In today’s Finshots, we tell you how HPS Investment Partners, a recently acquired firm under BlackRock, got scammed out of half a billion dollars.

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The Story

Imagine for a moment that you’re a multi-billion-dollar alternative credit company. You’ve built a $30 billion portfolio of asset-backed loans, secured against invoices and customer bills that appear rock solid. Everything looks airtight, until one of your employees spots an email address that doesn’t add up.

And what follows unravels a staggering truth. That about half a billion dollars of those “assets” don't exist at all.

It sure sounds unreal. But this, dear reader, was how HPS Investment Partners, now owned by BlackRock, discovered that $500 million it had lent to a businessman named ‘Bankim Brahmbhatt’ had effectively vanished into thin air. And Brahmbhatt himself had disappeared.

But how did it all unfold?

Well, it began in September 2020, when HPS first extended credit to one of Bankim Brahmbhatt’s telecom companies through a financing arm. A veteran of the telecom industry, Brahmbhatt owned two relatively small firms – Broadband Telecom and Bridgevoice. And the debt quickly snowballed from $385 million by 2021, and nearly $430 million by August 2024, just shy of that half-billion-dollar mark.

Now, as HPS’s exposure grew, it wanted to be sure everything was real. The firm brought in Deloitte for customer checks, which in turn engaged CBIZ for a deeper accounting review.

But nothing unraveled until July this year, when an HPS employee noticed irregularities in the email addresses of the customers of another company linked to Brahmbhatt called Carriox Capital. Yep, email addresses! Some appeared to impersonate real telecom companies, but their domains were fake. And these addresses were the same ones that had appeared in past communications related to Brahmbhatt.

When HPS reached out to Brahmbhatt, he brushed it off and told them not to worry. And that would be their last conversation, as Brahmbhatt stopped answering calls. A visit to his Garden City offices in New York brought another twist to the story. The doors were locked, the space vacant, and neighbors stated seeing no one come or go in a long time. Even his home looked desolate, with cars unmoved and one forgotten package gathering dust.

All of this only made the suspicion of HPS stronger, and they hired a law firm, Quinn Emanuel, to investigate and get to the bottom of this. And where better to start than the emails, which were quite literally the very “collateral” backing these loans?

The investigators soon found that the email addresses quite clearly didn’t match the ones available in public domain, meaning that they might have been fabricated. So no customers meant no assets, and no assets meant HPS’s loans were lent on quicksand.

As the probe deepened, it was clear that almost every customer email pledged as collateral over the past two years… was fake. They only ever existed on paper, and some forged receipts even dated back to 2018.

So if the customers weren't real, where did the money go?

Of the total $500 million, almost half was financed by BNP Paribas to Carriox and related entities. And as for its whereabouts today, the lenders believe that the money might be in India or Mauritius, an infamous tax-haven, though the full money trail is yet to be uncovered.

In August, Carriox Capital II filed for bankruptcy, alongside Brahmbhatt’s other telecom companies. Coincidentally, BNP Paribas set aside $220 million in loan-loss provisions in its latest quarterly filings, though we don’t know if that’s connected to this case.

So there you have it, the alleged Bankim Brahmbhatt fraud.

And all this brings forth the peculiar question: Why do lenders keep ending up on the losing side of stories like this?

Well, it probably stems from the very foundation of asset-backed lending. 

Forget everything else for a minute and picture yourself as the owner of a little, vintage coffee shop. You need cash for supplies, electricity, salaries, and so on. But lenders can’t use your expenses as collateral, they want something tangible. So you point to something that feels and looks real enough i.e. your customer sales: invoices, regular buyers, and pending payments from large clients. The bank sees those future receivables and says, “Alright, we’ll lend you money against these bills.”

Here, the bills from your business are the collateral. You’re effectively borrowing against tomorrow’s coffee sales, not from the chairs and coffee beans sitting with you today.

But now, instead of coffee, flip the script and imagine you’re selling something intangible like telecom services. You can’t touch or see it, and the only evidence is data. That’s where the problem begins. You can’t verify something intangible. You can’t walk into a warehouse and see if the product really exists or not. The only proof available is invoices sent to customers, email trails of money owed and data on a screen.

For a lender who takes these due payments as collateral, that’s all it takes to check the boxes before sanctioning the loan. If the documents look real, the payments are traceable and the customers seem legitimate, everything goes fine. But once it turns out that the paperwork is fiction, the entire structure collapses, because there were never any real assets in the first place.

And that’s what makes asset-backed lending so risky, when the assets themselves aren’t physical. The system runs on trust. In Brahmbhatt’s case, the “customers” were the perfect illusion behind that half-billion dollars.

This isn’t the first time something like this has happened.

Between 2016-19, a special audit report brought out DHFL, a housing finance company, where close to ₹29,000 crores had been funnelled to 66 shell companies that turned out to be the promoters themselves. A classic case of asset-backed lending gone wrong.

So how can lenders prevent this from happening again?

For starters, stop taking the paperwork at face value. Instead of relying on the borrower’s word, verify payments and customer records by using public domain or official accounts. A simple check of email domain registration could reveal whether a client is a real telecom operator or just a clever imposter with a lookalike address.

Then, there’s the money trial. Instead of letting funds flow freely from customer to business to lender, use escrow accounts. These are accounts that release funds only when all parties meet their conditions. That way, the funds don’t disappear overnight to an offshore tax-haven as diversions become visible in real time.

And finally, regular quarterly audits should re-check customer activity, receivables, and payments to ensure authenticity over time. This makes it quite difficult to “fake it till you make it,” because every few months, someone’s actually checking whether the customers, cash flows, and contracts actually exist.

Together, these steps make long-running frauds harder to pull off.

Asset-backed lending is supposed to make loans safer. But when the assets themselves exist only in emails and fictional customers, even billion dollar lenders can be left holding air. 

Maybe the real lesson here is that old-school verification remains the most valuable asset after all.

Until then…

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