A grand jury in the United States has indicted promoters of an Indian listed company for alleged financial irregularities. The jury of a district court in Seattle has confirmed various charges brought against Madhavi Vuppalpati and her brother Satish Vuppalpati, promoters Hyderabad-based IT company Prithvi Information Solutions by a US-based financial service provider Kyko Global. Two other employees of Prithvi have also been indicted.
An indictment order dated December 13 said the grand jury charged “Together with their conspirators, Madhavi and Satish Vuppalpati orchestrated a factoring fraud scheme that resulted in millions of dollars of loss to a company called Kyko Global.”
Kiran Kulkarni, CEO, KYKO told Business Standard,“The Federal Bureau of Investigation and Department of Justice acted swiftly and within three years, obtained indictments by the Grand Jury in Washington against the two (as well as two others) and arrest warrants have been issued. The US government has taken charge of this matter and extradition proceedings have commenced.”
In contrast, Kulkarni added that several complaints to Indian authorities are still awaiting action. Serious Frauds Investigation Office of India had acknowledged the receipt of a complaint of identity theft by one of the victims. The scheme was brought to the attention of the authorities in India, including the BSE and SEBI, CBI and RBI. The RBI referred this matter to Directorate of Enforcement in September 2016. Over the past 7-8 years, various criminal complaints were filed by Sojitz, Deutsche Bank, HSBC etc against Prithvi and the Vuppalapati duo but not much moved.
Kyko had alleged that Prithvi had floated several sham companies to create fake invoices in its favour and had encashed these using factoring service provided by Kyko.
Sojitz Corporation (Japan), Kyko Global (Canada and Bahamas), Deutsche Bank (India), HSBC (Bank India) and Huawei (Brazil).
Through late 2011 and early 2012, Prithvi represented that it had substantial relationships with several multi-billion dollar US customers and offered for factoring. The receivables were from five companies namely Dick’s Sporting Goods – a publicly listed national retailer with over 600 stores and revenues that year of $5.8 billion, Enterprise Product Partners – a publicly listed energy asset company with revenues that year of $42 billion; Financial Oxygen – a provider of technology for the financial services industry, Huawei – a global networking and telecommunications equipment company with revenues that year of $35 billion; and L3 Communications – a publicly listed defence contractor with sales that year of $13 billion.
The factoring relationship started whereby these customers would confirm each invoice from Prithvi, Kyko would advance the funds to Prithvi for each such invoice, and the customer would pay Kyko directly when the invoice came due - This cycle continued regularly until February, 2013, when the payments to Kyko stopped. As of May, 2013, the balance owed to Kyko by these customers was $47 million, and the balance owed to Prithvi by Kyko was $30million, for a net amount owing
to Kyko of $17.07 million.
When the payments ceased, Kyko investigated and realized that the relationships with these five customers were entirely fictitious involving sham invoices billed to sham customers. Prithvi had allegedly incorporated sham entities, set up bank accounts in these fake companies’ names, fake URLs for email addresses, all in an effort to allegedly deceive Kyko.
The shares of Prithvi have been suspended due to penal reasons as the company has not made mandatory filings since 2015.