The founder of NMC Health has accused its licensed executive director, auditor EY and two banks of conspiring in a six-year fraud in a $ 8 billion legal claim launched last week.
In a court document filed in New York, BR Shetty’s lawyers said the Indian tycoon was defrauded through a “debt-fueled Ponzi scheme” involving fictitious invoices, artificial inflation of the group’s revenues. health and the sinking of funds for personal gain.
The claim argues that audit firm EY, alongside Baroda Bank – one of India’s largest financiers – and the Netherlands-based Credit Europe Bank, was central to a “coordinated and deliberate conspiracy” in which more than $ 5 billion was stolen from companies in The Shetty Business Empire.
NMC, the former operator of the FTSE 100 hospital, was put into administration in April last year when more than $ 4 billion in debts were discovered after it was hidden from its balance sheet in a suspected fraud that threatened the reputation of the London stock market for good governance.
Shetty’s company executives had forged his signature on personal guarantees to secure fraudulent loans and later installed him as the “fall type” in case his scheme was ever discovered, the lawyers said.
The lawsuit alleges that Baroda Bank violated its fiduciary duties and failed to comply with anti-money laundering rules by processing thousands of related party transactions without filing a single suspicious activity report with U.S. regulators.
“If Baroda had respected the existing AML [anti-money laundering] laws and have investigated suspicious transactions, massive fraud and accounting theft will have been discovered in her childhood and the plaintiffs would never have suffered her financial injury, ”they said.
Defendants named in the court’s application include brothers Prasanth and Promoth Manghat, respectively the former chief executives of NMC and Finablr, the London-based fintech company founded by Shetty. Finablr’s shares were suspended in March 2020 and the company reported more $ 1bn of undisclosed debt. Both brothers had previously denied the wrong.
Shetty and Neopharma, another of its companies in which it owns a 49 percent stake, said the defendants conspired to artificially inflate the revenues of NMC and related companies with a “circular movement of funds.” NMC and related parties “with the intention of concealing the source and origin of the funds.”
Thousands of “fraudulent match-based transactions” between NMC and its group companies have been alleged to deceive Shetty and Neopharma by giving the appearance that the business was booming, Shetty’s lawyers wrote. This has allowed Manghat and others to acquire millions of dollars in off-balance sheet loans for NMC and other group companies, they said.
Calling the trial a “Ponzi scheme,” they said the larger loans were acquired to pay off the previous loans and that the defendants “siphoned off the proceeds of these undisclosed and fraudulently obtained loans and paid the stolen funds between them. ”
Bank of Baroda and Credit Europe Bank were central to the fraud, lawyers said. The Manghat brothers have persuaded Baroda’s senior executives to join the conspiracy by “offering and paying reimbursements from the siphoned funds,” they said.
The Manghat brothers were also allegedly part of a conspiracy to create counterfeit invoices for sales allegedly made by the group companies to NMC to inflate their sales figures.
Credit Europe Bank was aware of the “false” invoices but continued to lend because it received a 5% fee for its loans, lawyers said.
The claim also sets out the payments allegedly made to some of the accused and their alleged conspirators. Promoth Manghat was paid 7.4 million UAE dirhams ($ 2 million) from a Shetty-owned account, according to the claim.
The largest beneficiary of the account, according to the legal claim, was Abdul Rahman Basaddiq, who received a total of 11.1m dirhams in “return payments” from the Manghat brothers. Bassadiq, a former EY colleague who served on the boards of NMC and Finablr, declined to comment.
Shetty’s accusations against EY go further than that previous claims of professional negligence, made by the administrators of NMC Health. His lawyers accused the audit firm of helping to cover up fraud and actively helping the alleged perpetrators by advising how to inflate earnings figures through “illegal tactics” and to prevent loans from appearing on balance sheets.
“We believe this case is without merit and we intend to defend it vigorously,” EY said.
New York’s legal claim is the latest confrontation between the banks and Shetty, who he made similar accusations following an internal investigation he commissioned last year. Tramindui Bank of Baroda and The CEB secured the freezing order against him last year for unpaid debts and was also the subject of a criminal complaint.
Bank of Baroda and CEB did not respond to requests for comment. A lawyer for Prasanth Manghat declined to comment, while Promoth Manghat could not be reached for comment.