ADB's Dirk Dullaert, the Senior Vice

President & Head of International Relations at ADB, and Theo Strous, the Managing Director of ADB, dated July 10, 2009, ADB advised Lazare that ADB "cannot intervene in the affairs of and the disputes between two diamond companies and as we are not an arbitrator, we suggest you to look for assistance through professional arbitration party as customary in your industry."

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457.

Upon information and belief, ADB did so despite knowing full well that the

dispute was not a mere dispute between two diamond companies, but a dispute directly caused by ADB's own actions and participation in the Illegal Scheme. 458. By letter dated July 22, 2009, Lazare presented to Theo Strous, Dirk Dullaert and

Veerle Snyers of ADB specific and detailed information surrounding the Daleyot Entities' fraud with respect to payments owed to LKB for diamonds acquired from Lazare. 459. Specifically, Lazare's letter showed how certain of DD's proffered invoices did

not match and were proven false by LKB's documentation— which ADB itself had verified and accepted as accurate. 460. In addition, the July 22, 2009 letter noted inconsistencies within ADB's own

accounting of these transactions. 461. Lazare attached copies of the correct documents to its letter, and urged the bank to

take action to set the record straight. 462. 463. To this day, ADB has not responded to the July 22, 2009 letter. Instead, as discussed below, ADB retaliated against Lazare by manufacturing a

default under the Lazare Credit Facility. 464. Lazare also sought ADB's cooperation with the investigation by Lazare's insurers

of the missing LKI Diamonds. 465. ADB refused to cooperate with any insurance investigation and even joined forces

with Daleyot in seeking to quash a subpoena issued by the United States District Court for the Southern District of New York simply requesting access to relevant accounting information in ADB's possession in connection with Lazare's now settled lawsuit against its insurers. 466. Upon information and belief, ADB refused to appoint an independent auditor or 97

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to cooperate with the insurance investigation because ADB knew the whereabouts of the diamonds, used a large portion of the diamond proceeds to repay itself, and was and is concerned that its knowledge of and role in the scheme to launder the diamond proceeds and other schemes involving Daleyot might be uncovered. 467. Upon information and belief, this is particularly true of the senior officers of

Defendants who took illicit payments and bribes from Daleyot as part of the Illegal Scheme. VII. Defendants Refusal to Investigate Violates their Obligations to Lazare, LKB and Banking Laws 468. As a financial institution, in particular one focused on lending to the diamond

industry (as diamonds are deemed a financial instrument under the USA PATRIOT Act), ADB has various obligations and assumes certain responsibilities with respect to its customers' financial reporting and local and cross-border movement of diamonds. 469. Defendants' customers, including Lazare and LKB, expect the banks to adhere to

these obligations and responsibilities, and rely on the banks to act in good faith with respect to these obligations and responsibilities. 470. The obligations and responsibilities to which the banks must adhere derive from

international standards, as well as United States and Belgian laws. 471. These obligations are intended to prevent banks from participating in illegal

activity, and to assist law enforcement in identifying such illegal activity, including money laundering. 472. In Europe, the First, Second and Third European Union Money Laundering

Directive, the Financial Action Task Force on Money Laundering ("FATF"), and countryspecific laws including the Royal Decree of 13 June 2007 (which enumerates various indicators

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of money laundering) govern ADB ' s money-laundering obligations. 473. In the United States, where Defendants also operate and where the U.S. dollar

denominated transactions at issue were cleared, these obligations are set forth in various statutes and accompanying regulations, including the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, the Money Laundering Control Act of 1986 and the Bank Secrecy Act of 1970. 474. KYC policies. 475. For corporate customers, Defendants are required to look behind the corporate These governing laws and obligations require Defendants to enact and observe

veil and identify executives, directors and individuals with ultimate control over the business and the company's assets. 476. Moreover, the European and U.S. laws require that, in the event that a bank

determines, through required customer review, that a client is an increased risk, the bank must undertake "enhanced due diligence," which involves a rigorous and robust process of investigation over and above KYC procedures to verify and validate the customer's identity. 477. 478. These U.S. and European legal obligations are ongoing in nature. Banks have a duty to maintain up-to-date customer information and to monitor

transaction patterns to identify transactions that appear unusual or inconsistent with the bank's knowledge of the client, its activities and its risk profile. 479. An example of a suspicious activity would include unusual transfers of funds

among related accounts or accounts that involve the same principals. 480. If a bank has reason to suspect that a transaction has no legitimate business or

other lawful purpose, the bank is required to report that transaction to appropriate authorities.

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481. ADB claims on its website that it: (i) has "a risk-based assessment of its customer base and their transactions;" (ii) determines "the appropriate level of enhanced due diligence necessary for those categories of customers and transactions that [it] has reason to believe pose a heightened risk of illicit activities at or through [the bank];" (iii) has "a requirement to collect information regarding its customers' business activities;" (iv) assesses its "customers' AML policies or practices;" (v) has "a process to review and, where appropriate, update customer information relating to high risk client information;" (vi) has "procedures to establish a record for each new customer noting their respective identification documents and 'Know Your Customer' information;" (vii) completes "a risk-based assessment to understand the normal and expected transactions of its customers;" (viii) has "policies or practices for the identification and reporting of transactions against lists of persons, entities or countries issued by governmenticompetent authorities;" (ix) screens "customers and transactions against lists of persons, entities or countries issued by government/competent authorities;" (x) has "a monitoring program for unusual and potentially suspicious activity that covers funds transfers;" and that (xi) "where cash transaction reporting is mandatory, [it has] procedures to identify transactions structured to avoid such obligations." 482. KBC Group's Code of Conduct and its Anti Money Laundering Policy (which are

applicable to KBC and ADB as members of the KBC Group), contain similar requirements relating to KYC and anti-money laundering procedures. 483. Defendants' participation in the Illegal Scheme, failure and refusal to investigate

Lazare's claims, affirmative attempts to deceive their customers, Lazare and LKB, and failure to disclose their improper dealings with the Daleyot Entities were clear violations of KBC's and ADB's own internal rules and various applicable laws and regulations. 100

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VIII. Defendants' Efforts to Destroy Lazare to Cover Up the Theft, Money Laundering and Fraud 484. Instead of following their own rules and other regulations, Defendants refused to

investigate, and intensified their efforts to destroy Lazare and cover up the Illegal Scheme. 485. In July and early August of 2009, Lazare had concluded that it might not be able

to file its annual financial reports with the SEC as required by law until it resolved its outstanding dispute with ADI3 and others relating to the missing LKI Diamonds. 486. At the time, Lazare informed ADB of the serious consequences for Lazare of a

delinquent SEC filing. 487. Lazare entered into a series of negotiations with ADB in order to reach a

settlement that would acknowledge the Daleyot Entities' debts to Lazare and LKB. 488. 489. ADB provisionally agreed to guarantee a portion of such debt to Lazare/LKB. At the last moment, without explanation, and with full understanding of the

consequences for Lazare, ADB withdrew from the negotiations thereby ensuring that Lazare would be unable to file its annual financial reports in compliance with its SEC reporting requirements. 490. As Lazare began to uncover the fraud and ADB's and KBC's participation in the

Illegal Scheme, Defendants engaged in a series of actions designed to destroy Lazare and cover up the theft, money laundering and fraud. A. 491. Defendants Manufacture False Defaults Under Lazare's and LKB's Credit Facilities By letter dated August 6, 2009, and emails dated September 15 and September 28,

2009 from Dirk Dullaert of ADB to Lazare in New York, ADB falsely accused LKB of causing an event of default under its credit facility. 101

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492.

ADB claimed that this supposed default was caused by LKB allegedly securing a

$5.2 million credit facility with another financial institution without first obtaining permission from ADB. 493. ADB claimed that the new credit facility was reported on the database of "the

Central Bank of Belgium." 494. According to ADB, such event of default would "allow [ADB] to immediately

terminate or suspend the loan in whole or in part." 495. In fact, LKB had secured no such credit facility, and LKB promptly informed

ADB that ADB's information, and the claimed basis for the default, were wrong. 496. Nonetheless, ADB informed Lazare/LKB that it "will have to suspend the credit

agreement for LKB immediately." 497. In response, Lazare stated that it was neither fair nor reasonable to punish

Lazare/LKB for an erroneous report that Lazare/LKB cannot possibly verify or correct, especially when ADB, as a leading diamond bank, has the greater ability to determine the source of the error with the Belgian banking authority. Nonetheless ADB did nothing to rectify the situation. 498. Ultimately, Lazare uncovered the truth that, in continuation of the collusion

between KBC and ADB, it was actually KBC itself that made the false filing with the Belgian banking authority, which led to this alleged false default. 499. After Lazare informed ADB that, in fact, it was KBC that filed the false report,

ADB reluctantly withdrew the phony default that KBC and ADB had manufactured on LKB's performing loan. 500. Defendants also manufactured a second basis to declare a default. 102

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501.

In another email dated September 28, 2009, ADB claimed, among other things,

that Lazare's failure to file its audited financials "also causes an event of default" under the Lazare Credit Facility. 502. The failure to file its audited financials, however, was a result of Defendants' own actions and the outstanding issues regarding the LKI Diamonds and sales proceeds stolen from Lazare. 503. Nonetheless, Lazare continued to make all debt service payments as provided for under its credit agreements with ADB and its other lenders. 504. Lazare announced on September 15, 2009 that it was delaying filing its Annual

Report on Form 10-K for the fiscal year ended May 31, 2009 because of, among other things, a material uncertainty regarding Lazare's obligation under its lines of credit with ADB and ABNAMRO (including Lazare's guaranty of Gulfdiam's line of credit) and the ability of Lazare to recover the LKI Diamonds and sales proceeds stolen from Lazare. 505. Because Lazare funds its operations through credit facilities from multiple lenders

(including ADB), Defendants were, upon information and belief, particularly aware that by declaring an event of default under Lazare's or LKB's credit facility, they would cause Lazare's other lenders (like ABN-AMRO and Bank Leumi USA) to place Lazare in cross-default and deter potential new lenders from financing Lazare, thereby depriving Lazare of resources necessary to conduct its operation.
B. Defendants Attempt to Force Lazare into Involuntary Bankruptcy

506.

Based on this manufactured default, ADB then entered into an agreement with

Lazare's two other lenders, ABN-AMRO and Bank Leumi USA to attempt to force Lazare into involuntary bankruptcy. 103

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507.

On November 2, 2009, Lazare received a letter from ADB, ABN-AMRO and

Bank Leumi USA in which the three banks demanded financial information from Lazare information, which, as Defendants were well aware, Lazare could not provide as a direct result of Defendants' fraudulent actions relating to the missing LKI Diamonds. 508. Upon information and belief, the intent of the letter was to force Lazare into an

involuntary bankruptcy. 509. The letter stated that Lazare's failure to provide such information "may constitute

a default under" each bank's credit facilities with Lazare (and LKB's credit facility with ADB). 510. The November 2, 2009 letter was signed on ADB's behalf by Guy Snoeks

(Managing Director and Member of the Executive Committee) and Pierre De Bosscher (CEO). 511. Defendants were attempting to default Lazare for not providing audited financial

statements, while at the same time refusing to conduct an audit of DD's books and records and assisting Daleyot in avoiding such an audit, which would have enabled Lazare to complete its financial statements. 512. The ill-conceived conspiracy failed later in November 2009 when Bank Leumi

USA withdrew from Defendants' coordinated plan to put Lazare into involuntary bankruptcy.
C. ADB Terminates Lazare's and LKB's Credit Facilities

513.

