Byju's concealed $553 million in obscure hedge fund, allege lenders in lawsuit: Report
The Camshaft Capital Fund has listed an IHOP pancake restaurant in Miami as its main business address, alleged Byju's creditors in their lawsuit
In a new twist in the highly public battle fought between Byju’s and its lenders, the latter have claimed in a lawsuit that the ed-tech start-up has tucked away half a billion in a little-known three-year-old hedge fund. The fund, Camshaft Capital Fund, which allegedly had no obvious formal training in investing has listed an IHOP pancake restaurant in Miami as its main business address, said a report in Bloomberg.
Quoting from the lenders’ lawsuit, the report said that last year Byju’s had transferred $533 million dollars to Camshaft Capital Fund, founded by William C Morton when he was just 23 years old. And, according to the lenders, the $533 million has been transferred as collateral for a $1.2 billion loan.
For a long time now, the lenders have been claiming that Byju’s have defaulted in paying the loan, while Bjyu’s has countered this by accusing the lenders of predatory tactics. In fact, in May this year, Byju’s had refuted the allegations of lenders that its US entity, Byju’s Alpha, has hidden $500 million. And termed these allegations as “bewildering” and “entirely incorrect”.
Meanwhile, in their court filings at Miama-Dade County, the lenders have argued that “Byju’s has gone to great lengths to conceal the whereabouts of borrower’s $533 million for the admitted purpose of hindering and delaying” creditors.
Byju's rejoinder to lawsuit
Bloomberg further reported that Byju’s in an emailed statement said that it hasn’t been served with copies of the Florida lawsuit and is not a party to the court proceedings.
Camshaft lawyers too have denied receiving any information about the lawsuit and denies the claims made by Glas Trust, the creditors' agent.
Chasing that 'missing' cash
The lenders, meanwhile, in their lawsuit have questioned Byju’s for sending money to a small hedge fund like Camshaft that appears to cater only to smaller clients. What’s more, in a 2020 Securities and Exchange Commission filing, Camshaft listed its principal business address as 285 NW 42nd Ave. This place currently is a IHOP diner in Miami’s Little Havana district. According to the lenders, in an unrelated lawsuit filed by Camshaft in Miami in June, the hedge fund said its business works out of the Virgin Islands.
Byju’s lenders have been chasing that missing cash since it took on the ed-tech start-up, which was once regarded as India’s most valuable start-up.
The lenders’ agent, Glas Trust, had in court fought and won to gain control of the Byju’s unit that issued the debt. But by then, the cash had vanished. Byju’s lawyer said at a court hearing in May that they were trying to protect the money from predatory lenders, and that the company had a right to transfer the money under the loan agreement.
Byju’s had asked a Delaware judge to reject the default declared by Glas.
Now, the lenders have filed the lawsuit in order to trace the money and recover any excess management fees pay to Camshaft. Camshaft had not yet filed a response to the lawsuit as of Tuesday afternoon in Miami.
This latest development comes in the wake of a recent report that Byju’s has promised its lenders that it will pay off its entire $1.2 billion loan within six months.
Saga of the term loan
Byju’s launched the well-known learning app in 2015 under the parent company Think & Learn Pvt Ltd. To strengthen its business growth in North, Byjus had raised the five year term loan in 2021 to fund general corporate purposes offshore, including supporting business growth in North America.
The saga of the term loan, began late last year, when the edtech company was asked to make an immediate payment after it violated the terms of the loan, which included filing its audited results for March 2022 by September.
The creditors began renegotiating the terms of the debt and hired Houlihan Lokey Inc. to advise them on amending covenants after the edtech company breached terms.
After a series of developments, Bloomberg had reported that Byju’s creditors called off the talks after they moved court, accusing the ed-tech firm of hiding $500 million of the funds raised.
Subsequently, in June 6, 2023, the edtech company sued the lenders in the New York Supreme Court for accelerating repayment of the term loan stating that their demands were “high-handed”. In its suit, Byju’s sought to “disqualify” lender Redwood, which allegedly had resorted to “predatory tactics”, and consistently increased its exposure by acquiring a sizable stake in the TLB with the intent of making windfall gains.
Byju’s also did not pay the $40 million quarterly interest due on June 5.