Hedge fund manager faces arrest over alleged misappropriation of $533 mn from Byju's

A US bankruptcy judge ordered the arrest of hedge fund manager William Cameron Morton amidst allegations forreportedly aiding Indian ed-tech startup Byju's in concealing $533 million from its creditors.

According to court documents filed by Byju's Alpha, a subsidiary controlled by Byju's lenders, the start-up defaulted on $1.2 billion in debt, prompting its US bankruptcy filing in February.

During efforts to recoup losses, lenders unearthed sizable transfers to Morton's hedge fund, Camshaft Capital, raising eyebrows over the nature of these transactions.

Add WION as a Preferred Source

Judge Dorsey, presiding over the case, had summoned Morton to elucidate the whereabouts of the funds.

Despite claiming to be incapacitated and overseas, Morton's failure to provide evidence or contact details prompted scepticism from the court.

Dorsey, unconvinced by Morton's assertions, remarked, "Given his absolute contempt for this court, I don't believe him."

Consequently, Dorsey issued a warrant for Morton's arrest and imposed a daily fine of $10,000 on him and Camshaft until compliance with court directives regarding the investigation into the missing funds is achieved.

Morton's purported involvement in the affair has raised significant questions.

Byju's lenders, in their legal action against Morton and Camshaft, highlight the lack of rationale behind funnelling huge sums to Morton, particularly given his limited experience and the apparent absence of credible business operations at Camshaft.

Describing Morton, who is in his mid-twenties, as lacking the requisite qualifications to manage a hedge fund, lenders note the opacity surrounding Camshaft's activities, revealing its primary business address to be an International House of Pancakes in Miami, casting doubt on its legitimacy.

Byju's, once a pinnacle of success in the ed-tech sector with a valuation of $22 billion under its former parent company, Think & Learn Private Ltd, now finds itself embroiled in this financial complication.

What are the updates?

A press release circulated on Friday signalled legal victory for the ad hoc group of term loan lenders of Byju’s.

The United States Bankruptcy Court for the District of Delaware has issued a preliminary injunction in favour of Byju’s Alpha,Inc against several defendants including Riju Ravindran, Inspilearn LLC, and Camshaft Capital Fund, LP and its affiliates.

This ruling halts any further movement or utilisation of $533 million, rightfully owed to the lenders.

The court also found Byju Raveendran and Divya Gokulnath to be collaborating with the defendants and instructed them to adhere to the court's directive.

According to the Order, the defendants are prohibited from transferring or utilising the $533 million in loan proceeds previously held by Camshaft Capital Fund, LP, and subsequently moved to an undisclosed offshore trust.

Judge Dorsey,expressed strong condemnation towards the defendants' actions, labelling the transfer of funds and subsequent concealment as potentially fraudulent.

"The fact that the parent company is attempting to hide where the assets are is huge. It shows that they are engaged in what appears to be a potential fraud," Judge Dorsey commented during the proceedings.

Additionally, a warrant has been issued for the arrest of William Morton, founder of Camshaft Capital Fund, LP, who absconded the country before the hearing.

Morton's refusal to cooperate and provide requested information regarding the funds led to the court ordering his arrest and imposing a fine until compliance is achieved.

"I'm still very upset about the fact that (the Defendants)are obfuscating where this money is. And they are trying every trick in the book to be able to say, ‘we don't know, this guy doesn’t know, that guy doesn’t know, we don’t know where it is, we can’t tell you,’ and I'm tired of it," remarked Judge Dorsey.

The SteerCo, representing the term loan lenders, highlighted the court's ruling in their pursuit of recovering the missing funds.

"There should be no doubt that Byju is not the victim he purports to be, but rather the architect of a scheme that has vaporised tens of billions of dollars in value in what was once a great Indian company," stated the SteerCo in a released statement.

The case dates back to 2021 when Byju’s Alpha, Incwas established to receive proceeds of the term loan.

Subsequent transfers of funds orchestrated by Riju Ravindran, including a transfer to Camshaft Capital Fund, LP, and later to Inspilearn LLC, have raised suspicions of fraudulent activities.

Despite court orders, neither the defendants nor Byju Raveendran and Divya Gokulnath have provided any specific information regarding the whereabouts of the funds.

(With inputs from Reuters)