The legal tussle over allegations of fraud and racketeering began a decade ago. The individuals and corporate entities involved are, or have been based, in different countries across the globe.
The countries and cities where the dramatis personae have been located, or have operated out of, include:
- Hyderabad in India;
- Pittsburgh, Washington and Delaware in the US;
- Toronto in Canada;
- Bahamas and British Virgin Islands (tax havens);
- Singapore; and
- Hong Kong.
This international dispute may not be over yet. But what has already been disclosed in public documents and in court filings show the promoters of an Indian infotech company and their associates, including an investor in Singapore and Hong Kong, in rather poor light. Our attempts to elicit responses from them were not successful till the time of publication.
In an 84-page-long ‘Memorandum Opinion’ given by Judge William S Stickman IV on March 10, the US District Court in Pennsylvania has ruled that it is within its jurisdiction to investigate allegations of a fraud worth $35 million (Rs 260 crore at current rates) involving Prithvi Information Solutions Limited (PISL), a Hyderabad-based IT ‘consulting and solutions company’ and SSG Capital Management, a Hong Kong-based asset management firm.
The judge ruled that there was merit in probing the allegations of financial misdemeanour and racketeering against the two firms that are being sued since 2018 in the Pennsylvania district court by two finance companies based in Canada and Bahamas -- Kyko Global Inc and Kyko Global GmbH, respectively.
Corruption and Racketeering in the US?
The Kyko companies seek to obtain a civil judgement in the Racketeer Influenced and Corrupt Organizations (RICO) Act of America for a conspiracy related to stolen bond funds worth $35 million.
More than the amount involved, what is fascinating about this case is the brazen and convoluted manner in which the financial fraud was allegedly committed in different jurisdictions across the world.
Interestingly, the memorandum points out that in an “unrelated conspiracy to launder stolen bond funds,” there is a criminal indictment pending in a district court in Washington state in the US against the Hyderabad-based Prithvi group’s entities and employees that has been sought by the same plaintiffs (Kyko companies) under the RICO Act.
Before looking at the players involved in the case, a brief description of the US federal act, RICO, would be useful. The law provides for extended criminal penalties and a civil ‘cause of action’ for acts performed by a ‘criminal organisation.’
The Act allows for the ‘leaders’ of a ‘syndicate’ to be tried for crimes they ordered others to do, closing what was perceived as a loophole in the US law that allowed a person who instructed someone else to, for example, murder, to be exempt from the trial because they did not actually commit the crime personally.
RICO was enacted by a section of the Organized Crime Control Act of 1970 and used widely in that decade to prosecute members of mafia gangs engaged in organised crime, including gambling, bootlegging and prostitution. Subsequently, the application of the law was more widespread to encompass financial fraud.
While the US federal government uses the RICO Act to combat criminal organisations, the law also has a civil component that makes it possible for cases related to business disputes being converted into federal cases, despite having been filed in a district court. This is where the case relating to the Prithvi companies come in.
Dispute Among Prithvi, SSG and Kyko Companies
The promoters of PISL are Madhavi Vuppalapati and her brother Satish Vuppalapati. The CNBC TV18 channel reported that Madhavi is a US citizen and Satish has Indian citizenship.
In 2016, Kyko Global Inc and Kyko Global GmbH had obtained a civil judgement under the RICO Act in the US District Court for the Western District of Washington related to a fraud-factoring scheme committed by employees and entities affiliated with the Prithvi ‘family of business.’
If a violation can be proven in a court, the plaintiffs (in this case, the Kyko companies) are awarded triple damages along with attorneys’ fees.
The Memorandum Opinion issued by Judge Stickman was in response to the claims made by the SSG group and the founders of PISL in the Pennsylvania court that the case was not under its jurisdiction and also that it lacked merit.
The following individuals and entities had put forward a motion to dismiss the case on jurisdictional grounds:
- the Hyderabad-based PISL,
- PISL’s Hong Kong associate Prithvi Asia Solutions Limited (PASL),
- SSG Capital Management,
- SSG Capital Partners,
- SSG Capital Partners 1,
- Madhavi Vuppalapati,
- Singapore-based Indian citizen Shyam Maheshwari, co-founder of SSG Hong Kong,
- Dinesh Goel, another Indian citizen based in Singapore who is Managing Director of SSG Hong Kong, and
- Wong Ching Him (also known as Edwin Wong), director and shareholder of Value Team Corporation (VTC), a British Virgin Islands entity controlled by SSG Capital’s principals, who is also CEO of SSG Hong Kong.
Other individuals who figure as defendants are Ira Syavitri Noor (aka Ira Noor Vourloumis), director of VTC and Andreas Vourloumis, another director and shareholder of VTC, and partner and member of SSG Hong Kong’s advisory committee.
Another motion to dismiss the case on jurisdictional grounds was filed by Anandhan Jayaraman, husband of Madhavi Vuppalapati, who is an Indian citizen and a current resident of Hyderabad, according to Judge Stickman.
The memorandum added that Madhavi along with Anandhan had resided in Pittsburgh, Pennsylvania from 2010 through till 2014 when the alleged actionable conduct occurred.
Richard Yee, SSG managing director and general counsel, told the American daily The Philadelphia Inquirer in an-email: “SSG respectfully disagrees with Judge Stickman’s recent procedural ruling… However, it is important to note that his recent ruling was just that, procedural, and not a judgment on the merits of these unfounded lawsuit claims. SSG will continue to strongly defend itself against these baseless claims in court.”