After the attempt to force Lazare into bankruptcy failed, Lazare attempted to

restore a constructive dialogue by offering to provide financial information to all of its lenders, including ADB, at a meeting scheduled for January 6, 2010. ADB agreed to attend that meeting. 514. Through its New York counsel, up to and including December 28, 2009, ADB

was discussing the type of information to be provided by Lazare at that meeting, which of

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ADB ' s experts would attend the meeting and other relevant matters. 17 515. On December 28, 2009, in the middle of the Christmas holidays and in violation

of the agreement to conduct the aforementioned meeting nine days later on January 6, 2010, ADB announced the termination of LKB's already fully repaid $25 million credit line and the US $45 million credit line of Lazare in New York. 516. ADB's termination of Lazare's lines of credit constituted the first time that a diamond lender canceled credit lines of a DTC sightholder who was not in a monetary default. Neither Lazare nor LKB had ever missed a payment of principal or interest during their more than 1 0-year relationship with ADB, including throughout this period of global financial crisis. 517. Through decades of experience, ADB should have known that even under normal circumstances it would be impossible for a diamond company to repay its credit line of more than $40 million in a short period of time. 518. Having failed in their earlier attempt to declare manufactured events of default

and to put Lazare into involuntary bankruptcy, by terminating Lazare's credit lines in full, Defendants attempted to create a liquidity crisis for Lazare. 519. To satisfy Defendants' false, inequitable and unreasonable demands Lazare

would, at best, have to dispose of its inventory at fire sale prices in the midst of a global financial crisis, which, as Defendants intended, would have destroyed Lazare's business.

Incredibly, during this time when ADB and LKI were scheduling a meeting to discuss the serious issues LKI had raised regarding the Daleyot Entities, and despite ADB's knowledge that DD was hopelessly drowning in debt, senior members of ADB, including Guy Snoeks, were writing to major diamond mining companies, including Rio Tinto Diamonds N.V. ("Rio Tinto"), in support of DD's business. In a letter dated December 16, 2009, Snoeks told Rio Tinto that DD "has the financial capacity to be involved in business of great importance," that DD and Daleyot "enjoy an excellent reputation," are "capable and trustworthy," and that Snoeks "would very much appreciate any help and courtesy you would extend to them."

105

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520.

Moreover, as a direct result of ADB's December 28, 2009 termination notice,

ABN-AMRO sent Lazare a "Notice of Default and Reservation of Rights" dated January 11, 2010 stating: As of December 30, 2009, a Default has occurred under [Lazare's credit facility with ABN] as a result of... Antwerp Diamond Bank notifying [Lazare] that it is terminating: (i) [LKB's credit facility]; and (ii) [the Lazare Credit Facility]. 521. Upon information and belief, ADB was well aware that due to cross-default

provisions, its decision to terminate the Lazare Credit Facility and LKB's Credit Facility could well cause ABN-AMRO to declare Lazare to be in cross-default of Lazare's credit facility at

522.

Upon information and belief, the Defendants and ABN-AMRO were coordinating

their attacks on Lazare with the intention of harming the company to the point that it could not pursue its investigation into the Illegal Scheme.' 8 523. Both Lazare and LKB immediately protested the termination notices sent by ADB

as having been instituted in bad faith, particularly in light of the meeting scheduled for January 6, 2010. 524. In particular, Lazare and LKB noted the facts that: (i) the decision to cancel the

Lazare Credit Facility was sudden and unwarranted; (ii) it was done between Christmas and the New Year when the wholesale diamond industry is, as a practical matter, closed; and (iii) the termination letter was sent without preceding telephone warnings, preparations, or the dialogue as would be expected to precede such a drastic move by any bank acting professionally

ABN-AMRO subsequently terminated its credit line with Lazare in March 2010 but later settled its dispute with Lazare as described above.

18

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particularly with respect to a longtime client that had never missed a single debt service payment. 525. In its letter, LKB also reminded ADB that its termination of LKB's credit facility

could "have dramatic implications on other undertakings within the Lazare Kaplan group, including covenants and representations made in loan documentation, as well as potential regulatory implications for Lazare, a public company," and noted that "the ramifications of ADB's actions are much larger in scope, and the commensurate liabilities of ADB may potentially involve hundreds of millions of dollars, a figure much higher than the amount of the credit line." 526. In response, ADB, through a January 19, 2010 letter from its New York counsel,

"reaffirm[ed] and restate[d] its election to terminate [the Lazare Credit Facility] on March 1, 2010, at which time the principal balance outstanding thereunder, plus accrued and unpaid interest, costs and fees (including attorney's fees) will become immediately due and owing." 527. Rather than investigate or respond to Lazare's allegations of misconduct, ADB's

counsel also stated in the January 19, 2010 letter that ADB "takes strong exception to each and every allegation contained in [Lazare's January 6, 2010 letter], including [that] ADB's ... notice of termination of [the Lazare Credit Facility] ... was an action taken in 'bad faith." 528. By letter dated January 22, 2010, ADB, again through its New York counsel,

"deni[ed] any suggestion ... of ADB's participation or involvement in any civil or criminal improprieties with respect to its business transactions with [Lazare and/or LKB]." 529. In addition, ADB characterized the dispute relating to the missing LKI Diamonds

as "between three (3) customers of the bank, wholly unrelated to ADB's respective uncommitted facilities extended to Lazare and LKB." 530. ADB then reaffirmed and restated its election to terminate the Lazare Credit 107

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Facility and LKB's credit facility. 531. The statements contained in the January 19, 2010 and January 22, 2010 letters

sent on ADB's behalf were false and misleading because: (i) ADB purposely omitted the fact that Lazare and LKB had been victimized by Defendants' Illegal Scheme; (ii) certain of Defendants' senior officers had accepted bribes from the Daleyot Entities as part of the Illegal Scheme, including Defendants' agreement to accept funds belonging to Lazare, LKB and Gulfdiam and apply them to debts owed to ADB by Daleyot and his companies; and (iii) ADB's termination of the Lazare Credit Facility and LKB's credit facility was done in bad faith to cover up its own wrongdoing and obstruct Lazare's efforts to investigate the missing LKI Diamonds and proceeds thereof. 532. On February 11, 2010, Lazare and its counsel met with executives of ADB,

including Snoeks, and the bank's counsel in Belgium. 533. At that meeting, Lazare explained to ADB in great detail the information that they

had learned regarding the Daleyot Entities' theft of diamonds and their collusion with officers of

534.

Lazare also explained to ADB that law enforcement investigations were being

conducted targeting Daleyot and associated companies in connection with tax evasion, money laundering and other violations of law. 535. of hand. 536. 537. Incredibly, ADB continued to finance the Daleyot Entities. On February 22, 2010, Lazare's Chairman of Lazare's Board of Directors traveled ADB refused to investigate or even discuss the information, which it rejected out

to Brussels to meet with Gijsens and De Bosscher. ItOr'1

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538.

The meeting was arranged by Gijsens's predecessor, Jan Vanhevel, the Chief

Executive Officer of KBC. 539. At that meeting, Lazare's Chairman again explained what Lazare had learned

about the Illegal Scheme, and that ADB officers were implicated in it. 540. Lazare's Chairman urged the bank to take immediate and appropriate steps to

investigate the evidence. 541. Gijsens agreed that an investigation should be conducted by KBC and that

information in the possession of Lazare would be immediately relayed directly to KBC for its review. 542. 543. Four days later Gijsens reneged on that agreement. Instead of conducting the agreed upon investigation, on March 3, 2010, and in

retaliation for Lazare's efforts to uncover the truth, ADB issued a demand letter (the "Demand Letter") to Lazare stating that the Lazare Credit Facility was terminated on March 1, 2010, and that "[t]he current outstanding principal balance, plus accrued interest due and owing under the [ADB] Credit Facility as of the Termination Date is $43,295,452.90." 544. The Demand Letter further stated that "Demand is hereby made by ADB for

Lazare's immediate and full repayment of all sums due and owing under the [ADB] Credit Facility." 545. Snoeks. 546. By letter dated March 7, 2010, Lazare, informed ADB, through Nadia De Brie The Demand Letter was signed by ADB's Head of Credit Department and by Guy

and Guy Snoeks, that "the debt alleged to be due under the [ADB] Credit Facility is sharply disputed by Lazare," because "ADB has already been paid in full," in light of the fact that ADB 109

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"has received and taken in repayment of other obligations, monies and other assets belonging to Lazare and its affiliates that exceed the stated balance due under the [ADB] Credit Facility." 547. By letter dated March 14, 2010, Lazare advised Gijsens that it was prepared to

make a presentation to Gijsens and to Pieter Vandendriessche, the Head of ADB's Audit Conmiittee, regarding the misappropriation of the proceeds of the LKI Diamonds and ADB's receipt thereof. 548. Applicable AML regulations and KBC's own published policies (also applicable

to ADB) required the acceptance of such presentation. 549. No reply to the March 14, 2010 letter ever came. KBC and ADB continued to

stonewall Lazare. D. 550. ADB Sues Lazare in Belgium Under False Pretenses Two days later on March 16, 2010, and instead of agreeing to receive the

information Lazare had offered to Defendants, ADB, in retaliation for Lazare's continued efforts to reveal the truth, filed suit against Lazare in Antwerp, Belgium by serving Lazare with a "Writ of Summons." 551. In that document, ADB falsely represented to the Court that the parties' loan

agreements provided for disputes to be governed by Belgian law in the Belgian courts, when in truth and fact, the relevant agreements provide for disputes to be governed by New York law in the state and federal courts in New York as noted above. 552. ADB has made numerous other false statements in the Belgium proceeding,

including claims that: • it "is a Belgian bank solely active in the diamond sector," when, in fact, it loaned tens of millions of dollars to an insolvent company with no diamond activities, for investment in offshore shell companies with obscure shareholdings that in 110

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turn funneled cash into Eastern and Central European real estate, private airplanes, a luxury yacht and other similar items for which ADB then sought repayment from Lazare; • that the disputed diamond sales "apparently relate to the sale of diamonds from Angola, which transactions were financed by ABN Amro Bank" and not ADB, when in fact, a portion of the diamonds acquired in Angola by Lazare/LKB, as well as all of the missing Sight Rough LKI Diamonds were financed by the very credit facility to Lazare that was terminated by ADB (as clearly so stated therein), millions of dollars of proceeds misappropriated by ADB, in cooperation with the Daleyot Entities, were for diamonds acquired by Lazare from Angola (as described above), and ADB was the illicit recipient of over US $77 million of proceeds from the sale of Angola diamonds misappropriated from Gulfdiam (and Lazare); and
• "The thesis of the defendant (Lazare) that the concluding party (ADB) would have ended the credits 'because of her exposure to the Daleyot companies' is completely made up and is not substantiated by any element," when in fact,

Lazare has presented extensive documentation to ADB substantiating the claim. Moreover, Defendants were well aware of and visibly alarmed by the catastrophic consequences of their exposure to the Daleyot Entities as evidenced by, among other correspondence, a January 29, 2009 letter from Snoeks and Strous to DD and KT which, among other things, states: We refer to our letter dated December 12, 2008, as well as to the several meetings you have recently held with Kurt Beckers, regarding the still existing shortage in collateral already pending for 83 days, actually amounting to $76.870.000 USD, the additional hard collateral to be received by the bank to cover this shortage in collateral and the information regarding your current financial situation for both [DD and KT] that needs to be provided to the Bank. 553. As noted above, the case in Belgium is presently scheduled to be heard on

September 28, 2012. 554. Nonetheless, in addition to the ongoing irreparable harm to Lazare as a result of

having to defend itself in a foreign jurisdiction despite its bargained for forum selection clause, if ADB obtains relief in Belgium before judgment is rendered in this litigation, it would cause irreparable harm to Lazare's business operations and deprive Lazare of its right to due process in 111

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the agreed upon jurisdiction - and do so on the bases of demonstrably false statements.
IX. The Illicit Relationship Allows Defendants' Executives to Enrich Themselves at Lazare's Expense

555.

