US Investors at MoneyOnMobile defrauded by Indian management team; Is India truly safe for foreign investors?

9/25/18 Mumbai, India: In scam-riddled India, a peculiar case — away from the public gaze — is being heard in Mumbai High Court. It involves an Indian company and management team that allegedly blatantly stole everything from its US parent: office, data, technology, cash and staff, leaving the US investors with tens of millions of dollars of losses.

This is a story of a corporate theft on a grand scale, the details of which are almost hard to believe. White collar criminals in the US would never be able to get away with this, but in India they are currently brazenly escaping punishment. This case reads like a spy thriller and includes phones being tapped, email accounts being hacked, CEOs being physically barred from entering their offices, thugs coercing employees to sign documents against their will, etc.

Background

US-based MoneyOnMobile, which is traded publicly in the United States under the ticker MOMT, had made investments in a mobile payments business in India starting in March 2012. Though the company was still a young, high growth company, multiple heavy hitters were involved. It’s board and list of shareholders included tech billionaire Jim McKelvey, the co-founder of Square, a cutting-edge US payments company with a market cap of $38 billion. The American parent of MoneyOnMobile invested $25 million (Rs 150CR) over 6 years into the Indian payment business and worked to grow the company into the largest money transfer company in India serving the common man with last mile banking services all the way to the village kirana (small store in India) level. Now, those funds are at risk, potentially never to be recovered.

In the summer of 2018 the company was on the cusp of greatness; revenues were at an all time high and growing fast, and the business was close to profitability. Plans were almost final for the US parent to raise roughly $8 million in a stock offering (the cash was sitting in escrow) along with concurrently moving to the Nasdaq stock market. The company operated in 350,00 kirana/stores and processed about 700 CR in volume each month, transferring money for migrant laborers to their villages to feed their families.

But on August 22, 2018, the US company issued a press release and filed documents with the US SEC stating that the Indian management team of it’s operating business, via a series of fraudulent paper transactions, had essentially stolen the business, seizing control of the assets and stealing all the employees. The stock offering and uplisting to the Nasdaq were cancelled. The day after the announcement, MoneyOnMobile stock dropped 80%, wiping out tens of millions in shareholder value.

The fraud has shocked the parent company MoneyOnMobile, which is run by two American Stanford University graduates, and prompted the CEO to write a long letter to shareholders, which was also filed with the SEC.

According to US CEO Harold Montgomery, “Our company in Mumbai has been the target of a premeditated, carefully orchestrated hijacking at the hands of individuals, some of whom have been accused of serious crimes, as well as members of the Indian management team with whom we had been working for six years.”

History

On March 23, 2012, the US parent company had purchased control of the Indian payments business. Several legal documents were signed by all parties which clearly give the US company a pathway to 84% ownership and control through an investment pattern to be accomplished over 6 years. These include a MOU (here’s a link to the Memorandum of understanding), a Service Agreement and a Shareholder Agreement. Several of the signees of these legal documents (Shashonk Joshi, Rajat Sharma, Ranjeet Oak, Jolly Mathur), are now the management team in place at MoneyOnMobile in India, and among the perpetrators of the fraud.

Rumblings of a Mutiny

A few years after buying control of the Indian operations, the Indian partners were not executing as well as the US parent company had expected. The US CEO, Harold Montgomery, decided the Indian management team had to be replaced and upgraded. Indian management, as per global standards, were offered generous compensation packages to gracefully leave the company or have their responsibilities reduced, while better management was brought into the company.

“But that did not happen, what happened was shocking. The Indians blocked our efforts to bring in smart managers and some top talent with strong internet DNA. In retrospect, they were obviously planning something,” says Harold Montgomery, CEO, MoneyOnMobile in a telephonic conversation.

As previously mentioned, the US parent company had planned to move up to the Nasdaq in summer 2018. To do so, the company’s financials had to be audited by a US based accounting firm. But the Indian managers did not cooperate with the American accounting firm, refusing to provide the financials necessary to complete the audit. It appears the India team purposefully sought to thwart the audit, and therefore the stock offering and subsequent move to Nasdaq, so that the US company could not invest further into the India operations. It’s now clear that the Indian management team had bad intent and lied to their American partners who were paying their salaries and other costs of operations. In other words, the Indians were plotting against the Americans while being paid by the Americans in good faith.

CEO Barred from the Office

US executives visited the Mumbai office on a rotating basis to monitor operations. On the morning of July 18, 2018, Harold Montgomery and another US based employee, Ankit Sahu, walked up to the front door of the Mumbai headquarters. Rajat Sharma, a top executive at the Indian subsidiary and one of the perpetrators of the fraud, physically barred them from entering the office and called the police, telling the police that Harold and Ankit were unwanted intruders (even though Rajat had interacted with Harold over a hundred times). The police showed up, and Rajat filed a baseless physical assault report on Harold. Other management filed actions to intimidate him, and he went to court where he paid the nominal bail. He was still barred from entering the office.