History of Alleged Fraud
An agreement was executed in February 2007 between PISL and its subsidiary Prithvi Solutions Inc (PSI), for raising funds through the issue of bonds for the latter to conduct business in the US. Soon after, PISL issued coupon bonds worth $50 million due in February 2012 that were convertible to the company’s shares. A coupon bond is a debt obligation with coupons attached that represent semi-annual interest payments.
The now-defunct global financial services firm, Lehman Brothers, invested in the bonds through Kingfisher Capital CLO Limited and the entire amount was kept in an escrow account at the Hong Kong branch of UCO Bank (formerly United Commercial Bank, a government of India owned bank). Around $15 million out of the $50 million was transferred by UCO Bank to PISL for the purpose of providing bond funds to PSI so that it could operate in the US.
On September 15, 2008, Lehman Brothers filed for bankruptcy. In August 2010, the interest in PISL bonds were sold to SSG Capital Partners and VTC, the British Virgin Islands entity controlled by SSG Capital’s principals, for approximately $15.5 million.
The allegations are related to laundering of bond funds between 2010 and 2014 through UCO Bank, Hang Seng Bank in Hong Kong, Key Bank in Washington and PNC Bank in Pittsburgh, Pennsylvania, through wire transfers.
PISL has also been accused of facilitating two ‘sham’ memoranda of understanding (MoUs) with VTC and SSG Capital for carrying out the fraud by restructuring the bonds.
On September 6, 2010, PISL signed two separate agreements with SSG Capital Management’s flagship fund SSG Capital Partners and VTC to restructure the bonds. Two days later, on September 8, an addendum to the agreement with SSG Capital Partners was signed which required a $4 million non-refundable deposit to be made to PISL as confirmation of SSG Capital Partners’ commitment to the restructuring process.
Interestingly, SSG Capital Partners and SSG Hong Kong also owed exactly the same amount to PISL. PASL transferred $4 million to SSG Capital Partners’ bank account with DBS Bank in Hong Kong. This sum was then allegedly distributed amongst PISL, PASL, SSG Capital Management, Madhavi Vuppalapati and others.
A similar addendum was executed between PISL and VTC to the agreement which had been signed between them, with the company having to deposit $16.20 million with PISL. VTC also owed $18.9 million to PSI under the agreement. It is alleged that the company used a similar method as SSG Capital Partners to launder the bond funds worth $18.9 million by June 17, 2011.
Madhavi has been accused of being the main conspirator behind these fraudulent transactions that allegedly took place using wire transfers of funds. She was the Chairman of PISL and also the only shareholder of PSI at that time.
When these transactions were taking place, PISL also created PASL in Hong Kong.
Convoluted and Circular Transactions?
The manner in which funds moved among entities and over time raised doubts about alleged ‘laundering’ of illegal or black money into legal or white money. Here are the details provided in the March 10 Memorandum Opinion by Judge Stickman.
On October 29, 2010, bond funds worth approximately $35 million were transferred from PISL’s UCO Bank escrow account in Hong Kong to PISL’s Key Bank account in Washington. Less than a week later, on November 2, the amount was wired from the Key Bank Account to PSI’s PNC Bank account in Pittsburgh.
Soon thereafter, PSI wired approximately $8 million to the entity named Prithvi Information Solutions LLC in Washington.
Around the same time, PSI wired approximately $7 million back to PISL in an unknown account. PSI also transferred $20.4 million to PASL’s Hang Seng Bank account in Hong Kong.
And on November 12, 2010, $4 million out of the $20.4 million were transferred from Hang Seng Bank to SSG Capital Partners’ DBS Bank in Hong Kong. Then on November 12 and November 23, PASL transferred $16.4 million out of the $20.4 million in bond funds it had originally received from PSI to VTC’s UBS AG Bank account in Singapore.
In 2011, PISL transferred $2.5 million of the $7 million it had received from PSI back to the company’s PNC Bank Account in Pittsburgh. Ultimately, PSI transferred $2.5 million in bond funds from its PNC Bank account in Pittsburgh to PASL’s Hang Seng bank account in Hong Kong.
On or around June 17, 2011, PASL transferred the $2.5 million it had just received to VTC’s UBS AG Bank account in Singapore. More than a year later, on January 23, 2013, PASL wired $10,000 from its bank in Hong Kong to VTC’s UBS AG Bank account in Singapore. Then on October 9, 2014, PASL withdrew $28,000 from Hang Seng Bank.
Judge Stickman opined: “Defendants allegedly disguised their racketeering conspiracy in several ways. They used MOUs and related addenda to create the appearance that SSG Capital Partners, VTC, and PISL restructured PISL bonds, when in fact they were stealing and laundering them. They tried to hide their scheme by creating bogus accounts receivable in PSI’s books, and in doing so mischaracterized the wire transfers as loans from PSI to SSG Capital Partners, SSG Hong Kong and VTC.”
PISL had an annual turnover of almost Rs 2,000 crore in 2008-09. A decade later, in August 2018, the company was delisted.
Troubles for the disgraced Hyderabad company that wanted to make it big internationally, and in the US in particular, seem far from over.
Till the time of publication, no response had been received from any representative of either of the two companies. This article will be updated as and when responses are received.