Upon information and belief, beginning in or about 2006, Defendants: (i) lent the

Daleyot Entities, including Daleyot personally, excessive amounts of money; (ii) improperly funneled such funds to Central and Eastern real estate transactions; (iii) collaborated with Daleyot to open bank accounts in the name of illegitimate shell companies at ADB and elsewhere; and (iv) used those accounts to launder money throughout the world - all in violation of the governing legal requirements, standards and obligations - due, in part, to bribes paid by Daleyot to certain senior officers of Defendants. 556. Upon information and belief, Defendants' senior officers took payments in 2006

through 2008 exceeding $20 million in total, which emanated from accounts controlled by IL Investment Trust at LGT Bank and also accounts controlled by other Daleyot Entities at HSBC (Genève). 557. Upon information and belief, the payments to Defendants' senior officers

originating from LGT bank were made through, among other companies, Modernisme, and the payments made to Defendants' senior officers originating from HSBC (Genève) were made through, among other companies, DDM (Suisse) and Jortec. 558. Upon information and belief, Defendants' senior officers received such payments

in accounts controlled by them at ADB (Suisse) and ADB (Dubai). 559. Upon information and belief, senior officers of Defendants took such payments

and did, in fact, participate in the Illegal Scheme to divert Lazare's funds and property (for the Daleyot Entities' and Defendants' benefit), and to obstruct Lazare's efforts to investigate and 112

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recover the LKI Diamonds and proceeds. 560. According to official records in Switzerland and Liechtenstein, Daleyot is the

ultimate beneficial owner of all of the above referenced entities with accounts at HSBC (Genève) and at LGT Bank.

X.

Lazare Suffers Enormous Injury to Businesses and Property as a Result of Defendants' Conduct
561. As demonstrated herein, Defendants directly participated in an Illegal Scheme to:

(i) convert the proceeds of at least $135 million in diamonds from Lazare and its affiliates; (ii) move the diamonds and/or the proceeds from the sale of the diamonds through the Daleyot Entities' network of shell companies to their ultimate destination; (iii) use the proceeds from the sale of those diamonds diverted from Lazare and its affiliates to pay down other debts owed to ADB by the Daleyot Entities; (iv) forestall and interfere with an investigation by misrepresenting that Lazare was in default of its lines of credit, which threatened Lazare with financial ruin; (v) interfere with Lazare's ability to recover from insurers and investigate their claims; and (vi) prevent Lazare from making certain SEC filings. 562. As a direct result of the Illegal Scheme described herein, Lazare has suffered

critical injuries to its business, business prospects, reputations and property. 563. As a direct and proximate result of Defendants' wrongful conduct, Lazare has

been damaged by the loss of more than $135 million of diamond proceeds that Defendants stole and converted from Formal and Informal sector transactions and from the Sight Rough transactions described herein. 564. Defendants' wrongful conduct further deprived Lazare of the funds needed to

finance its ongoing business operations in the United States and around the world, resulting in

113

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millions of dollars of additional damages, the loss of critical contracts, markets and funding, the discontinuation of business lines in major countries of operations, delisting of Lazare's stock on the AMEX (resulting in a decrease in the price, the volume of trading and the overall liquidity of Lazare's shares), business interruptions, the termination and reduction of certain operations, dramatic increase in insurance costs, loss of its rough diamond sourcing abilities in several jurisdictions, loss of some and reduction of other of its "Sight" allocations with DTC, and tremendous harm to its reputation. 565. by Defendants. 566. 567. Lazare is entitled to recover the amounts due and owing to them for said damage. In addition, Lazare has incurred substantial legal, forensic and management costs All of the damages sustained by Lazare were reasonably foreseeable and intended

of pursuing a global investigation into the Illegal Scheme. 568. Defendants' wrongful actions (and failure to disclose their wrongful actions) were

committed intentionally, willfully and with malice. 569. At the point in their confidential business relationships with Lazare that

Defendants commenced and engaged in the scheme, defrauded Lazare, stole and converted Lazare's property and concealed their wrongful actions, Defendants acted willfully, maliciously and with intentional disregard for the rights and interests of Lazare. 570. Accordingly, Lazare is entitled to an award of punitive damages against

Defendants, both as punishment and to discourage such wrongful conduct in the future. 571. In carrying out this scheme to injure Lazare and other victims, such as the general

investing public in the United States, by means of fraud and other violations of law as described herein, Defendants and other members of the Enterprise violated multiple criminal laws, 114

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including, but not limited to: 18 U.S.C. § 1341 (mail fraud); 18 U.S.C. § 1343 (wire fraud); 18 U.S.C. § 1951 (extortion); 18 U.S.C. § 1956 (money laundering); N.Y. Pen. Law § 180.08 (commercial bribery); 31 U.S.C. § 5318 (failure to report suspicious activity; failure to conduct due diligence; failure to identify and verify account holders; and failure to report cross-border transmittal of funds); 18 U.S.C. § 2314 (transportation of stolen property); and 18 U.S.C. § 2315 (receipt of stolen property).

572.

By this action, Lazare now seeks the following relief: (a) actual and consequential damages of more than $500 million, trebled damages, disgorgement of all ill-gotten gains and profits, and attorneys' fees and expenses resulting from Defendants' direct or indirect participation in an Illegal Scheme to steal diamonds and monies belonging to Lazare and other entities in which Lazare has an interest, and to launder the proceeds from the sale of those diamonds; compensatory and punitive damages under New York law; a full accounting with respect to the missing LKI Diamonds and sales proceeds; the imposition of constructive trusts with tracing, the imposition and execution of equitable liens, voiding of fraudulent transfers and pledges, and restrictions on future conduct; a declaration that the alleged defaults by Lazare under its loan agreement with ADB are invalid; a declaration that no amounts are due or owing under the Lazare Credit Facility; and an order enjoining ADB from pursuing the lawsuit that ADB filed against Lazare in Antwerp, Belgium by service of a "Writ of Summons" with respect to the Lazare Credit Facility.

(b) (c) (d)

(e)

(0
(g)

FIRST CLAIM FOR RELIEF Violation of 18 U.S.C. § 1962(c) (Against Defendants) 573.
Lazare repeats and realleges each and every allegation set forth in paragraphs 1 115

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through 572 above as if set forth in full herein. 574. At all relevant times, Defendants were "persons" within the meaning of 18 U.S.C. § 1961(3). 575. At all relevant times, Defendants as alleged herein engaged in the operation or management of the Enterprise, which is an enterprise as defined by 18 U.S.C. § 1961(4), the activities of which affect interstate and foreign commerce within the meaning of 18 U.S.0 § 1962(c). 576. At all relevant times, Defendants conducted the Enterprise's affairs through a pattern of racketeering activity alleged herein since at least 2007. 577. The Enterprise: (i) is an ongoing association-in-fact with a decision making framework or mechanism for controlling the association; (ii) has associated members with a common purpose that function as a continuing unit; and (iii) is separate and apart from the pattern of racketeering activity. 578. As alleged in paragraph 18, the purpose of the Enterprise was to facilitate and maintain diamond and real estate operations throughout the world in which Defendants had an interest, and to obtain money to which Defendants, Daleyot, and the Daleyot Entities were not entitled, including through the theft of diamonds and the sales proceeds of diamonds, and the laundering of such sales proceeds. 579. The members of the Enterprise worked in concert to: (i) extend inappropriate amounts of credit and loans to Daleyot and the Daleyot Entities made possible by, and/or based in part on stolen assets obtained through the Illegal Scheme; (ii) unlawfully obtain diamonds and sales proceeds thereof belonging to Lazare and its affiliates; (iii) transfer the diamonds through a series of legitimate and sham transactions that made them difficult to trace; (iv) sell the 116

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diamonds at a mark-up to third parties; (v) use invoices reflecting the transaction to create additional liquidity and facilitate the borrowing of additional monies; (vi) launder the proceeds through a network of legitimate and illegitimate businesses and accounts; and (vii) use such proceeds to enrich Defendants, Daleyot and others at the expense of Lazare and its affiliates. 580. All Defendants, as members of the Enterprise, are participants in the Illegal Scheme in different capacities, functions, and roles calculated to enrich and expand the Enterprise so that it could continue to perpetrate the Illegal Scheme. 581. Defendants' role was to: (i) lend or facilitate the lending of exorbitant amounts of

money to Daleyot and his companies from ADB (ostensibly a diamond business only bank) for use outside of the diamond industry (i.e., for investments in Central and Eastern European real estate and the purchase of private airplanes, a yacht, fine art and other luxury items); (ii) exert pressure over Lazare and LKB through ADB's role as lender to Lazare and LKB for the purchase of diamonds; (iii) participate in the thefi of Lazare's and its affiliates' diamonds and sales proceeds by directing and allowing Daleyot to move the diamonds through shell companies; (iv) misappropriate the laundered sales proceeds and apply them to debts owed by Daleyot and his companies to Defendants; (v) attempt to hold Lazare and LKB responsible for amounts borrowed under Lazare's and LKB's credit facilities used to obtain the diamonds stolen through the Illegal Scheme; (vi) interfere with Lazare's efforts to trace and investigate the stolen diamonds and proceeds; (vii) intimidate Lazare into abandoning its efforts to recover the diamonds and proceeds; and (viii) destroy Lazare's business and its ability to operate as a going concern. 582. The role of Daleyot and the Daleyot Entities was to: (i) bribe key senior officers

of Defendants and borrow large amounts of money from Defendants and others ostensibly for 117

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diamond transactions; (ii) use the borrowed money instead for non-diamond related transactions including investments in Central and Eastern European real estate and purchases of private airplanes, a yacht, fine art and other luxury items; (iii) find a source to facilitate and cover their wrongdoing when the Daleyot Entities were unable to pay their loans; (iv) steal the diamonds belonging to Lazare and its affiliates to cover the Daleyot Entities' debts; (v) convert the stolen diamonds into cash proceeds and launder the proceeds; (vi) deposit such proceeds into Daleyot's companies' accounts at ADB so that ADB could misappropriate them to pay back the loans; (vii) interfere with Lazare's efforts to trace and investigate the stolen diamonds and proceeds; and (viii) intimidate Lazare into abandoning its efforts to recover the diamonds and proceeds. 583. Governance of the Enterprise occurred through frequent communications among

its members by means of interstate and international wire communication, via telephone and email in interstate and foreign commerce, in addition to travel to and from New York and internationally. 584. At all relevant times, Defendants and the Daleyot Entities, acting in concert,

conducted or participated, directly or indirectly, in the conduct of the Enterprise's affairs through a "pattern of racketeering activity" within the meaning of 18 U.S.C. § 196 1(5), in violation of 18 U.S.C. § 1962(c). 585. The predicate acts are all part of a common criminal plan to perpetrate the Illegal

Scheme and enrich the Enterprise through the Defendants' criminal and fraudulent conduct. 586. All of the predicate acts relate to one another because they represent a common

scheme to further the Illegal Scheme and enrich the Enterprise and its members. The predicate acts are attributable to Defendants and progressed in a logical fashion without interruption from 2007 through the present. 118

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587.