New board members added to Indian subsidiary MMPL without board meeting or consent

As if that wasn’t outrageous enough, Harold Montgomery’s suspicions were confirmed when on August 1, 2018, he received a legal communication from the Ministry of Corporate Affairs of the Government of India (the “MCA”) that the Company’s subsidiary, MyMobile Payments Limited (“MMPL”), had filed an “eForm” through the MCA’s electronic website.

The communication alerted the US parent that three (3) new directors had been added to the board of directors of MMPL:

Ram Nawal Verma — father of the coup leaders

Abhishek Verma — one of the coup leaders and a former Indian Foreign Ministry Official. Lives in California, brother of Ash Verma, son of Ram Verma,

Vinamra Shashtri — son of India’s second Prime Minister

Since Harold was on the Board of MMPL, this was a surprise to him. The US parent company was not aware of and did not take part in this corporate action, nor did the US parent know any of the new board members.

Summary of paper fraud

Here’s a simplified explanation of how the paper fraud occurred. MoneyOnMobile US controls two subsidiaries in India: 1) Digital Payments Processing Limited (“DPPL”) and 2) My Mobile Payments Limited (“MMPL”) (see diagram). The board of directors of each can be found here.

Step 1: The Indian management team first illegally added three new board members to the board of MMPL without telling the US board members, which gave the Indian team voting control and diluted the power of the US management team. The US board members were not invited to this board meeting, nor were any board notes taken. The 2012 agreements with the US Company clearly requires their approval for new Board members.

Step 2: The Indian team then created a new legal corporation called LI-Digital Payments Processing Limited (“LI-DPPL”) — with a name similar to that of the US company to fool vendors, banks and the RBI (Reserve Bank of India). The board of LI-DPPL can be found here. Note that two of the directors of LI-DPPL are two of the new directors that had been added to MPPL.

Step 3: The Indian team held a board meeting of MMPL on August 1st, 2018 and voted to move shares of MMPL over to the new legal entity LI-DPPL, violating agreements with the American partners, and cutting the Americans out — despite the Agreements, and their near Rs 168CR (USD $25 million) investment into the Indian subsidiary. Thus, the US parent company was stripped of its assets in India. The Indians walked away with everything the US parent company had created over 6 years.

Unauthorized Investment into Indian Subsidiary

Montgomery was outraged and started doing some digging. US management received other documents including an MMPL shareholder list as of 8/22/18, which demonstrated that LI-DPPL now possessed control of over 50% of the issued and outstanding voting shares of MMPL, diluting the interests of the US parent company. The transfer of such shares is in direct violation of several clauses and prohibitions of the 2012 MOU between the parties, and various other investment agreements, which together formed the foundation for the US company’s investments and ownership in both DPPL and MMPL. All along the Americans had been investing based on the Agreements and believing that the India management team would abide by them. The Americans were not aware of the treachery until after it happened — such was the skillful deceit the Indian team pulled off.

All digital access severed by Indian management team

While these legal machinations took place, the US management team woke up one day to discover to their horror that all passwords to their email accounts, online management systems and accounting software of the Indian subsidiary no longer worked. In desperation, Harold called and emailed the managers in India. He was stonewalled; no one would return Montgomery’s phone calls or emails — or those of the American staff. The US managers were cut off from all information and communication. Harold also noticed his phone was tapped and his email was hacked. He started receiving calls from business associates asking him about strange emails they were receiving from his email account. Turns out his email account had been hacked and someone was sending out emails from Harold’s email account. The Indian management team has been caught red-handed perpetrating cyber crimes. Further infractions by the Indian management team can be found here.

350 Employees raided

The story turned even more unbelievable. After the Indian subsidiary of the US parent was stripped of its assets, it was then stripped of its employees. On August 22, 2018, US management received credible documented evidence that the roughly 350 employees in the Mumbai office (built up over 6 years which the US team supervised) had been moved to a new companyt. Here’s how it happened: the Indian management team showed up to headquarters one day with armed guards and walked from desk to desk, asking every employee to resign from the old legal entity DPPL (controlled by MoneyOnMobile in the US), by signing an identical resignation letter, and immediately afterward signing an employment agreement with the new pirate company, LI-DPPL. The employees were fired if they did not agree to all of this. From a legal perspective, this meant all the employees were violating their non-compete agreements. But also the management had no right to do this. The Americans were told nothing of this incredible scam. It was a complete takeover right under the noses of the Americans and the RBI — and all orchestrated by a known money launderer! So much for government oversight! Where is the RBI when it comes to protecting consumer money?

