Weeks after BlackRock closed its $12 billion acquisition of HPS Investment Partners, the firm became aware of alleged asset-backed finance fraud tied to borrower Carriox Capital and its owner Bankim Brahmbhatt.
HPS and other lenders, including BNP Paribas, say that Brahmbhatt owes them more than $500 million.
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In August 2024, lenders extended two facilities to companies affiliated with Brahmbhatt ($430 million in Facility A and $100 million in Facility B), but now say that many of the customer invoices pledged by Carriox as collateral never actually existed.
A complaint filed in Delaware Chancery Court against Brahmbhatt describes a series of fake web domains, fake contracts, forged signatures, and interest serviced with proceeds of new loans.
One complaint describes an “extraordinarily brazen and widespread fraud.”
At the time of the facilities’ initial funding, HPS had worked with Deloitte to conduct random customer checks to verify the collateral and had engaged accounting firm CBIZ to conduct annual asset checks.
Despite those checks, concerns over the veracity of Brahmbhatt’s pledged invoices surfaced roughly twelve months later.
In July, an HPS employee noticed irregularities with certain email addresses tied to Carriox customers, reported the Wall Street Journal.
Lenders allege that the emails, provided by Carriox as proof of the invoiced amounts, had been sent by fake addresses that were made to appear like legitimate telecom companies.
When HPS approached Brahmbhatt with their findings, he told the firm there was nothing to worry about. He stopped answering their phone calls shortly after.
Later that month, an HPS associate visited Brahmbhatt’s offices in Garden City, NY, and found them empty.
Working with CBIZ and Quinn Emanuel, the lender group launched a deeper investigation into the pledged invoices. Findings matched the initial pattern of fake addresses, and purported customers contacted by the group were often unaware of the supposed dealings with Brahmbhatt’s companies referenced in the invoices.
“Brahmbhatt created an elaborate balance sheet of assets that existed only on paper,” allege lenders. According to filings, lenders also believe Brahmbhatt transferred assets that were supposed to have been pledged as collateral to offshore accounts in India and Mauritius.
HPS wrote down roughly $150 million tied to the loans, which were held within its Asset Value strategy. The exposure, however, is small relative to the firm’s nearly $180 billion of assets under management.
Carriox Capital, which offered financing solutions and invoice factoring to carriers and telecom infrastructure developers, first borrowed from HPS in 2020 and expanded the relationship in 2021. Those borrowings were believed to be secured by receivables from a host of reputable customers, including T-Mobile, Telstra, and Telecom Italia.
In a 2024 podcast, Brahmbhatt said: “I decided, why should I run my business with the operator’s money? Instead, let me go in the market and raise funds. So that was another turning point for me. So we started financing the working capital of the partners.”
Brahmbhatt, who had agreed to lenders’ request that he personally guarantee the loans, filed for personal bankruptcy on August 12th, the same day that several of his corporate entities entered Chapter 11.
Speaking through an attorney, he disputed the fraud allegations.
The case is the latest blow-up in an asset-backed finance market that’s been dealing with the fallout of similar issues at automotive businesses Tricolor (accused of using fabricated car loans as collateral) and First Brands (collapsed under a pile of off-balance-sheet debt)—both of which are currently in the middle of messy bankruptcy proceedings.