In the course of, and in furtherance of this racketeering conduct, Defendants

devised and intended to devise a scheme and artifice to defraud Lazare and LKB, and to obtain money and property (i.e., the LKI Diamonds and sales proceeds), by means of false and fraudulent pretenses, representations, and promises. 588. Defendants, for the purpose of executing such scheme and artifice and attempting

so to do, placed in a post office and authorized depository for mail, a matter and thing to be sent and delivered by the Postal Service, and deposited and caused to be deposited a matter and thing to be sent and delivered by a private and commercial interstate carrier, and took and received therefrom such matter and thing, and knowingly caused to be delivered by mail and such carrier according to the direction thereon, in violation of 18 U.S.C. § 1341. 589. In particular, Defendants schemed and intended to defraud Lazare and LKB of the

proceeds of the diamond sales by, among other things, disguising the source of funds stolen from Lazare and its affiliates and covering up the fact that Defendants had used such stolen funds to reduce their exposure to the Daleyot Entities. 590. In doing so, Defendants employed the mails and private carriers to deliver letters

containing false and misleading statements designed to facilitate their scheme. 591. Specifically, Defendants sought to defraud Lazare and LKB of the diamond

proceeds by, among other things, communications sent by the post office and private carriers claiming that: (i) the disappearance of the diamonds were solely a matter between DD/KT and Lazare in which the banks were not involved; (ii) events of default had occurred with respect to Lazare's credit facilities; (iii) the banks had the right to terminate and in fact terminated Lazare's and its affiliate's credit facilities based on those alleged defaults; and (iv) Lazare continued to owe ADB money under the Lazare Credit Facility. 119

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592.

Examples of mailings used to facilitate the Illegal Scheme are referenced above

and include the following:

Date
2007 through 2010 2/16/09

To! From
To Lazare From ADB To Lazare From Kurt Beckers and Guy Snoeks of ADB

Description
Numerous letters enclosing bank statements falsely claiming amounts outstanding under the Lazare Credit Facility and LKB's credit facility at ADB. ADB stated: (i) "we can assure you that all our transactions with D.D. Manufacturing NV are in conformity with all legal principles;" and (ii) "we do not wish to intervene in any discussions raised between your company and D.D. Manufacturing NV." ADB stated that Lazare's dispute with DD and KT merely involved "disputes between two diamond companies, and that ADB "cannot intervene in [those] affairs." ADB claimed that LKB was in default under its credit facility for allegedly having secured a $5.2 million credit facility with another financial institution when, in fact, KBC had concocted this false allegation out of whole cloth and falsely reported the existence of the phantom credit facility to the Belgian Central Bank. The banks claimed that Lazare' s failure to provide financial statements constituted events of default under its various credit facilities.
"

To Lazare From Dirk Dullaert and Theo Strous of ___________ ADB 8/6/09 To LKB From ADB

7/10/09

11/2/09

12/28/09

12/28/09

1/19/10

1/22/10

To Lazare From ADB and Lazare's other lenders To Lazare ADB terminated the Lazare Credit Facility. From Natalie Dc Brie and Guy Snoeks on behalf of ADB To LKB ADB terminated LKB's credit facility. From Natalie Dc Brie and Guy Snoeks on behalf of ADB To Lazare Reaffirmed ADB's election to terminate the Lazare From ADB's U.S. Credit Facility and took "strong exception" to Lazare's counsel contention that ADB was involved in the disappearance of the diamonds or proceeds. To Lazare Stating on behalf of ADB that: (a) ADB "categorically From ADB's U.S. denies any suggestion ... of ADB's participation or counsel involvement in any civil or criminal improprieties with respect to its business transactions with [Lazare] and or [LKB];" (b) the dispute relating to the missing LKI Diamonds is one to be resolved between LKB, DD and 120

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Date

To! From

3/3/10

3/11 / 10

3/16/10

To Lazare From Natalie De Brie and Guy Snoeks on behalf of ADB To Lazare From Guy Snoeks and Pierre De Bosscher on behalf of ADB To Lazare From ADB

Description KT and that such dispute has "no bearing at all" on Lazare and LKB's credit facilities at ADB; and (c) ADB "reaffirms and restates its election to terminate" Lazare's and LKB's credit facilities. ADB stated that "[d]emand is hereby made by ADB for Lazare's immediate and full repayment of all sums due and owing under the Credit Facility." ADB stated that "ADB reaffirms its demand that Lazare immediately repays {sic} in full all outstanding amounts due and owing ADB under the Credit Facility."

Writ of Summons in which ADB claimed that: (a) Lazare owed ADB $43,295,452.90 pursuant to the Lazare Credit Facility; (b) that "no payment could be obtained" as Lazare "announced that for the time being it did not intend to proceed to any payment"; and (c) that Belgian law applied to the dispute and that Belgian courts were the proper venue for that dispute pursuant to the terms of the credit facility agreements.

593.

The statements contained in the above noted letters, which were made in

furtherance of the Illegal Scheme, were also materially false, misleading, and fraudulent because ADB: (i) knew that the LKI Diamonds had been misappropriated from Gulfdiam and Lazare/LKB, and that proceeds from the sale of such diamonds had been diverted from Gulfdiam and Lazare/LKB to the members of the Enterprise, including ADB's clients DD and KT, and that such proceeds were then misappropriated by ADB in satisfaction (in whole or in part) of debts owed to ADB by Daleyot, DD, KT and other Daleyot-related entities; (ii) manufactured the alleged defaults of Lazare's credit facilities in order to accelerate the debts allegedly owed thereunder to ADB, and threatened Lazare with financial ruin for investigating the Illegal Scheme; (iii) omitted critical information including the fact that ADB knew that it had caused the alleged defaults by its participation in the diversion of Gulfdiam and Lazare/LKB diamonds; (iv) 121

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knew that had ADB properly applied the proceeds of the diamonds invoiced by Gulfdiam, those proceeds would have satisfied all amounts due under Lazare's and LKB's credit facilities; and (v) knew that New York law applies to this dispute and the courts in New York are the appropriate venue for this dispute. 594. In the course of, and in furtherance of this racketeering conduct, Defendants devised and intended to devise a scheme and artifice to defraud Lazare and LKB, and to obtain money and property (i.e., the LKI Diamonds and sales proceeds), by means of false and fraudulent pretenses, representations, and promises, and transmitted and caused to be transmitted by means of wire, radio, and television communication in interstate and foreign commerce, writings, signs, signals, pictures, and sounds for the purpose of executing such scheme and artifice, in violation of 18 U.S.C. § 1343. 595. In particular, Defendants schemed to defraud and intended to defraud Lazare and

LKB of the proceeds of the sales of the LKI Diamonds by, among other things, sending emails and making telephone calls to Lazare in which ADB falsely claimed: (i) that the disappearance of the diamonds were solely a matter between DD/KT and Lazare in which ADB was not involved; (ii) that events of default had occuned with respect to Lazare's credit facilities; (iii) that ADB had the right to terminate and in fact terminated Lazare's credit facilities based on those alleged defaults; and (iv) that Lazare continued to owe ADB and other banks money under Lazare's and LKB's credit facilities. 596. In addition, in furtherance of the scheme, on numerous occasions Defendants

accepted and facilitated the clearing of dollar denominated transactions involving money laundered funds, including proceeds from the sales of the diamonds stolen from Lazare and its affiliates, using wire transmissions in interstate and foreign commerce. 122

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597.

Examples of the above noted scheme to defraud Lazare and LKB, which involved

transmitting interstate and foreign wires in furtherance of the scheme, are set forth above, and include the following:
Date 2007 through 2010
9/15/09 and

To! From To Lazare From ADB

9/28/09

6/5/09

7/10/09

8/09 through 9/09

To William Moryto (CFO of Lazare) From Dirk Dullaert (Senior Vice President & Head of International Relations at ADB) To Maurice Tempelsman From Guy Snoeks To Lazare From Dirk Dullaert and Theo Strous of ADB To William Moryto (CFO of Lazare) From Dirk Dullaert (Senior Vice President & Head of International Relations at ADB)

Description Numerous emails enclosing bank statements falsely claiming amounts outstanding under the Lazare Credit Facility and LKB's credit facility at ADB. Emails stating that the National Bank of Belgium showed that LKB had a $5.2 million credit facility with another institution and that ADB had "no answers yet and to preserve all of [their] rights under the credit agreement, [they would] have to suspend the credit agreement for LKJ3 immediately. . .

Email arranging for meeting in Antwerp to discuss issues relating to DD. Facsimile in which ADB stated that Lazare's dispute with DD and KT merely involved "disputes between two diamond companies," and that ADB "cannot intervene in
[those] affairs."

2007 through 2009
I

Telephone calls during which Dullaert: (i) falsely contended that Lazare' s current borrowing base certificate was insufficient to cover Lazare's indebtedness to ADB, and that LKB had a $5.2 million credit facility with another institution; and (ii) demanded audited financial information and other information that Lazare could not provide due to Defendants' Illegal Scheme. Wire transfers containing proceeds from the missing LKI Diamonds were cleared through KBC's New York branch, and in at least one instance were deposited into ADB's account at KBC's New York branch.

