BR Shetty, the founder of NMC Health, has filed a case in the courts in New York accusing ex-directors, two banks and the company’s former auditors of conspiring to “artificially inflate the financials of NMC” and other group companies.
The case filed last week by Mr Shetty and his pharmacy manufacturing business, Neopharma, alleges the eight defendants named in the suit “conspired to create fictitious invoices for products and supplies purportedly sold by group companies to NMC in order to generate inflated sales and revenue figures for NMC’s financial statements” over a six-year period. The effect of these was to “artificially prop up NMC’s share price”, the lawsuit says.
This led to shareholders suffering estimated losses of $10bn as the result of a “massive financial fraud”, the suit alleges.
NMC is one of the biggest privately-owned healthcare groups in the UAE, which had 200 healthcare units in 17 countries prior to being placed into administration in April last year.
Problems emerged at the group after a report by an activist short seller in December 2019 alleged it had inflated the value of its assets and under-reported its debt. This triggered independent investigations which uncovered more than $4bn worth of previously-unreported debt at NMC and more than $1bn at Finablr, a payments and foreign exchange group owned by Mr Shetty that included the UAE Exchange business.
NMC Group is currently in the process of a creditor-led restructuring, while Finablr has been in sale negotiations with Switzerland’s Prism Group and Abu Dhabi’s Royal Strategic Partners since October last year.
Mr Shetty’s case is being brought in the US because the “roundtripping” transactions were US dollar-denominated deals cleared through banks in New York, the lawsuit states.
These transactions gave the false impression the business was booming, which led to a “Ponzi scheme where ever bigger loans were taken out to repay existing ones”, while individual defendants “siphoned off proceeds from these undisclosed and fraudulently obtained loans and disbursed the stolen funds among themselves”, it argued.
The defendants allegedly stole more than $5bn between December 2013 and December 2019, the suit alleges.
It names eight defendants. Four of these are individuals – NMC’s former chief executive Prasanth Manghat, ex-UAE Exchange chief executive Promoth Manghat, Neopharma executive Suresh Kumar Vadakke Kootala and Nexgen Pharma executive Suresh Kumar Nandiraju. These were “the core group companies aside from NMC involved in the roundtripping scheme”, the lawsuit states.
It also alleges four organisations – Netherlands-based Credit Europe Bank, India’s Bank of Baroda and auditors EY’s global and Europe, Middle East, India and Africa division – acted as conspirators.
Both Credit Europe and Bank of Baroda knew transactions were fraudulent and failed to carry out anti-money laundering checks which would have confirmed this, the lawsuit claims, while EY was a “critical co-conspirator” which actively concealed the existence of fraud for six years, it argues.
“We believe this case is without merit and we intend to defend it vigorously,” a spokeswoman from EY said.
Mr Shetty's claims “have no legal or factual merit”, a spokesman for Credit Europe Bank said. It added that the businessman agreed on July 13 to pay “in full” an $8m claim it had filed in the Dubai International Financial Centre Courts last year.
Bank of Baroda was not immediately available to comment.
The National was unable to contact the four individual defendants for comment.
Mr Shetty is seeking $7bn in compensation from the parties named in the suit, while Neopharma is seeking $1bn.