US court finds Riju Ravindran, Camshaft, Think & Learn guilty of fraud

Think & Learn Pvt Ltd (Byju's) unlawfully orchestrated and benefited from a fraudulent scheme. Sham hedge fund Camshaft Capital facilitated the fraudulent scheme to defraud term loan lenders

The steering committee of the ad hoc group of term loan lenders (the Lenders) of the $1.5 billion Term Loan B provided to Byju’s Alpha Inc., a Delaware special-purpose financing vehicle established by Byju’s to receive proceeds of the term loans, today announced that Judge John T. Dorsey of the United States Bankruptcy Court for the District of Delaware issued an order granting summary judgment in favour of Byju’s Alpha Inc. against Riju Ravindran, Camshaft Capital Fund LP and its affiliates, and Think & Learn Pvt Ltd (Byju’s parent, the Defendants). Riju Ravindran is the brother of Byju’s founder, Byju Raveendran.

 

 

The order finds that the Defendants, alongside Byju Raveendran, are responsible for orchestrating and executing an unlawful scheme that defrauded the Lenders. Damages are to be awarded at a later date.

 

In making its ruling, the court confirmed that multiple transfers of funds from Byju’s Alpha constituted actual fraudulent transfers and conversion (i.e., theft). The court also confirmed that Riju Ravindran violated his fiduciary duties as a director of Byju’s Alpha.

 

“We are gratified that the court unequivocally recognised that Riju Ravindran, Camshaft, and Byju’s together conducted a deliberate fraud on a global scale arising from the theft of $533 million. This is a significant step forward in the Lenders’ efforts to recover the stolen funds that are rightfully owed to them,” said the Lenders in a statement in connection with the order.

 

Valued at $22 billion in 2022, Byju’s has seen its fortunes dwindle due to a massive cash crunch, regulatory issues, and disputes with investors, including a battle with US lenders demanding $1 billion in unpaid dues, triggering the firm’s insolvency. Once India’s most valued startup, the company is now worth nothing, Raveendran recently told reporters as he called for rebuilding the erstwhile empire from scratch, brick by brick.

 

Fraudulent transfers

 

The Lenders said the judge noted that only a few months after executing the Credit Agreement, in March and April 2022, the Debtor [under Riju Ravindran] and its affiliates failed to satisfy certain loan covenants, which constituted defaults of the term loan. Within weeks of the defaults, the Debtor [under Riju Ravindran] began moving funds through a series of four transfers (together, the “Transfers”).

 

“Considering all the evidence before me, I find there to be no genuine issue of material fact as to the Debtor’s [under Tim Pohl] claim that the First Transfer is an actual fraudulent transfer as to Camshaft,” the Lenders quoted the judge as saying. “Having considered the evidence presented by the Debtor [under Tim Pohl], and the lack of any opposing evidence from T&L, I am satisfied that the Second Transfer was made with fraudulent intent.”

 

Deceptions

 

Byju Raveendran (the Debtor’s founder, self-appointed chief executive officer, T&L’s chief executive officer, and Riju Ravindran’s older brother) told the Lenders’ senior financial adviser, Stephen Spencer, in reference to the Alpha Funds, that the Debtor “doesn’t have the money,” according to the judge’s commentary. Rather, “the money is someplace the Lenders will never find it.”

 

The judge said the Defendants concealed the whereabouts of the Alpha Funds on multiple occasions. They failed to furnish financial statements that would have revealed where the Alpha Funds were transferred. They refused GLAS’s and the Lenders’ basic information requests and made additional transfers when plaintiffs came close to finding the Alpha Funds. They orchestrated the sham resignation of Ravindran to facilitate the Fourth Transfer. They repeatedly violated the court’s discovery orders, all to keep the Alpha Funds away from the Debtor and its creditors.

 

To date, Ravindran has failed to respond to discovery requests, and the Debtor has been unable to identify which T&L subsidiary holds the funds, according to the judge’s commentary. “Simply put, Ravindran’s argument makes no sense.”

 

“Considering the extensive evidence suggesting T&L’s creation of a US subsidiary, which was then used to perpetrate a fraud, I find that under the circumstances of this case, the exercise of jurisdiction over T&L is reasonable,” the judge noted.

 

The judge said T&L (on whose board Ravindran sat) actively misled the Lenders into believing that the funds remained in the Debtor’s bank accounts in cash or cash equivalents. As with the First Transfer, it was T&L that made the ultimate decision and directed the transfer, with Ravindran merely signing documents without asking questions.

 

The judge said the evidence makes clear that as of March 3, 2023, Pohl was the only party with corporate authority to direct the use, possession, transfer, or disposition of the Debtor’s property. Because T&L and Ravindran lacked corporate authority to exercise control over the Debtor’s property on March 31, the transfer of the LP Interest was a wrongful disposition of the Debtor’s property. This constitutes conversion under applicable law.

 

“GLAS’s investigator concluded that the hedge fund was a sham, and I agree. It is unclear why the Debtor would choose to invest in the Camshaft Fund at all,” the judge said.

 

Missing $533 million

 

Giving the background of the issue, the Lenders said that in 2021, Byju’s Alpha was established as a US subsidiary of Byju’s to receive proceeds of the term loan. In 2022, Byju’s Alpha, under the control of the Raveendran family (and before the brothers’ removal as directors and officers of Byju’s Alpha on March 3, 2023), transferred $533 million in term loan proceeds to Camshaft Capital Fund LP, a sham hedge fund founded by William Morton.

 

In March 2023, Byju’s Alpha’s limited partnership interest in Camshaft Capital Fund was transferred by Riju and Byju to Inspilearn LLC and then again transferred to and redeemed by an offshore trust of Inspilearn in February 2024. Subsequently, there was yet another transfer to a still undisclosed entity.