598. In the course of, and in furtherance of this racketeering conduct, Defendants obstructed, delayed, and affected commerce and the movement of an article and commodity in commerce, between a state and a point outside thereof, by extortion, that is by obtaining property from another, with his consent, induced by wrongful use of actual and threatened force, violence, 123

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and fear, and under color of official right, and attempted and conspired so to do, in violation of 18 U.S.C. § 1951. 599. Examples of Defendants' attempts to wrongly obtain property from Lazare, with

its consent, induced by the wrongful use of fear, are set forth above, and include the following: ADB acting in its official capacity as lender to Lazare, threatened to destroy Lazare's banking relationships and drive it out of business unless Lazare: (i) agreed to pay amounts falsely claimed to be due and owing to ADB; and (ii) dropped its investigation into the missing LKI Diamonds. KBC filing a false report with the Belgian Central Bank to create a fake event of default in order to give ADB a basis for sending a notice of an event of default to Lazare. . 600. ADB's demand that Lazare repay LKB's credit facility. In the course of, and in furtherance of this racketeering conduct, Defendants,

knowing that the property involved in a financial transaction represented the proceeds of unlawful activity, including the proceeds of Defendants' mail and wire fraud schemes in violation of 18 U.S.C. §§ 1341 and 1343, conducted and attempted to conduct such a financial transaction which in fact involved the proceeds of specified unlawful activity, knowing that the transaction was designed in whole and in part to conceal and disguise the nature, the location, the source, the ownership, and the control of the proceeds of specified unlawful activity, in violation of18U.S.C. § 1956. 601. Examples of this are set forth above, and include the following: knowingly conducting financial transactions using the proceeds of the stolen LKI Diamonds with knowledge and intent that the transactions were designed, in whole or in part, to conceal or disguise the nature, location, source, and ownership of the proceeds of the sale of the stolen diamonds; knowingly arranging, pursuant to a Letter of Guarantee from HSBC to ADB, for DD to receive directly from an HSBC (Genève) account of DKT $20 million in 6 installments of stolen proceeds from the sales of the LKI Diamonds; and 124

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Defendants' senior officers' acceptance of bribes from the Daleyot Entities knowing that such funds were the sales proceeds from the stolen LKI Diamonds. 602. In the course of, and in furtherance of this racketeering conduct, certain of

Defendants' senior officers willfully, knowingly and intentionally received bribes from Daleyot totaling in excess of $20 million, upon agreement and understanding that such benefit will influence their conduct in relation to KBC's and ADB's affairs in violation of N.Y. Pen. Law § 180.08. 603. Examples of this are set forth above, and include the following: Defendants' senior officers' receipt in the aggregate of in excess of $20 million emanating from accounts controlled by IL Investment Trust and also accounts owned by Jortec. 604. In the course of, and in furtherance of, this racketeering conduct, Defendants

willfully, knowingly and intentionally failed to file with the Treasury Department, to the extent and in the manner required, a report of a suspicious transaction relevant to a possible violation of law and regulation, including a transaction conducted and attempted by, at, and through the banks, involving and aggregating at least $5,000 in funds and other assets. 605. The banks knew, suspected, and had reason to suspect that the transaction

involved funds derived from illegal activities and was intended and conducted in order to hide and disguise funds and assets derived from illegal activities including, without limitation, the ownership, nature, source, location, and control of such funds and assets, as part of a plan to violate and evade federal law and regulation and to avoid a transaction reporting requirement under federal law and regulation, in violation of the Currency & Foreign Transaction Reporting Act, 31 U.S.C. §§ 5318 & 5322, and 31 C.F.R. § 103.18. 606. Examples of this are set forth above and include the following: 125

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Defendants' willful and intentional failure to: (1) report suspicious transactions by the Daleyot Entities relevant to a possible violation of law or regulation; (2) satisfy the minimum standard required regarding ascertaining the identity of its customers; and (3) satisfy applicable regulations requiring Defendants to report to FinCEN certain cross-border electronic transmittals of funds. 607. Defendants could not perform even a cursory due diligence on the Daleyot

Entities without being confronted with evidence of the Daleyot Entities' improper activities and suspect connections. 608. In the course of, and in furtherance of, this racketeering conduct, Defendants

willfully, knowingly and intentionally failed to establish a due diligence program that included appropriate, specific, risk-based, and, where necessary, enhanced policies, procedures, and controls reasonably designed to enable the covered financial institution to detect and report, on an ongoing basis, known and suspected money laundering activity conducted through and involving correspondent accounts that were established, maintained, administered, and managed by such covered financial institution in the United States for a foreign financial institution, in violation of 18 U.S.C. § 5318(a)(2) and 31 C.F.R. § 103.176. 609. • Examples of this are set forth above and include the following: Defendants' willful and intentional failure to: (1) establish appropriate, specific and enhanced due diligence policies, procedures and controls reasonably designed to detect and report instances of money laundering; (2) satisfy the minimum standard required regarding ascertaining the identity of its customers; and (3) satisfy applicable regulations requiring Defendants to report to FinCEN certain cross-border electronic transmittals of funds. In the course of, and in furtherance of, this racketeering conduct, Defendants

610.

transported, transmitted, and transferred in interstate and foreign commerce goods, wares, merchandise, securities and money, of the value of $5,000 and more (i.e., the LKI Diamonds and sales proceeds), knowing the same to have been stolen, converted and taken by fraud, in

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violation of 18 U.S.C. § 2314. 611. • • Examples of this are set forth above, and include the following: Defendants knowingly transported or caused to be transported in foreign commerce the stolen LKI Diamonds far exceeding $5,000 in value. Defendants knowingly transported or caused to be transported in foreign commerce the proceeds from the sales of the stolen LKI Diamonds far exceeding $5,000. In the course of, and in furtherance of, this racketeering conduct, Defendant ADB

612.

received, possessed, concealed, stored, bartered, sold, and disposed of goods, wares, and merchandise, securities, and money of the value of $5,000 and more, which crossed a State and United States boundary after being stolen, unlawfully converted, and taken. 613. Defendant did so knowing the same to have been stolen, unlawfully converted,

and taken, in violation of 18 U.S.C. § 2315. 614. • Examples of this are set forth above, and include the following: Defendants received proceeds, far exceeding $5,000, from the sales of the stolen LKI Diamonds with the knowledge that the proceeds were stolen from Lazare and its affiliates; certain of the LKI Diamonds were sold by Daleyot Entities to third party customers in the United States, and proceeds from such sales were knowingly received by Defendants; and Defendants knowingly applied the proceeds from the stolen LKI Diamonds toward the payment and/or collateralization of the debts owed to ADB by the Daleyot Entities. The acts of racketeering activity referred to in the previous paragraphs constituted

615.

a "pattern of racketeering activity" within the meaning of 18 U.S.C. § 196 1(5). 616. The acts alleged were related to each other by virtue of common participants,

common victims (Lazare), a common method of commission, and a common purpose and result. 127

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617.

Moreover, all acts noted above attributable to ADB are attributable to KBC. As

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 618. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 619. management). 620. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 621. 622. Money from ADB was funneled by KBC into KBC-related real estate projects. Defendants' pattern of unlawful activity and corresponding violations of 18

U.S.C. § 1962(c) proximately and/or directly caused Lazare to suffer injury to its business or property within the meaning of 18 U.S.C. § 1964(c); to wit, Lazare suffered damages in an amount in excess of $500 million. 623. The damages suffered by Lazare were reasonably foreseeable and intended by the

Defendants and/or anticipated as a substantial factor and a natural consequence of their pattern of unlawful activity. 624. Lazare's business and property has been injured by reason of a violation of 18

U.S.C. § 1962 and it is entitled to treble damages and attorneys' fees and costs under 18 U.S.C. § 1964(c). 625. Pursuant to 18 U.S.C. § 1964(a), this Court should restrain and enjoin further

violations of 18 U.S.C. § 1962. 128

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626.

The pattern of racketeering activity has extended over a substantial period of time

and is continuing, warranting injunctive relief.
SECOND CLAIM FOR RELIEF Violation of 18 U.S.C. § 1962(d) by Conspiracy to Violate 18 U.S.C. § 1962(c) (Against Defendants)

627.

Lazare repeats and realleges each and every allegation set forth in paragraphs I

through 626 above as if set forth in full herein. 628. At all relevant times, Defendants and the other members of the Enterprise were

"persons" within the meaning of 18 U.S.C. §§ 1962(c) and 1962(d). 629. Defendants entered into a series of agreements between and among each other and

other members of the Enterprise in a conspiracy to violate 18 U.S.C. § 1962(c). Each Defendant entered into at least one agreement with at least one other Defendant or member of the Enterprise to join the conspiracy, took acts in furtherance of the conspiracy, and knowingly participated in the conspiracy. 630. At all relevant times, the members of the Enterprise formed an association-in-fact

for the purpose of defrauding Lazare. This association-in-fact was an "enterprise" within the meaning of 18 U.S.C. § 1961(4). 631. As alleged above, the purpose of the Enterprise was to facilitate and maintain

diamond and real estate operations throughout the world in which Defendants, Daleyot and the Daleyot Entities had an interest, and to obtain money to which Defendants, Daleyot, and the Daleyot Entities were not entitled, including through the theft of diamonds and the sales proceeds of diamonds, and the laundering of such sales proceeds. 632. The members of the Enterprise worked in concert to: (i) extend inappropriate 129

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amounts of credit and loans to Daleyot and his companies; (ii) unlawfully obtain diamonds belonging to Lazare and its affiliates; (iii) transfer the diamonds through a series of legitimate and sham transactions that made them difficult to trace; (iv) sell the diamonds at a mark-up to third parties; (v) use invoices reflecting the transactions to create additional liquidity and facilitate the borrowing of additional monies; (vi) launder the proceeds through a network of legitimate and illegitimate businesses and accounts; and (vii) use such proceeds to enrich Daleyot, Defendants and others at the expense of Lazare and its affiliates. 633. At all relevant times, the Enterprise was engaged in, and its activities affected,

interstate and foreign commerce, within the meaning of 18 634.

U.s.c § 1962(c).

