In an interesting new development; the State Bank of India (SBI) has filed a first information report (FIR) against the controversial Helios & Matheson Information Technology Limited (H&M) with the
Central Bureau of Investigation (CBI) in Bengaluru. H&M, which was delisted from India’s two national exchanges at the end of May 2018, has left thousands of depositors in the lurch since 2014. It now turns out that bankers have also been defrauded or have allowed themselves to be conned by not paying attention to H&M’s dubious ways for over a decade.
SBI’s regional manager, who has filed the FIR, alleges a criminal conspiracy, criminal breach of trust by public servants, forgery of valuable security, using as genuine a forged document and criminal misconduct by a public servant. The complaint is against H&M, its managing director, Muralikrishna Gadiyaram, several executive directors (Diwakara Yerra, Sasi K Patil, Chandra Ramesh and SR Sistla) as well as spouses and guarantors—Ramachandran V, Anupama Muralikrishna and Padmaja R.
SBI claims that it has been duped to the tune of Rs31.96 crore plus interest; but the FIR indicates that the total borrowing of around Rs200 crore was sanctioned by Axis Bank, Corporation Bank, Bank of Baroda and Standard Chartered Bank against a pledge of promoters’ shares, personal guarantees and a charge on the assets of the company. The bank claims that it discovered that, contrary to the loan terms which require it to operate only through lender banks, H&M had opened a current account with HDFC Bank and Bank of Maharashtra and transferred funds to these accounts.
The FIR further says that term loans obtained from SBI were diverted to H&M’s US subsidiary, Maruthi Consulting Inc, after providing fake documents to suggest that the money was to go to another subsidiary, Jaya Maruti Software Services Company Pvt Ltd, which was to import software on its behalf. The FIR, whose link I have provided, details how money was brazenly siphoned to the US consulting firm Maruthi Consulting Inc as a loan. This was discovered on checking SWIFT transfers from Bank of India.
According to SBI, it classified the H&M account as a fraud and informed the Reserve Bank of India (RBI) about it in 2016. So why wasn’t the FIR filed then? Wouldn’t timely action have ensured that the promoters were booked when they had adequate resources? Astonishingly, SBI says in the FIR that it was orally informed by Bank of India and Corporation Bank on 30 March 2017 that the account had not been listed as a fraud in their books until then.
This smacks of collusion, scandalous complaisance and worse by bankers. Why did they fail to act in time? Why did they not wake up to the fraud even after the Exim Bank of the US had filed a winding up petition against H&M as far back as April 2015, that too in the Madras High Court? Let’s not forget that the FIR against the former chairman, managing director and their spouses is quite meaningless because, we learn, they have all moved to the US and it will be a long-drawn process to bring them back to India—as we have seen with attempts to bring back large defaulters like Nirav Modi, Vijay Mallya, Jatin Mehta and Mehul Choksi.
SBI’s gullibility in releasing part of a term loan to a subsidiary called Jaya Maruti Software also seems rather suspicious. Did the Bank make any attempt to check group links displayed by H&M’s website? Even today, while H&M’s website carefully blanks out the names of its founders and management, it lists several group entities. Helios & Matheson Analytics Inc figures at the
top of its list of group companies although US investors seem clueless about the connection. The Laxmi Group, headquartered in California, is claimed to be a part of H&M group since 2001. There is no Maruthi Consulting Inc listed among the group companies; instead there is Maruthi Infotech which, the website claims, is an IT consulting firm and part of the group since 2004. Another subsidiary, called HMIT (Bangalore) Ltd which is listed on its website, is understood to be doing well and may have also provided guarantees to the parent company, say our sources. SBI’s FIR does not mention this and we could not independently verify it; but CBI could surely ask the bankers some tough questions.
Bankers have remained silent spectators to H&M’s dubious dealings for years, perhaps wilfully, and are now under pressure to act and file complaints only because of the spate of actions by CBI against bankers themselves. There is a lot more investigation in the public domain that has been accessed and dug up by beleaguered depositors of H&M, desperate to get their money back. Bankers, with more access to the group’s business dealings, can surely do a lot more, unless, of course, they don't want to.
Only CBI or the SFIO (Serious Fraud Investigation Office) can follow the obvious trail and bring dubious promoters to book. There is plenty of information in the public domain to create a powerful trail. Will they follow it? A reader has sent me links that expose how H&M’s managing director, Muralikrishna Gadiyaram, has been earning fat consulting fees and also been
buying and disposing a huge chunk of shares of Helios and Matheson Analytics Inc (HMNY). This reader alleges that some of the shares were owned by H&M India whose depositors and bankers have been cheated. Interestingly, all the top executives of HMNY seemed to have been trading in a big way in their shares in
October and November 2017 and in January 2018 when the shares were spurting on its acquisition of MoviePass and in anticipation of a successful IPO. It is another matter that HMNY’s shares have now crashed by almost 97% after the
MoviePass subscription debacle.
According to this reader, Mr Muralikrishan made a neat profit on his trades but did not deposit the proceeds of this sale in court. It is up to the investigation agencies to find out what happened to the funds and bring the money back to India. And what about the money earned by Mr Muralikrishan from his consulting contract with HMNY of the US? Why are bankers, SFIO and CBI not tracking those funds?
The consulting agreement was signed on 5 October 2017. The
SEC (Securities Exchange Commission, US) shows a two-year contract with a very wide and easy mandate to provide guidance to the US company, virtually on his own terms. He would receive a monthly compensation of $18,750 from 31 January 2017 with scope for further payments for ‘additional services’. The agreement was to terminate automatically “on the occurrence of the bankruptcy or insolvency of either party,” but this personal deal naturally does not cover the Indian listed entity. The agreement was signed by Theodore Farnsworth, CEO of HMNY on behalf of the US entity.
HMNY’s stock has now crashed and its plans to raise funds have dimmed after its disastrous handling of MoviePass subscriptions. It added three million subscribers by slashing subscription rates from $50/month to $9.95/month but ended up with such huge losses that its viability as a going concern is now in question. This, probably, means that Indian investigators have a small window of opportunity to recover anything for bankers and depositors, mainly senior citizens, who were conned
into losing large sums of money invested its fixed deposits.
