The founder of NMC Health has accused its fired chief executive, auditor EY and two banks of conspiring in a six-year fraud in an $8bn legal claim launched last week.
In a court document filed in New York, lawyers for BR Shetty claimed that the Indian-born tycoon had been defrauded through a “debt-fuelled Ponzi scheme” involving fictitious invoices, artificial inflation of the healthcare group’s revenues and the siphoning off of funds for personal gain.
The claim alleges that audit firm EY, alongside Bank of Baroda — one of India’s largest lenders — and Netherlands-based Credit Europe Bank, was central to a “co-ordinated and deliberate conspiracy” in which more than $5bn was stolen from companies in Shetty’s business empire.
NMC, the former FTSE 100 hospital operator, was placed into administration in April last year when more than $4bn of debts were discovered after being hidden from its balance sheet in a suspected fraud that threatened the London stock market’s reputation for good governance.
Executives at Shetty’s companies had forged his signature on personal guarantees to secure fraudulent loans and then set him up as the “fall guy” in the event their scheme was ever uncovered, the lawyers claimed.
The suit alleges that Bank of Baroda breached 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 US regulators.
“If Baroda had complied with existing AML [anti-money laundering] laws and investigated the suspicious transactions, the massive accounting fraud and theft would have been discovered in its infancy and the plaintiffs would never have sustained their financial injury,” they said.
The defendants named in the court claim include brothers Prasanth and Promoth Manghat, respectively the former chief executives of NMC and Finablr, the London-listed fintech company founded by Shetty. Finablr’s shares were suspended in March 2020 and the company later reported more than $1bn of undisclosed debt. Both brothers have previously denied wrongdoing.
Shetty and Neopharma, another of his companies in which he owns a 49 per cent stake, alleged that defendants conspired to artificially inflate revenues of NMC and related companies through a “circular movement of funds” between NMC and related parties “with the intent to conceal the source and origin of the funds”.
Thousands of “fraudulent related-party round-tripping transactions” between NMC and its group companies were designed to defraud Shetty and Neopharma by giving the appearance that the businesses were booming, Shetty’s lawyers wrote. This allowed the Manghats and others to procure millions of dollars of off-balance-sheet loans for NMC and other group companies, they claimed.
Calling the process a “Ponzi scheme”, they alleged that bigger loans were procured to pay off previous borrowing and that defendants “siphoned off proceeds from these undisclosed and fraudulently obtained loans and disbursed the stolen funds amongst themselves”.
Bank of Baroda and Credit Europe Bank were central to the fraud, the lawyers said. The Manghat brothers convinced senior Baroda executives to join the conspiracy by “offering and paying them kickbacks from the siphoned funds”, they said.
The Manghat brothers were also alleged to be part of a conspiracy to create fake invoices for sales purportedly made by group companies to NMC to inflate its sales figures.
Credit Europe Bank was aware of the “bogus” invoices but continued to lend because it received a 5 per cent fee on its loans, the lawyers said.
The claim also sets out payments allegedly made to some of the defendants and their alleged co-conspirators. Promoth Manghat paid himself 7.4m UAE dirhams ($2m) out of an account belonging to Shetty, according to the claim.
The biggest beneficiary of the account, according to the legal claim, was Abdul Rahman Basaddiq, who received a total of 11.1m dirhams in “kickback payments” from the Manghat brothers. Bassadiq, a former partner at EY who served on the boards of NMC and Finablr, declined to comment.
Shetty’s accusations against EY go further than previous claims of professional negligence, made by the administrators of NMC Health. His lawyers accused the audit firm of helping to conceal the fraud and actively assisting the alleged perpetrators by advising how to inflate earnings figures through “illicit tactics” and to avoid loans appearing in the financial statements.
“We believe this case is without merit and we intend to defend it vigorously,” EY said.
The New York legal claim is the latest stand-off between the banks and Shetty, who made similar allegations following an internal investigation he commissioned last year. Both Bank of Baroda and CEB secured freezing orders against him last year over unpaid debts and he has also been 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, whilst Promoth Manghat could not be reached for comment.