As set forth in the First claim, Defendants and other members of the Enterprise

conducted and participated, directly or indirectly in the conduct of the Enterprise's affairs through a "pattern of racketeering" within the meaning of 18 U.S.C. § 1961(5) in violation of 18 U.S.C. § 1962(c). 635. At all relevant times, Defendants and the Daleyot Entities were associated with the Enterprise and agreed and conspired to violate 18 U.S.C. § 1962(c), that is, agreed to conduct and participate, directly and indirectly, in the conduct of the affairs of the Enterprise through a pattern of racketeering activity, including an agreement that the conspirators, or one of them, would commit or cause the commission of two or more racketeering acts constituting a pattern in violation of 18 U.S.C. § 1962(d). 636. Defendants and the Daleyot Entities committed and caused to be committed a

series of overt acts in furtherance of the conspiracy and to affect the objects thereof, including but not limited to the acts set forth above. 637. In addition to the predicate acts set forth in the First claim, members of the 130

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Enterprise committed additional predicate acts of which Defendants were aware and either facilitated or acquiesced in their commission. 638. The Daleyot Entities engaged in a scheme to defraud Lazare and LKB in violation

of 18 U.S.C. § 1341, by employing the mails to deliver letters containing false and misleading statements in furtherance of the Illegal Scheme, including letters in which Daleyot and his companies claimed that Lazare had defamed the Daleyot Entities by filing an insurance claim relating to the stolen LKI Diamonds and that no basis for filing an insurance claim existed. Examples of this are set forth in the First claim For Relief above and also include the following: Letter from L. Kevin Sheridan Jr. of Goodwin Proctor to the Audit Committee of the Lazare Board of Directors, dated November 3, 2009, enclosing a copy of an October 26, 2009 facsimile to Lazare in which DD's counsel asserts: (a) "there is no basis upon which [Lazare] could reasonably make ... accusations against [DD]"; (b) "if [Lazare's insurance claim] contains allegations or accusations of wrongful conduct or improper behavior on the part of our client and/or any senior executives then it will be defamatory and will have damaged their reputation and standing ... ;" and (c) DD "holds you and any individuals responsible for the making of any defamatory comment in [Lazare's insurance claim] liable ... and will not hesitate to bring proceedings to prevent any further defamatory statement or repetition of defamatory statements in [Lazare' s insurance claim]." 639. Daleyot and his companies engaged in a scheme to defraud Lazare and LKB

utilizing wire communications in violation of 18 U.S.C. § 1343, by sending emails and facsimiles in which Daleyot and his companies falsely claimed: (i) that Lazare had defamed Daleyot and his companies by filing an insurance claim; and (ii) that Lazare had no basis for filing an insurance claim relating to the missing LKI diamonds. Examples of this are set forth above in the First Claim For Relief and also include the following: • August 14 and 18, 2009 emails to Peter Montalbano from Marc Dc Block, counsel for DD and KT, demanding that he "immediately stop further investigations" relating to Lazare's insurance claim asserting that such inquiries have "unnecessarily caused severe and irrevocable damage to [DD and KT]." 131

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October 26, 2009 facsimile from counsel for DD to Lazare claiming: (a) "that there is no basis upon which [Lazare] could reasonably make ... accusations against [DD]"; (b) "if [Lazare's insurance claim] contains allegations or accusations of wrongful conduct or improper behavior on the part of our client and/or any senior executives then it will be defamatory and will have damaged their reputation and standing . . . ;" and (c) DD "holds you and any individuals responsible for the making of any defamatory comment in [Lazare's insurance claim] liable ... and will not hesitate to bring proceedings to prevent any further defamatory statement or repetition of defamatory statements in [Lazare's insurance claim]." The Daleyot Entities engaged in money laundering, in violation of 18 U.S.C. §

640.

1956. Examples of this are set forth above and include the following: • Daleyot and his companies intentionally and knowingly concealing from Lazare and LKB the nature and source of the proceeds derived from the theft and sale of the LKI Diamonds by circulating the proceeds through a network of companies owned and/or controlled by Daleyot, including, among others, DD, KT, Mauridiam, Gemport, Diamco and ED/FTD, DDMH, Hatilem, Kertalor and EKT. This conduct was undertaken with the intent to conceal the nature and source of the proceeds. By engaging in the overt acts and other conduct alleged herein, Defendants have

641.

agreed to conspire and did so conspire in violation of 18 U.S.C. § 1962(d) to engage in illegal predicate acts that formed a pattern of racketeering activity as defined by 18 U.S.C. § 1961(5) and otherwise agreed to violate 18 U.S.C. § 1962(c). 642. Given the complexity and far-reaching nature of the conspiracy, coupled with the

number of instances in which Defendants and the Daleyot Entities engaged in the overt acts alleged herein, the overt acts committed by Defendants and the Daleyot Entities could not have been committed without coordination and agreement among Defendants and the Daleyot Entities to knowingly participate in the conspiracy. 643. The Defendants and each of the Daleyot Entities are members of the Enterprise and therefore each conspired to perpetrate the Illegal Scheme. 132

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644.

As co-conspirators, Defendants are liable for all of the actions committed by all of

the co-conspirators within the conspiracy and are liable for all of the damages sustained by Lazare that were caused by any members of the conspiracy, regardless of whether the Defendants were themselves directly involved in a particular aspect of the Enterprise. 645. Moreover, all acts noted above attributable to ADB are attributable to KBC. As

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 646. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 647. management). 648. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 649. 650. Money from ADB was funneled by KBC into KBC-related real estate projects. As a direct and proximate cause of the violations set forth above, Lazare has been

injured in its business and property and has suffered damages in an amount in excess of $500 million. 651. 652. As a result of their misconduct, Defendants are liable to Lazare for its losses. Pursuant to 18 U.S.C. § 1964(c), Lazare is entitled to recover threefold their

damages plus costs and attorneys' fees from Defendants.

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THIRD CLAIM FOR RELIEF Fraud (Against Defendants)

653.

Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 652 above as if set forth in full herein. 654. Defendants and the Daleyot Entities misappropriated and laundered the sale

proceeds of millions of dollars' worth of LKI Diamonds belonging to Lazare and its affiliates. A portion of the proceeds from the sale of the LKI Diamonds should have been applied to pay down debts owed by Lazare and LKB to ADB. 655. Defendants knew that the proceeds should have been applied to debts owed by

Lazare and LKB. 656. Nonetheless, Defendants facilitated or permitted the sales proceeds to be diverted

and used by Defendants to pay down outstanding loans and debts owed by the Daleyot Entities to ADB, diverted funds to KBC-related real estate projects, and facilitated the payment of bribes to Defendants' senior officers. 657. In furtherance of this fraud, Defendants made and conspired together to make

material misrepresentations and omissions concerning, among other things: their involvement in the Illegal Scheme, their knowledge regarding the disappearance of the LKI Diamonds and diamond proceeds, and their theft of the diamond proceeds and use of them to pay down the debts of the Daleyot Entities owed to ADB, to divert funds to KBC-related real estate projects, and to bribe Defendants' senior officers. 658. For example, in addition to the false and misleading statements referenced in the

First and Second Claims for Relief (all of which are incorporated herein by reference),
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Defendants knowingly made the following material misstatements, or intentionally omitted the following material information, in written and oral communications with Lazare: Snoeks falsely stated that ADB had decided not to proceed with a forensic audit because DD and KT were supposedly companies in good financial standing and that there was "no need for an audit" as Lazare's charges "did not warrant an investigation," even though ADB refused to accept invoices from DD and KT as collateral from LKB because of their questionable legitimacy and/or collectability. Defendants told Lazare that this was an ordinary commercial dispute and that they were unaware of any improprieties when, in truth, Defendants knew that the LKI Diamonds had been misappropriated from Gulfdiam and Lazare/LKB. Defendants demanded payment from Lazare with regard to the Lazare Credit Facility when, in truth, Defendants knew that they had used the proceeds from the sales of the stolen LKI Diamonds to pay down debts owed by the Daleyot Entities to ADB and for investment in KBC-related real estate projects. 659. By virtue of their longstanding business relationships with Defendants, Lazare

trusted and justifiably relied on Defendants to conduct their affairs so as not to convert Lazare's and its affiliates' property. 660. In reliance on Defendants' misstatements and omissions, Lazare participated, and

continued to participate, in business relationships with Defendants and the Dalêyot Entities. 661. At the time Lazare acted, Lazare was unaware of the concealed or suppressed

facts and would have acted differently if Lazare had known the true facts. 662. 663. Moreover, all acts noted above attributable to ADB are attributable to KBC. As parent and full owner of ADB, KBC exercised such control and domination

over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 664. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization.
135

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665. management). 666.

ADB's Board of Directors was controlled by KBC (which appointed its

ADB maintained common office space and shared computer and other back office

systems with KBC in New York. 667. 668. Money from ADB was funneled by KBC into KBC-related real estate projects. As a result of the foregoing, Lazare has suffered significant damages in an amount

in excess of $500 million.

FOURTH CLAIM FOR RELIEF Aiding and Abetting Fraud (Against Defendant KBC)
669. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 668 above as if set forth in full herein. 670. ADB defrauded Lazare out of millions of dollars in cash and diamonds by

diverting money owed to Lazare and its affiliates. 671. KBC had actual knowledge of ADB's fraud through multiple sources, including

through Gijsens, KBC's subsidiary (ADB), and ADB's agents (De Bosscher and Snoeks). 672. Additionally, Lazare repeatedly informed ADB of facts and evidence

demonstrating the fraud, and ADB shared such information with its parent, KBC. 673. KBC's actual knowledge of ADB's fraudulent conduct is further demonstrated

by, among other things, KBC's financial incentive, as parent company to ADB (and guarantor of its obligations), to help ADB and the Daleyot Entities steal the diamonds and apply the proceeds to pay down debts to ADB. 674. KBC, as a major lender in the area of Central and Eastern European real estate, 136

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had a financial incentive to assist ADB and the Daleyot Entities in their efforts to funnel money from DD's and KT's accounts at ADB to accounts owned by entities involved in investing in Central and Eastern European real estate in which KBC had an interest. 675. KBC, having previously shut down ADB's Swiss office due to allegations of

corruption and money laundering, knew or should have known that Lazare's accusations might have merit, and thus should have been investigated. 676. Instead, KBC did nothing and proceeded to try to sell their troubled wayward

subsidiary, ADB. 677. KBC substantially assisted the fraudulent scheme by, among other things: (i)

directing ADB to permit the Daleyot Entities to funnel money to entities investing in Central and Eastern European real estate; (ii) directing ADB to apply the stolen proceeds from the LKI Diamonds to the debts that the Daleyot Entities owed to ADB; (iii) helping to conceal the illicit use of Lazare's diamond proceeds; (iv) refusing to investigate and act when AML and KYC regulations required KBC to do so and when Lazare/LKB tried to bring the wrongdoing to KBC's attention; and (v) wrongfully assisting ADB in fraudulently informing the Belgian Central Bank that Lazare had a $5.2 million credit facility with another institution in order to create a sham event of default and enable ADB to declare an event of default under LKB's credit facility and thereafter to terminate such facility in an attempt to dissuade Lazare from further investigation. 678. KBC, once on notice of ADB's and Daleyot's illegal actions should have refused

to clear U.S. dollar transactions for the Daleyot Entities and notified Lazare and LKB and/or the appropriate authorities of the Illegal Scheme. 679. Instead, KBC continued to clear the Daleyot Entities' U.S. dollar transactions. 137

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Had KBC or ADB taken appropriate actions, the stolen diamonds and proceeds would have fully satisfied Lazare's and its affiliates' debts under the various credit facilities. 680. Rather than insist that all funds relating to the missing LKI Diamonds be traced,

located and applied to Lazare/LKB's debts, KBC substantially assisted in the fraud and theft of the diamonds through its control of ADB, and by continuing to clear in New York U.S dollar transactions for the Daleyot Entities.

681.

KBC knew that the highly suspicious transactions taking place in the Daleyot

Entities' accounts at ADB did not coincide with any legitimate enterprise, and thus could only be plausibly explained by fraud. 682. KBC acted as a single, indivisible entity with ADB in connection with the Illegal

Scheme, and therefore KBC is liable for the actions of ADB. 683. As a result of the foregoing, Lazare has suffered significant damages in an amount

to be determined at trial butwhich is in excess of $500 million.

