Three men, four questions and a 24 million dollar quandary

Oct 01, 2018, 14:06 IST | Vinod Kumar Menon

Hong Kong court orders asset management firm SSG Capital to answer questions about missing funds relating to a multi-million dollar fraud

Three men, four questions and a 24 million dollar quandary
Shyam Maheshwari, who represents SSG Capital

A court in Hong Kong has ordered Shyam Maheshwari, Andreas Vourloumis, and Edwin Wong, principals of the hedge fund SSG Capital, a Hong Kong-based asset management firm, to answer under oath questions about missing funds relating to a multi-million dollar fraud scheme perpetrated in the United States.

The principals of SSG Capital are former Lehman Brothers executives based in Hong Kong and Singapore. They started SSG Capital following the 2008 bankruptcy of Lehman Brothers. Maheshwari  also represents SSG Capital on the Board of Directors of ACRE India, an offshoot of Industrial Finance Cooperation of India (IFCI), a public sector company.

Penal notice
The court in its order has directed the three senior partners in SSG Capital, to attend an examination at 15 Queen's Road Central, Hong Kong. If they do not obey the order, they may be found guilty of contempt of court and may be sent to prison or fined or have their assets seized. The order states that the recording to seek answers for four questions (see box) from 10 am to 6 pm from October 10 to 12, 2018.

Sources from the US told mid-day, "As per procedure, the summons needs to be handed over to the person concerned in Hong Kong. While Andreas and Edwin have accepted their summons copy after much persuasion and chase, Maheshwari, who holds an Indian and Hong Kong citizenship, is yet to be given the copy of the summons."

FBI  probe
A three-year investigation conducted by the FBI and IRS resulted in Satish Vuppalapati, the MD of Prithvi, and Madhavi Vuppalapati being indicted on criminal charges of, among others, wire fraud and money laundering conspiracy in December 2017. The duo has fled the US to evade prosecution and are believed to be hiding in Hyderabad, India.

In addition to Kyko, there are numerous other entities and individuals that allege to be harmed by the activities of Prithvi and its directors. These include Sojitz, a Japanese finance company, Deutsche Bank (India) and HSBC Bank (India). A California resident also came forward in 2014 alleging the Vuppalapatis stole his identity in relation to fraud and racketeering activities.  The complaint was filed with numerous regulatory bodies including the SEBI, ED, SFO and others.

"In high fraud profile cases such as those of Mehul Choski, Vijay Mallya, and Nirav Modi, the Indian government made an extradition requests and pleas for help from various foreign governments in bringing them to justice. We are disappointed that reciprocal treatment by the Indian government is not being shown to bring the Indian nationals to justice," said a senior official of KyKo Global.

Prithvi's money trail
To follow Prithvi's money trail, Kyko Global Inc approached the Hong Kong Court, which ordered Hang Seng Bank, a wholly owned subsidiary of HSBC Bank, to produce bank records. The records show $35 million in Foreign Currency Convertible Bonds (FCCB) held in escrow at the UCO Bank in Hong Kong had been transferred and dispersed into numerous entities and offshore companies.  Kyko thus discovered that Prithvi transferred about $24 million to SSG Capital in Cayman Islands and Value Team Corporation (VTC), a British Virgin Islands entity controlled by SSG Capital's principals.

Pursuant to Kyko's request, the federal court in Washington requested the Hong Kong court's assistance to compel Maheshwari, Andreas, and Wong to answer questions regarding the $24 million.  The Hong Kong court granted Kyko's request.

"Shyam Maheshwari, Andreas Vourloumis, and Edwin Wong are listed as the shareholders of VTC according to the infamous Panama Papers, which document the myriad ways in which some affluent individuals have exploited secretive offshore tax havens. They have not indicated their willingness to Kyko to comply with the Hong Kong court's order.  The lack of co-operation from SSG Capital's principals in explaining the missing funds is deeply concerning," the official added.

Kyko Global reacts
Kiran Kulkarni, CEO Kyko Global Inc, said, "Jones Day, the lawyers for SSG Capital in Hong Kong, have advised our lawyers that they will be fighting this order from the Hong Kong court and will not appear for deposition. I am dismayed why these people continue to fight if they have nothing to hide. They refused to co-operate with the subpoena from the Washington Court, they refuse to co-operate with our many requests for information and accounting of US$ 24 million, they refuse to accept the service of the Hong Kong Court order, and now after catching Mr. Wong in the elevator to serve the order, they are still continuing to fight a simple matter like this."

Amit Punde, Company Secretary and Kyko Advisor, said, "The proceeds of FCCB were to be used for expansion of the company in US through acquisitions of business or companies. It is clear that the funds were not used for acquisitions. This could be a clear violation of FEMA regulations. A sophisticated finance company such as SSG Capital should be aware of the legal requirements of RBI, SEBI other govt agencies."

The other side
When mid-day contacted SSG Capital's Mumbai office, it was learnt that Maheshwari was based in Singapore. Also, their Mumbai legal head Pravin Thomas, did not wish to comment, and did not respond to an email query sent. Attempts to contact Maheshwari on both his Hong Kong and India mobile numbers did not yield any result.

Another email sent to SSG Capital's South Asia General Counsel, Richard Yee, received this response: "For the record and to make very clear, neither SSG nor any of its directors, officers or employees have at any time been sued in the United States courts or anywhere else concerning the unfortunate fraud suffered by Kyko. Regrettably, Kyko's latest efforts are misguided and smacks of desperation.

"We will not dignify such allegations nor waste time commenting on them here. This is a matter that will soon come before a Hong Kong court. We are confident in our position and will address this matter in the Hong Kong courts. Suffice to say, we are prepared to take forceful and appropriate legal action to clear our name, including seeking compensation in terms of damages and costs."

Four questions
a) How and why SSG Capital and Value, Team Corporation owe  Prithvi Solutions Inc. (PSI) a sum of US$ 4,000,000 and US$ 18,900,000 respectively?
b) Whether the funds owing to PSI were a result of receiving funds from another person or entity
c) Whether such funds received were transferred by Value Team Corporation/SSG Capital to another person or entity
d) Why Value Team Corporation/SSG Capital has not paid PSI (Prithvi Solutions) or Kyko Global Inc?

The case
mid-day had reported about the Department of Justice (DoJ) investigation into a white collar fraud involving an Indian BSE-listed company in USA, Prithvi Solutions Inc. "Partner of India company involved in fraud surrenders in USA" dated January 26, 2018.

* Between 2011 and 2012, Prithvi Information Solutions Ltd. (Prithvi), a Hyderabad IT company, claimed it had relationships with several multi-billion dollar US customers. It offered for factoring (a type of commercial lending) the receivables from five companies, which included publicly listed retail, energy and telecom giants.
* A factoring relationship started, whereby when the customers would confirm invoices from Prithvi, Kyko Global Inc, a Canadian company (Kyko), would advance the funds to Prithvi for each invoice, and the customer would pay Kyko directly when the invoice was due.
* In February 2013 the payments to Kyko suddenly stopped, with more than $ 17 million owing. Kyko investigated and found that Prithvi's relationship with these five customers was fictitious.
* Prithvi  and Madhavi Vuppalapati, its chairwoman, have been found liable by the federal court in Washington for creating fake companies and bank accounts to fraudulently acquire and move millions of dollars.
* In 2013, the Washington federal court ordered Prithvi and various other entities and individuals to pay $134 million (about Rs 950 crore) in damages in relation to fraud and Racketeer Influenced and Corrupt Organization Act (RICO) charges.

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