A residential buildings standing along the promenade is seen though a partially constructed building in Lavasa, India. (Photographer: Karen Dias/Bloomberg)

TCI, Axon Accuse India Real Estate Fund of $1.5 Billion Fraud

(Bloomberg) -- Two high-profile hedge funds accused one of India’s biggest real estate developers of defrauding its foreign investors out of as much as $1.5 billion, potentially one of the largest private equity scams ever.

IREO Management engaged in a billion-dollar criminal conspiracy involving shadow companies, dumped documents and “astonishing theft,” according to Axon Capital and Christopher Hohn’s Children’s Investment Fund Foundation.

“Someone cannot simply just take billions of dollars of our money and get away with it,” Axon’s Dinakar Singh, a former Goldman Sachs Group Inc. trader, told about 70 investors Monday at the Westin New York Grand Central hotel. “If we do nothing, we will largely bleed dry and get nothing back.”

Singh, 48, discussed what he described as evidence of IREO’s long-running, “brazen” fraud, the latest possible example of investors getting burned speculating on developing markets. This month, Dubai-based Abraaj Group, which once managed almost $14 billion, filed for a court-supervised restructuring after investors commissioned an audit to investigate the alleged mismanagement of its health-care fund.

Read more: Cayman Islands court appoints provisional liquidators for Abraaj

Axon and the Children’s Investment Fund Foundation -- one of the largest philanthropies in the U.K. -- invested about $300 million in IREO. There are several hundred other investors including Notre Dame University and the University of Rochester, according to a person familiar with the matter, who asked not to be identified because the information isn’t public. Stanford University also was an investor, Barron’s reported earlier this year.

Scott Malpass, Notre Dame’s chief investment officer, declined to discuss the school’s investments, as did a spokesman for Rochester. A Stanford representative didn’t immediately respond to a request for comment.

The investors allege IREO Managing Director Lalit Goyal created a web of shadow companies connected to his relatives, friends and business associates to siphon money from the fund. The hedge funds originally estimated the alleged fraud by IREO executives at about $147 million, but upped that estimate at Monday’s meeting.

Goyal didn’t respond to phone calls and a text message seeking comment, and calls to IREO’s office in Mumbai went unanswered. The firm has denied the fraud allegations in earlier legal filings.

Criminal Complaints

The two hedge funds said they first noticed red flags with IREO management four years ago.

In 2016, they filed a legal proceeding in Mauritius, where the fund is based, to stop IREO executives from withdrawing management fees. That same year, IREO partnered with the Trump Organization to build an office tower on the outskirts of New Delhi. At the time, Donald Trump Jr. called IREO “truly a fantastic group.” Amanda Miller, a Trump Organization spokeswoman, didn’t respond to requests for comment.

In February, Singh and Hohn’s funds filed a complaint against Goyal with police in New Delhi and a second one last month. They also sought an asset protection order from India’s high court.

Goyal has dismissed 150 employees in the past three months and transferred more of IREO’s assets into his wife’s name, former Chief Executive Officer Ramesh Sanka, now a whistle-blower, alleged in a presentation at Monday’s meeting. Company employees also loaded stacks of documents and records from the firm’s main office into a rental van, according to the more recent criminal complaint.

“Until a few months ago, I thought we were only robbed of a few million,” Singh said. “But that’s just the tip of the iceberg. It’s almost hard to believe.”

Goyal owns homes in Singapore and Dubai, Singh said, adding that he fears Goyal might flee if authorities don’t move fast enough to investigate IREO.

“If this process is slow that gives him the time to take a lot of cash and get out,” Singh said.

©2018 Bloomberg L.P.