BlackRock, the world's largest asset manager, is reportedly a victim of a massive $500 million fraud allegedly orchestrated by Bankim Brahmbhatt, an Indian-origin CEO of U.S.-based telecom companies Broadband Telecom and Bridgevoice. The Wall Street Journal (WSJ) reported that Brahmbhatt is accused of fabricating accounts receivable to secure loans from lenders, including BlackRock's private credit arm, HPS Investment Partners.
The lawsuit, filed in August, accuses Brahmbhatt of misleading lenders by pledging non-existent revenue streams as collateral for loans. It is alleged that Brahmbhatt's companies now owe lenders over $500 million. HPS began lending to Brahmbhatt-linked firms in September 2020, increasing its debt investment to approximately $430 million by August 2024. BNP Paribas reportedly assisted BlackRock's HPS Investment Partners in financing the loans to Brahmbhatt's companies.
According to the lawsuit, irregularities were discovered when an HPS employee noticed suspicious email addresses that appeared to be from fake domains mimicking real telecom companies. Further investigation revealed a pattern of fake invoices, contracts, and emails used over the past two years to create the illusion of owed money from established telecom companies. Lawyers for the lenders stated that "Brahmbhatt created an elaborate balance sheet of assets that existed only on paper". The lenders also allege that Brahmbhatt transferred assets that should have been pledged as collateral to offshore accounts in India and Mauritius.
Brahmbhatt's companies have since filed for Chapter 11 bankruptcy protection in the U.S. On August 12, Brahmbhatt filed for personal bankruptcy. The Wall Street Journal reports that when their reporters visited Brahmbhatt's office in Garden City, New York, it was locked and appeared to be vacated. Neighbors indicated that they had not seen anyone at the site in weeks.
Adding to the mystery, people familiar with the investigation told The Wall Street Journal that HPS fears Brahmbhatt may have left the U.S. for India. While Brahmbhatt's lawyer has denied the allegations, his current whereabouts remain uncertain.
The case has drawn attention to the risks involved in private lending, where investors are vying to fund high-yield deals, sometimes without fully understanding how the borrowed money is being used. This type of debt, known as asset-based finance, involves borrowers providing collateral in the form of revenue generated by specific businesses, equipment, or customer receivables.
The alleged fraud comes at a sensitive time for BlackRock, which acquired HPS Investment Partners earlier this year as part of its expansion into private-credit markets. While the investment represents a small fraction of HPS's $179 billion in assets under management, the situation underscores the growing scrutiny of private-credit deals.
The lenders are seeking to recover the funds. The lawsuit against Brahmbhatt is ongoing.