Villain behind the Schemes

The US managers realized after doing some further research that the mastermind behind this fraud was a notorious white collar criminal in India named Ashutosh “Ash” Verma (see business card and other contact details). Ash was first reported to be a fraudster in 2014 and is currently out on bail for money laundering charges. Verma, linked to dubious Indian arms dealers Suresh and Sanjeev Nanda, was also probed by India’s Enforcement Directorate on charges of money laundering. Ash had worked for the IRS in India for many years investigating fraud, and had learned first hand how to conduct it. What better place to learn how to conduct fraud than working as a government investigator pursuing fraudsters? After realizing all the white collar criminals were making much more money than him, he was seduced by the dark side, he quit his job and started undertaking fraud HIMSELF, putting into practice everything he learned while at the IRS. Now, he uses his IRS credentials freely to intimidate people into doing his bidding. Note that the address on the legal document incorporating the new legal entity LI-DPPL is the same as on Ash Verma’s business card, directly linking Ash to the fraud.

Ash has been identified by his own brother, Abishek “Abhi” Verma , a former Indian Foreign Service officer and current CEO of LexInnova in the US, as the ring leader of the theft. Abishek Verma is one of the Directors of the new subsidiary LIDPPL and one of the illegally elected members of the American’s subsidiary company, MMPL.

Abishek sent a letter to all employees afterwards, which was discovered by the parent company and filed as an exhibit with the SEC. In that letter — he brags about his supposedly glorious record as an entrepreneur — when in fact he has been a government bureaucrat almost all his life.

Indian Management’s Response

When contacted, in a strongly-worded letter to this correspondent, Jolly Mathur, Co-Founder and Director of subsidiary MyMobile Payments, which handled the work of the US company, said the charges leveled by the US company were “baseless and untrue”.

In fact, when publicly accused, the Mumbai-based management team is now saying the US partners were the ones who perpetrated the fraud and hence, the Indian directors had to walk out and form another company, its name quite similar to the US parent company.

“I want to be sure you understand that we have nothing to hide here. The Indian company, by accusing the US parent of fraud, is raising irrelevant issues that distract everyone, including the Bombay High Court,” added Montgomery.

Legal Case

The US parent company has hired legal counsel in Mumbai — noted litigator Vivek Vashi and the experienced and prestigious firm of Cyril Amarchand to take legal action to reverse and negate the MMPL board additions, and thereby unwind the illegal share sale.

Among the other charges leveled by the US parent company is a criminal case in the making against one Rajat Sharma, the CTO and a Director, for cyber crimes. The US company has in its possession voice recordings of Sharma and one Sumit Das (VP, Tech of MoneyonMobile) ordering the company’s web operator to break the law and acquire confidential data for their own use.

On August 3, 2018, the Bombay High Court held a hearing in connection with the US company’s petition inter alia seeking interim relief to stay the actions the US company believed to have been invalidly taken. In the said petition, an additional relief seeking suspension of the directors who were invalidly appointed on the MMPL Board on August 1, 2018 was also sought. The ability of any of the new directors to serve on the MMPL Board was suspended until the Court could hold an additional hearing. On August 10, 2018, the Court conducted a hearing and further stayed the actions invalidly taken and deferred final ruling until August 23, 2018.

The India management team have ignored court orders from Judge Kathawalla’s Bombay High Court instructing them to cooperate with the US company’s audit requests. They are true renegades — ignoring Court orders is brazen even for the most experienced criminals.

Conclusion

This case of corporate malfeasance is serious and has been brought to the attention of senior officials of the Ministry of Finance of India, the Ministry of Information Technology, and the Ministry of Commerce, in addition to the US embassy in Delhi and Mumbai. So far the Indian fraudsters are still in control and refuse to budge. Surprisingly, there has been no press coverage of this fraud. As of 9/26/18, the MoneyOnMobile website (Indian version) has been taken down, as the offendors try to erase their tracks. Rumor is the Indian management, as they count their money, arrogantly says the case is too small for the Indian press or the authorities to care.

This never would happen in the United States and go unpunished. However, it does in India. India, if it wants to join the ranks of first world countries, should put in motion measures to rectify this fraud.

Episodes like this, in which US investors lose tens of millions of dollars investing in India, will ultimately harm India, as future US investors will be dissuaded from investing in India.

Shri Narendra Modi’s promise to foreign investors that the ‘new’ India is a safe place to invest appears to be shattered. Speaking to a business group in February of this year, Modi said “India is now ready for business and (he) promised to do whatever is required to “promote and protect“ their investment” according to the Economic Times.

Modi’s administration should make an example of these corporate criminals and prosecute them to the full extent of the law, showing US investors that there is a true rule of law in India and the country is open and safe for business. India has a population of roughly 1.3 billion people, the vast majority of whom are good, honest people. It would be a shame if the MoneyOnMobile fraud case prevented all those people from benefiting from investment from US investors.