FIFTH CLAIM FOR RELIEF Aiding and Abetting Fraud (Against Defendants)
684. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 683 above as if set forth in full herein. 685. The Daleyot Entities (many of which were major customers of ADB) defrauded

Lazare of millions of dollars in cash and diamonds by diverting money owed to Lazare and its affiliates for the sales of diamonds referenced herein. 686. Defendants had actual knowledge of the Daleyot Entities' fraud through multiple

sources, including through ADB's agents, De Bosscher and Snoeks. Additionally, Lazare

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repeatedly informed ADB of facts and evidence demonstrating the Daleyot Entities' fraud. 687. Defendants' actual knowledge of the Daleyot Entities' fraudulent conduct is

further demonstrated by, among other things, ADB's and KBC's financial incentive to help the Daleyot Entities steal the LKI Diamonds and apply the proceeds to pay down debts to ADB as the Daleyot Entities had or have debts to ADB that totaled more than one hundred million dollars. 688. Defendants were aware that KBC was considering selling ADB and could not risk

the possibility of an overall change of management or that ADB would simply be shut down. 689. Defendants substantially assisted the fraudulent scheme by, among other things:

(i) applying the stolen proceeds from the sales of the LKI Diamonds to the debts that the Daleyot Entities owed to ADB; (ii) helping to conceal the illicit use of Lazare's and its affiliates' diamond proceeds; (iii) refusing to investigate and act when AML and KYC regulations required them to do so and when Lazare/LKB brought the wrongdoing to Defendants' attention and repeatedly asked Defendants to audit the books and records of the Daleyot Entities; (iv) obstructing and refusing to cooperate with Lazare's insurance claims; and (v) wrongfully declaring a default of Lazare's and LKB's credit facilities in an attempt to dissuade Lazare from further investigation. 690. The stolen LKI Diamonds and proceeds would have fully satisfied Lazare's and

its affiliates' debts under the various credit facilities. Rather than insist that all funds relating to the stolen LKI Diamonds be traced, located and appropriately applied to Gulfdiam's, Lazare's and LKB's debts, Defendants substantially assisted in the fraud and theft of the diamonds by demanding and attempting to force Lazare/LKB to pay allegedly outstanding debt owed by Lazare and LKB. 139

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691.

Defendants knew that the highly suspicious transactions taking place in the

Daleyot Entities' accounts at ADB did not coincide with any legitimate enterprise, and thus could only be plausibly explained by fraud. 692. After performing minimal due diligence on Daleyot and the Daleyot Entities,

Defendants knew that Daleyot and the Daleyot Entities were engaging in fraud, or consciously avoided such knowledge. 693. At a minimum, Defendants were repeatedly faced with evidence that there was a

high probability of fraud, and made a conscious decision not to confirm that fact. 694. Defendants acted as a single, indivisible entity with the Daleyot Entities in

connection with the Illegal Scheme, and therefore Defendants are liable for the actions of the Daleyot Entities. 695. 696. Moreover, all acts noted above attributable to ADB are attributable to KBC. As parent and full owner of ADB, KBC exercised such control and domination

over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 697. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 698. management). 699. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 700. 701. Money from ADB was funneled by KBC into KBC-related real estate projects. As a result of the foregoing, Lazare has suffered significant damages in an amount 140

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to be determined at trial but which is in excess of $500 million. SIXTH CLAIM FOR RELIEF Tortious Interference with Prospective Business Advantage (Against Defendants) 702. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 701 above as if set forth in full herein. 703. Defendants interfered with Lazare's prospective business relations with other lenders and with Lazare's business partners, suppliers and customers by making false and misleading representations that Lazare and LKB were in default of their credit facilities. 704. By declaring an event of default, purportedly due to Lazare's failure to file an audited financial report, which was caused by Defendants' conduct, Defendants knowingly interfered with Lazare's credit facilities with other lenders. 705. ADB wrongfully and dishonestly terminated the Lazare Credit Facility and LKB's

credit facility by contriving the events of default that purportedly justified the terminations. 706. Defendants caused Lazare's failure to file timely audited financial reports by

conspiring in the fraud, which diverted the proceeds from the sale of the LKI Diamonds to the Daleyot Entities, including DD and KT, in order to satisfy, among other things, certain debts owed to ADB by Daleyot, DD, KT and other Daleyot Entities. 707. Defendants knew that by helping the Daleyot Entities divert funds it would

generate a loss for Lazare and LKB that would preclude timely completion of Lazare's audited financial reports. 708. ADB's termination of the Lazare Credit Facility and LKB's credit facility was

wrongful and dishonest because it was intended to accelerate Lazare's and LKB's loans and 141

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collect the proceeds from the loans that were not actually due and owing, and to threaten Lazare with financial ruin on account of Lazare's investigations into the missing LKI Diamonds. 709. As a result of ADB's wrongful interference, Lazare's business relationship with

other lenders has been damaged due to cross-defaults of its credit facilities. 710. In addition, Lazare's business reputation overseas has been severely damaged,

making it impossible to proceed fully and actively with and conduct Lazare's ongoing operations around the world. 711. Moreover, Lazare's costs to obtain necessary insurance for business operations

going forward have increased dramatically due to Defendants' actions. 712. Moreover, all acts noted above attributable to ADB are attributable to KBC. As

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 713. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 714. management). 715. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 716. Money from ADB was funneled by KBC into KBC-related real estate projects.

717. As a result of the foregoing, Lazare has suffered significant damages in an amount in excess of $500 million.

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SEVENTH CLAIM FOR RELIEF Commercial Bad Faith (Against Defendants) 718. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 717 above as if set forth in full herein. 719. As described in detail above, Defendants, among others, have conducted an ongoing Illegal Scheme to misappropriate diamonds and proceeds thereof belonging to Lazare andlor its affiliates, and to double-collect on purported Lazare and LKB debts and obstruct Lazare's investigation into the Illegal Scheme. 720. Defendants knowingly accepted and diverted monies belonging to Lazare, LKB

and!or Gulfdiam and used a portion of such monies to pay down the outstanding loans and debts owed to ADI3 by the Daleyot Entities, and for investment in KBC-related real estate projects. 721. ADB charged interest to Lazare and LKB in connection with debt that Defendants knew was in error by virtue of ADB having collected proceeds that should have been applied to the Lazare Credit Facility and/or LKB 722.
'S

credit facility.

ADB also possessed actual knowledge of the Illegal Scheme, as evidenced,

among other things, by the acceptance of bribes made by the Daleyot Entities to Defendants' senior officers. 723. Defendants have substantially assisted the Illegal Scheme in many respects,

including, but not limited to, taking funds belonging to Lazare, LKB and/or Gulfdiam in order to "prop up" Daleyot and his companies and/or other Daleyot-related companies and pay Defendants back for funds it lent to the Daleyot Entities. 724. Defendants' acceptance of proceeds and diversion of funds belonging to Lazare, 143

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Defendants' improper favoring of the Daleyot Entities' interests and Defendants' own interests over the interests of Lazare, Defendants' fabricated "events of default" under the Lazare Credit Facility, Defendants' creation of a fraudulent, second set of books and records in order to benefit the Daleyot Entities, and Defendants' violations of AML and KYC rules and refusal to investigate including after Lazare brought to their attention certain fake invoices provided by the Daleyot Entities to a Belgian court, were all done in bad faith. 725. 726. Moreover, all acts noted above attributable to ADB are attributable to KBC. As parent and full owner of ADB, KBC exercised such control and domination

over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 727. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 728. management). 729. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 730. 731. Money from ADB was funneled by KBC into KBC-related real estate projects. As a result of the foregoing, Lazare has been damaged by ADB's bad faith

conduct in an amount to be determined at trial but no less than $500 million. 732. The aforesaid conduct by Defendants was purposeful and contumacious. Even

though Defendants knew they were facilitating the Illegal Scheme, Defendants continued to do so in order to preserve their banking relationship with the Daleyot Entities. 733. Accordingly, punitive damages should be awarded to Lazare. 144

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EIGHTH CLAIM FOR RELIEF Conversion (Against Defendants)

734.

Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 733 above as if set forth in full herein. 735. ADB is in possession of the proceeds of diamond sales, relating to the diamonds stolen from Gulfdiam and Lazare/LKB. 736. Portions of these proceeds are specifically identifiable as they have been applied by ADB to specifically designated accounts owned and controlled by the Daleyot Entities, and to debts owed by the Daleyot Entities to ADB. 737. A substantial portion of all funds due to Gulfdiam for the Formal Sector LKI Diamonds are ultimately due to or for the benefit of Lazare to satisfy obligations for which Lazare has or had exposure, to reimburse Lazare for expenditures it made on behalf of Gulfdiam or are otherwise due to Lazare as a result of Lazare's ownership rights with respect to Gulfdiam. 738. Funds from the stolen Informal Sector LKI Diamonds and Sight Rough LKI

Diamonds that were deposited into accounts at ADB belong to Lazare. 739. Defendants knowingly, and with the intent to deprive Lazare of these funds, have

exercised wrongful dominion and control over the funds by applying a portion of these proceeds to accounts which were not entitled to the funds; and Defendants have continued to exercise wrongful dominion and control over the remaining funds for their own benefit. 740. By wrongfully and improperly stealing and converting funds from Lazare (and

Gulfdiam) via the Illegal Scheme, ADB is unlawfully and wrongfully exercising dominion and control over such stolen funds to the exclusion of Lazare and in defiance of the right of Lazare to
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possess and use such funds. ADB's wrongful acts constitute the tort of conversion. 741. Moreover, all acts noted above attributable to ADB are attributable to KBC. As

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 742. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 743. management). 744. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 745. 746. Money from ADB was funneled by KEC into KBC-related real estate projects. As a result of the foregoing, Defendants are liable to Lazare for compensatory

damages in an amount to be determined at trial but which are in excess of $135 million.

NINTH CLAIM FOR RELIEF Negligence (Against Defendants)
747. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 746 above as if set forth in full herein. 748. ADB provides banking services to Lazare and LKB, and as such, owes a

cognizable duty of care, as a matter of law, to Lazare and LKB, as its customers. 749. As described above, Defendants possessed knowledge that the Daleyot Entities

were engaged in the Illegal Scheme detailed herein including, without limitation, by making 146

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phony and duplicate pledges of invoices to ADB and depositing in accounts at ADB funds belonging to Lazare, LKB and/or Gulfdiam. 750. Defendants were also intimately aware of the Daleyot Entities' financial

difficulties and fraudulent activities. 751. Despite this knowledge, Defendants: (i) ignored and/or failed to monitor

transactions by the Daleyot Entities; (ii) refused Lazare/LKB's request to conduct an audit to determine what happened to the diamonds and/or proceeds owed to Lazare, LKB and/or Gulfdiam; (iii) refused to assist or cooperate with Lazare's insurance investigation; (iv) terminated the Lazare Credit Facility and demanded payment from Lazare in an amount in excess of $43 million without inquiry; (v) terminated the Lazare Credit Facility and LKB's credit facility; and (vi) misappropriated monies belonging to Lazare/LKB/Gulfdiam. 752. and LKB. 753. Moreover, all acts noted above attributable to ADB are attributable to KBC. As These actions constitute a breach of the duty of care that ADB owed to Lazare

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 754. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 755. management). 756. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 147

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757. 758.

