Creditors claim Byju’s sent $500mn to fund registered at pancake house

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Indian education technology company Byju’s transferred $533mn to an obscure Florida-based hedge fund with the registered address of a pancake restaurant, creditors to what was once India’s most valuable start-up have alleged.

In legal filings to a Miami court, the lenders to Byju’s claim that in mid-2022 the tech group wired the money to Camshaft Capital, which opened in 2020 and registered a branch of the IHOP pancake chain in Miami as its office. They allege that the transfer was part of the company’s attempt to “to conceal the whereabouts” of the cash.

After Bloomberg reported the legal documents on Wednesday, a Byju’s spokesperson said it had “made investments in high security fixed income instruments with a multi-hundred billion dollar fund, through Camshaft”, but did not specify the amount that was invested.

It is the latest and strangest episode in a US legal drama featuring an edtech start-up valued in 2022 at $22bn. The saga stems from $1.2bn borrowed by Byju’s in November 2021 and has escalated into a bitter courtroom battle playing out in Delaware, New York and Miami.

Byju’s creditors accuse the company of defaulting by failing to provide financial statements, and have used a Delaware lawsuit to seize US-based Byju’s Alpha, the Byju’s entity that borrowed the $1.2bn. The edtech company countersued in New York, calling the default claims “bogus” and accusing lenders of hardball negotiating tactics. Byju’s then refused to make a $40mn interest payment in June.

Separately, lenders filed against Camshaft Capital in Miami in May, primarily seeking to find what they claimed were funds that had gone missing from Byju’s Alpha.

“This case involves the transfer and concealment of over half a billion dollars by a borrower that has less than $1 million of remaining assets to satisfy over $1 billion in debt,” argued lawyers for the lenders, who are represented by agency Glas Trust, in a July filing in Miami.

Lawyers for Camshaft said the fund “vigorously denies the statements made” in the legal filings by Glas Trust, without elaborating. They also accused Glas of failing to deliver the legal complaint to Camshaft.

Byju’s is not a party to the Florida lawsuit, but the company on Wednesday defended its right to transfer the money. A Byju’s spokesperson said the contract “with the lenders does not prohibit or restrict the movement or investment of monies”, rejecting claims by the lenders that the $533mn was collateral.

Creditors alleged in the filing that after Byju’s Alpha transferred the $533mn, Camshaft’s now 26-year-old manager William Morton went on “an extravagant spending spree” and that Ferrari, Lamborghini and Rolls-Royce cars were registered in his name.

According to Camshaft’s brochure for potential investors, it managed $596mn in “regulatory assets” as of December 31 last year. The brochure advertises investment strategies considered high risk, including short selling, and says the firm charges a three per cent management fee.

Although it registered the IHOP as its office in filings to US securities regulators, in the brochure Camshaft gave its address as a suite in Miami’s Porsche Design Tower, where units fetch $5.2mn-$9.7mn.

In an interview posted on YouTube, Morton said he had dropped out of high school and had no formal investment training. But he insisted that his credentials were his record since he made his first trade aged seven using his Merrill Lynch employee father’s Schwab account.

“I’d always been a great trader,” Morton said in the interview. “Had a lot of great calls you know back in Great Recession [ . . . ] nailed that, was a little kid”.

Morton played basketball for the Long Beach City College Vikings during the 2019-20 season, and he claimed in the interview that he made a fortune in February 2020 while laid up with an injury, by “shorting the broad market” in anticipation of the Covid-19 crisis.

Byju Raveendran, the eponymous founder of Byju’s, also made good use of the pandemic, cashing in on investor interest in online learning to raise billions from international investors and reaching a high point on the global stage by sponsoring the 2022 Qatar football World Cup.

But Raveendran’s star fell as lockdowns ended and long-delayed financial reports revealed Byju’s cash burn. The company’s auditor Deloitte quit in June, as did three board directors representing investors.   

Byju’s wants to extricate itself from the US legal battle. To repay angry lenders, a person familiar with the matter said Byju’s was looking to sell two education companies it bought during a pandemic-era acquisition spree, and to raise money from a sovereign wealth fund in the Gulf.

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