The founder of NMC Health has accused the fired chief executive, auditor EY and two banks of conspiracy in a six-year fraud in an $8 billion legal claim filed last week.
In a court document filed in New York, attorneys for BR Shetty alleged that the Indian-born tycoon had been defrauded by a “debt-fuelled Ponzi scheme” involving fictitious billing, artificial inflation of the healthcare group’s earnings and the siphoning of funds for personal gain.
The claim alleges that accounting firm EY, alongside Bank of Baroda – one of India’s largest lenders – and Netherlands-based Credit Europe Bank, was at the center of a “coordinated and deliberate conspiracy” in which more than $5 billion was stolen from companies in Shetty’s business empire.
NMC, the former FTSE 100 hospital operator, was placed under administration in April last year when more than $4 billion in debt was 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.
Executives at Shetty’s firms had forged his signature on personal guarantees to obtain fraudulent loans and then designated him as the “trap” in case their scheme was ever discovered, the lawyers claimed.
The lawsuit alleges that the Bank of Baroda has breached its fiduciary duties and anti-money laundering rules by processing thousands of related party transactions without submitting a single report of suspicious activity to US regulators.
“If Baroda had complied with the existing AML [anti-money laundering] laws and the suspicious transactions, the massive accounting fraud and theft would have been discovered in infancy and the plaintiffs would never have suffered any financial loss,” they said.
The defendants named in the lawsuit are brothers Prasanth and Promoth Manghat, respectively the former CEOs 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 $1 billion in undisclosed debt. Both brothers have previously denied having done anything.
Shetty and Neopharma, one of his other companies in which he owns a 49 percent stake, alleged that the defendants colluded to artificially inflate the revenues of NMC and related companies through a “circular flow of money” between NMC and related parties “with intent to identify the source and provenance of the funds”.
Thousands of “fraudulent related party returns” between NMC and its group companies were intended to defraud Shetty and Neopharma by giving the appearance that the companies were thriving, Shetty’s lawyers wrote. This allowed the Manghats and others to acquire millions of dollars in off-balance sheet loans for NMC and other group companies, they claimed.
Calling the lawsuit a “Ponzi scheme”, they claimed that larger loans had been obtained to pay off previous loans and that defendants “transferred the proceeds of these undisclosed and fraudulently obtained loans and mutually exchanged the stolen funds.” paid”.
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 them bribes and paying them from the transferred funds,” they said.
The Manghat brothers are also said to be part of a conspiracy to create false invoices for sales allegedly made by group companies to NMC to boost sales.
Credit Europe Bank was aware of the “false” bills but continued to borrow as it received a 5 percent fee on its loans, the lawyers said.
The claim also includes payments allegedly made to some of the defendants and their alleged co-conspirators. Promoth Manghat paid himself 7.4 million UAE dirhams ($2 million) from an account held by Shetty, according to the claim.
According to the legal claim, the largest beneficiary of the account was Abdul Rahman Basaddiq, who received a total of 11.1 million dirhams in “kickbacks” from the Manghat brothers. Bassadiq, a former partner at EY who served on the boards of NMC and Finablr, declined to comment.
Shetty’s allegations against EY go beyond… previous claims of professional negligence, created by the administrators of NMC Health. His lawyers accused the accounting firm of helping cover up the fraud and actively assisting the alleged perpetrators by advising how to inflate profits through “illegal tactics” and to prevent loans from appearing in financial statements.
“We believe this case is unfounded and we intend to vigorously defend it,” EY said.
The legal claim in New York is the latest showdown between the banks and Shetty, who… similar allegations made following an internal investigation he commissioned last year. Both Bank of Baroda and CEB has secured freezing orders last year against him for 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, while Promoth Manghat could not be reached for comment.