Last year, edtech firm Byju’s US subsidiary, Alpha Inc, allegedly transferred $533 million to Camshaft Capital Fund, an investment firm established three years ago, reports said, citing claims made by some of Byju’s lenders in a lawsuit.
According to Bloomberg, this hedge fund was established by William C. Morton, at the age of 23. And these lenders allege that Byju’s “hid” the money in this hedge fund. They contend that Morton’s fund received this substantial amount despite his apparent lack of formal investment training.
Furthermore, court documents reveal that luxury cars, including a 2023 Ferrari Roma, a 2020 Lamborghini Huracán EVO, and a 2014 Rolls-Royce Wraith, have been registered in Morton’s name since the transfer took place.
Interestingly, in a 2020 Securities and Exchange Commission filing, Camshaft noted its main business address as 285 NW 42nd Ave. This address actually houses an IHOP restaurant (a pancake shop) in Miami’s Little Havana area. The neighboring businesses include a drive-through car wash and a strip mall featuring a massage parlour and a sandwich shop, the report said.
The address had been home to the IHOP for decades, Bloomberg reported.
An IHOP employee told Bloomberg that she had never heard of Morton, Camshaft Capital Fund, or Byju’s, indicating no business activity related to the hedge fund at that location.
Bloomberg also noted that Camshaft, in an unrelated lawsuit filed by the hedge fund, said its principal place of business is in the Virgin Islands. This lawsuit was filed in June.
The lenders’ agent, Glas Trust, argued that Byju’s has worked hard to hide the $533 million owed to borrowers, intending to slow down and obstruct creditors.
Byju’s has denied these allegations, reported Business Today.
“As a commercially prudent borrower and like any other large corporate treasury, Byju’s Alpha has made investments in a multi-hundred billion dollar fund with high security fixed income instruments. Our Credit Agreement with the lenders does not prohibit or restrict the movement or investment of monies disbursed thereunder. There is no requirement for Byju’s to maintain cash as collateral,” a Byju’s spokesperson told Business Today.
Glas Trust, the agent for the creditors, hasn’t informed Camshaft about the lawsuit, the fund’s lawyers told Bloomberg. “Camshaft vigorously denies the statements made in Glas Trust Company’s” court filing, Camshaft lawyer David Massey said in an emailed statement, noted the report.
What else have the lenders said in their court filings
The lenders argued that the $533 million transferred is collateral for a $1.2 billion loan, and there’s a dispute between Byju’s and the lenders regarding the loan status.
Bloomberg reported that Byju’s is attempting to negotiate a deal with creditors and proposing to buy back the loan within six months, through selling overseas assets to private equity and strategic investors. (A loan buy back occurs when a borrower repays a portion of the loan for less than the promised amount.)
The lenders also highlighted that Byju’s sent the money to Camshaft, which appears to cater to smaller clients and accepts investments as low as $50,000 for a hedge fund.
The missing cash is at the center of the lenders’ actions, the report said, adding that the lenders had gained control of the Byju’s unit that issued the debt, but the money had already disappeared.
In May, Byju’s Alpha’s lawyer had said, during a court hearing, that the company was trying to protect the money from predatory lenders. The company had a right to transfer the money under the loan agreement, the lawyer said.
Byju’s accused the lenders of seeking control of the entire ed-tech empire led by its founder, Byju Raveendran. It had asked a Delaware judge to reject the default declared by Glas.
Since the startup was founded in 2015, Byju’s has received significant investments from major players in the tech industry, such as Mark Zuckerberg’s Chan Zuckerberg Initiative, Silver Lake Management, and Naspers Ltd. Last year, Byju’s was valued at over $20 billion.
The lenders’ lawsuit aims to trace the money and recover any excess management fees paid to Camshaft.
As of the time of the report, Camshaft had not yet filed a response to the lawsuit.
Backstory
In November 2021, the company had raised a $1.2 billion term loan from a group of US-based creditors. However, in June this year, Byju’s missed a $40 million interest payment on this loan.
Alpha is the borrowing entity under the Term Loan B.
A term loan provides borrowers with a lump sum of cash upfront in exchange for specific borrowing terms. Borrowers agree to pay their lenders a fixed amount over a certain repayment schedule with either a fixed or floating interest rate.
After the company missed the quarterly payment schedule on June 5, it sued its lenders and related entities for accelerating the repayment of the term loan.
Byju’s declared that it would withhold any further payments, including interest, to the lenders until the court settles the dispute.
“As a matter of fact, the Delaware court ruling in June this year rejected the lenders’ application for information in relation to the amount in question i.e. part of the funds received by BYJU’S Alpha, the borrowing entity under the TLB,” Business Today reported, citing the company’s statement.