BYJU’S’ Hedge Fund Manager Faces Arrest Over Missing $533 Mn

SUMMARY

The directions came after the fund manager refused to appear before the court saying that he was hospitalised in a foreign country

The court also said that the hedge fund would be fined $10,000 per day till it cooperates with the investigation into the missing funds

BYJU’S previously claimed that the $533 Mn was parked with a non-US subsidiary of the firm and not “syphoned off”

In a fresh trouble for BYJU’S, a US insolvency court has reportedly ordered the arrest of a hedge fund manager who allegedly helped the edtech major hide $533 Mn from its lenders. 

The directions came after the fund manager, William Cameron Morton, refused to appear before the court, saying he was hospitalised in a foreign country. As per Reuters, the judge observed that the “excuse was not credible” and issued a warrant for Morton’s arrest.

During the hearing on Thursday (March 14) in Delaware, the judge noted that Morton did not provide any proof that he was hospitalised or that he was abroad, adding that the fund manager had also not provided his home address or phone number to the court. 

The court also said that the hedge fund Camshaft would be fined $10,000 per day till it cooperates with the investigation into the edtech giant’s missing funds.

“Given his absolute contempt for this court, I don’t believe him… He certainly has the financial ability to pay those fines… He knows the location of half a billion in the debtors’ funds,” said the judge, as per the Reuters report. 

At the heart of the crisis is the ongoing tug of war between BYJU’S and its lenders over the $1.2 Bn term loan B (TLB). After the edtech’s US subsidiary, BYJU’S Alpha, filed for bankruptcy in February this year in a US court, the company’s lenders reportedly discovered that the company had moved $533 Mn of the proceeds to Camshaft Capital.

In a petition filed against the hedge fund and manager Morton, the lenders alleged that the startup never explained why “so much money” was sent to Morton who had “no apparent qualification to manage a hedge fund”.

On the other hand, the troubled edtech startup has claimed that the $533 Mn have been parked with a non-US subsidiary of the firm and not “syphoned off”.

Meanwhile, Morton told Wall Street Journal that he was staying outside the US as he feared for his safety citing an alleged experience where he was followed  by an “athletic” person “dressed in all black with a ski mask and a backpack”. 

“I declined (to be present before the Court) because it’s all I have to protect my life, and I can’t give that away,” Morton told WSJ. 

This is the latest trouble to have hit the edtech major which is already fighting on multiple fronts. The startup has grabbed negative headlines for all the wrong reasons, including a looming debt crisis, multiple insolvency proceedings in India, mass layoffs, and a bevy of legal cases. 

It is also embroiled in a public war of words with its investors, who have moved courts seeking the ouster of CEO and founder Byju Raveendran and the reconstitution of the company’s board. Meanwhile, a funding crunch has made matters worse, prompting the Bengaluru-based startup to delay salaries and payments to vendors. 

The startup recently raised $200 Mn via a rights issue at a valuation cut of 99% but has been asked by the National Company Law Tribunal (NCLT) to put the proceeds raised from the rights issue in a separate escrow account.