Money from ADB was funneled by KBC into KBC-related real estate projects. As a result of the foregoing, Lazare has suffered damages in an amount to be

determined at trial but which is in excess of $500 million.

TENTH CLAIM FOR RELIEF Breach of the Covenant of Good Faith and Fair Dealing (Against Defendant ADB)
759. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 758 above as if set forth in full herein. 760. The Lazare Credit Facility was entered into between Lazare and ADB on

February 20, 2008, and constitutes a valid and binding contract that is subject to the covenant of good faith and fair dealing. 761. Pursuant to this contract, Lazare had the right to expect that ADB would not make

false claims regarding outstanding amounts due, and would apply funds deposited into accounts at ADB that ADB knew belonged to Lazare or its affiliates, to outstanding debts owed by Lazare andlor LIKE to ADB. 762. Instead, ADB accepted such funds and, among other things, applied them to

outstanding obligations of the Daleyot Entities. 763. Lazare also had the right to expect that ADB would not act in bad faith by

creating a fraudulent, second set of books and records in order to benefit the Daleyot Entities at the expense of Lazare and its affiliates. 764. In addition, ADB acted in bad faith in filing a lawsuit against Lazare in a Belgian

court claiming that the Lazare Credit Facility was governed by Belgian law and was properly before the Belgian court when ADB was aware that the contract relating to the Lazare Credit

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Facility expressly called for the application of New York law and that New York courts were the proper forum for any dispute related thereto. 765. As a result of the foregoing, Lazare has been damaged in an amount to be determined at trial, but not less than $500 million.
ELEVENTH CLAIM FOR RELIEF Unjust Enrichment (Against Defendants)

766.

Lazare repeats and realleges each and every allegation set forth in paragraphs 1

through 765 above as if set forth in full herein. 767. Defendants have been enriched by their refusal to return to Lazare the proceeds

from the sale of the stolen LKI Diamonds. 768. Defendants' enrichment is at Lazare's expense, in that Lazare is now without the

use of the sales proceeds from the stolen LKI Diamonds. 769. The circumstances are such that good conscience and equity require Defendants

to make restitution to Lazare. 770. Defendants, at the very least, have been unjustly enriched at Lazare's expense by

the: (i) amounts stolen and converted from Lazare, LKB and Gulfdiam; (ii) revenues and profits generated by using such stolen and converted funds; and (iii) return on investment generated by the amounts described in (i) and (ii). As a matter of equity and good conscience, Defendants should make restitution to Lazare in an amount equal to these sums. 771. 772. Moreover, all acts noted above attributable to ADB are attributable to KBC. As parent and full owner of ADB, KBC exercised such control and domination

over ADB that ADB became a mere instrumentality of KBC in carrying out the Illegal Scheme. 149

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773. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 774. management). 775. ADB maintained common office space and shared computer and other back office systems with KBC in New York. 776. 777. Money from ADB was funneled by KBC into KBC-related real estate projects. In addition, because KBC is the guarantor of ADB's debts, KBC was unjustly ADB's Board of Directors was controlled by KBC (which appointed its

enriched by the Illegal Scheme that resulted in ADB being repaid on its loans to the Daleyot Entities. 778. As a result of the foregoing, Defendants are liable to Lazare for damages in an

amount to be determined at trial but which are in excess of$ 135 million.
TWELFTH CLAIM FOR RELIEF Money Had and Received (Against Defendants)

779.

Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 778 above as if set forth in full herein. 780. As detailed above, ADB has received money belonging to Lazare in an amount to

be determined at trial but not less than $135 million, and have benefited from receipt of such money. 781. Moreover, all acts noted above attributable to ADB are attributable to KBC. As

parent and full owner of ADB, KBC exercised such control and domination over ADB that ADB
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became a mere instrumentality of KBC in carrying out the Illegal Scheme. 782. Throughout the relevant time period, ADB, a wholly owned subsidiary of KBC, at

the direction of KBC, made improperly large loans to the Daleyot Entities given ADB's relatively small capitalization. 783. management). 784. ADB maintained common office space and shared computer and other back office ADB's Board of Directors was controlled by KBC (which appointed its

systems with KBC in New York. 785. 786. Money from ADB was funneled by KBC into KBC-related real estate projects. Principles of equity and good conscience dictate that ADB should not be

permitted to keep the money rightfully belonging to Lazare.
THIRTEENTH CLAIM FOR RELIEF Declaratory Judgment (Against Defendant ADB)

787.

Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 786 above as if set forth in full herein. 788. Credit Facility. 789. ADB subsequently sent a written demand accelerating the Lazare Credit Facility ADB sent a written Termination Notice to Lazare seeking to terminate the Lazare

and seeking all monies alleged to be due and owing under the loan. 790. As set forth in detail above, ADB has diverted payment owed to Lazare for the

missing LKI Diamonds away from Lazare (exceeding the amount owed under the Lazare Credit Facility) toward, among other things, the payment of the Daleyot Entities' debts to ADB. 151

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791.

Accordingly, Lazare has no monies due and owing under the Lazare Credit

Facility as the Lazare Credit Facility has been repaid in full. 792. ADB's position that Lazare owes money under the Lazare Credit Facility has

created a controversy that cannot be resolved without intervention by the Court. 793. Lazare requires the Court's intervention to determine the rights of the parties and

to guide the course of future dealings under the Lazare Credit Facility. 794. 795. 796. There is an actual and justifiable controversy between the parties. There are no other remedies available to Lazare at this time. By reason of the foregoing, Lazare seeks a declaration that ADB's Notices of

Termination and Demand Letters are invalid and there are no monies due and owing from Lazare to ADB under the Lazare Credit Facility.

FOURTEENTH CLAIM FOR RELIEF Accounting (Against Defendant ADB)
797. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 796 above as if set forth in full herein. 798. 799. ADB has claimed that certain sums are due and owing from Lazare. Defendants have diverted payment owed to Lazare for the missing LKI Diamonds

toward, among other things, the payment of debts owed by Daleyot and the Daleyot Entities to

800.

ADB has refused to account for or offer any explanation for their actions with

respect to the missing monies, or to facilitate an accounting or audit, as agreed, with respect to the missing LKI Diamonds and monies.

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801.

Lazare is entitled to an accounting from ADB with respect to all payments,

monies and collateral they have received from the Daleyot Entities during the period of the Illegal Scheme.

FIFFEENTH CLAIM FOR RELIEF Injunctive Relief (Against Defendant ADB)
802. Lazare repeats and realleges each of the allegations contained in paragraphs 1

through 801 above as if set forth in full herein. 803. On March 16, 2010, ADB served a "Writ of Summons" on Lazare in connection

with an action before the Antwerp Commercial Court in Belgium seeking damages against Lazare in the amount of the outstanding balance allegedly due under the Lazare Credit Facility. 804. Under Belgian law, the service of a Writ of Summons signals the commencement

of a lawsuit to be initially heard 88 days after service of the Summons or, in this case, on June 23, 2010. 805. The case is thereafter to be assigned a hearing date, and Lazare has appeared for

the limited purpose of objecting to jurisdiction in the Belgian Court. 806. 807. The hearing date has been set for September 2012. The claim described in the Writ of Summons must be raised as a compulsory

counterclaim in the instant action under Rule 13 of the Federal Rules of Civil Procedure. 808. This Court has the discretionary power to enjoin the prosecution of compulsory

counterclaims in foreign jurisdictions. 809. ADB's claim can be adjudicated most efficiently in the instant action in the

Southern District of New York, which will be dispositive of both ADB's claims against Lazare

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and Lazare's claims against ADB. 810. Under the terms of the Lazare Credit Facility, all disputes arising out of or

concerning loans or credit extended by ADB to Lazare must be resolved under New York law and in the state or federal courts of New York. 811. The ADB Writ of Summons falsely represents that it concerns a dispute arising

under Belgian law that is subject to the jurisdiction of the Belgian courts. 812. Lazare will be irreparably harmed if the lawsuit in Belgium is allowed to proceed.

WHEREFORE, Plaintiff Lazare Kaplan International Inc. demands judgment against each of the Defendants, jointly and severally as follows:
1. With respect to the First and Second claims for Relief (violations

of 18

U.S. C. § 1961, et seq.): damages, including interest, against all Defendants, jointly and severally,

for threefold such actual damages sustained by Plaintiff along with costs of suit, attorneys' fees, and litigation expenses, all pursuant to 18 U.S.C. § 1964(c), and such additional compensatory and punitive damages, costs of suit, and other relief as the Court deems just and equitable.
2. With respect to the Third claim for Relief (Fraud), the Fourth claim for

Relief (Aiding and Abetting Fraud), the Fifth Claim for Relief (Aiding and Abetting Fraud), the Sixth claim for Relief (Tortious Interference with Prospective Business Advantage), the Seventh Claim for Relief ('commercial Bad Faith), the Eighth claim for Relief (Con version), the Ninth Claim for Relief (Negligence), the Tenth claim for Relief (Breach
of Covenant of

Good Faith and Fair Dealing,, and the Twelfth Glaim for Relief (Money Had and Received):

(i) actual and consequential damages to be determined by the trier of fact; and (ii) punitive damages.

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3.

With respect to the Eleventh Claim for Relief (Unjust Enrich

menO: (i)

all amounts by which Defendants have been unjustly enriched; and (ii) punitive damages.

4.

With respect to the Thirteenth Claim for Relief (Declaratory Judgment):

a declaratory judgment that: (i) ADB's Notices of Termination and Default Letters are invalid; and (ii) there are no monies due and owing from Lazare to ADB under the Lazare Credit Facility.

5.

With respect to the Fourteenth Claim for Relief (Accounting):

an

equitable accounting for all benefits, consideration and profits received, directly or indirectly, by ADB, including the imposition of a constructive trust, the voiding of unlawful transfers, and the disgorgement of all ill-gotten gains and profits.

6.

With respect to the Fifteenth Claim for Relief (Injunction):

an injunction

enjoining ADB from proceeding with any legal action in the Belgian courts or any other court outside of New York pertaining to the Lazare Credit Facility. 7. With respect to all Claims for Relief, such other and further relief to which

Plaintiff is justly entitled.

JURY DEMAND
Lazare respectfully demands a trial by jury on all of its legal claims herein.

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Dated: New York, New York December 23, 2011

HERRICK, FEINSTEIN LLP By:__________________________ Christopher Y. Su Jason A. D'Angelo 2 Park Avenue New York, New York 10016 Tel: (212) 592-1400 Fax: (212) 592-1500 csu11ivanherrick.com jdangelo(hethck.com
Attorneys for Plaintiff Lazare Kaplan International Inc.

156

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