US Court restricts BYJU’S transfer of $533M, orders arrest of hedge fund founder William Morton

In the latest twist in the BYJU’S saga, a US court has prohibited further transferring or using any of the $533 million in loan proceeds, while also ordering the arrest of William Morton, Founder of Camshaft Capital Fund, LP.

Judge John T. Dorsey of the US Bankruptcy Court for the District of Delaware issued the order granting a preliminary injunction.

The court additionally determined that BYJU'S Founder Byju Raveendran and Co-founder Divya Gokulnath are collaborating with the defendants—Riju Ravindran, Inspilearn LLC, and Camshaft Capital Fund, LP and its affiliates—and ordered their compliance with its ruling, as stated in a media release by the steering committee of the ad hoc group of term loan lenders of BYJU’S $1.2 billion term loan B (TLB).

“I’m still very upset about the fact that [the Defendants] are obfuscating where this money is...” Judge Dorsey said.

In 2021, BYJU’s Alpha, Inc., a US subsidiary of BYJU’S, received funds from the $1.2 billion TLB. In 2022, under Ravindran’s control, BYJU’S Alpha transferred $533 million of the loan proceeds to Camshaft Capital Fund, LP, a hedge fund established by Morton.

In March 2023, Ravindran transferred BYJU’S Alpha’s LP interest in Camshaft Capital Fund to Inspilearn LLC. Subsequently, it was transferred again and ultimately redeemed by an undisclosed entity in February 2024.

Earlier this month, the edtech firm said the funds from the $1.2 billion TLB are held by its wholly-owned subsidiary located outside the US.

The court issued an arrest order for Morton after he failed to appear in court, furnish requested information concerning the transfer of the $533 million in loan proceeds and the present status and whereabouts of the funds. Additionally, he was directed to pay a daily fine of $10,000 until he adheres to the court’s directive.

“...This ruling confirms that Byju Raveendran himself is acting in concert with, among others, his brother, Riju, his wife, Divya, and fugitive William Morton and that these individuals are continuing to intentionally defraud BYJU’s lenders,” the SteerCo said in a statement, adding that the court-ordered freezing of assets is an important step towards recovering the missing $533 million.

In connection with the order, a BYJU’S spokesperson said in a statement, “This Order merely maintains the status quo, because we have always maintained that the said funds are safely parked in one of our subsidiaries and, as per the order, it will rightfully remain there. In fact, the court denied the primary relief requested - that a mandatory injunction be granted depositing the monies into court.”

The ongoing TLB dispute, involving the $533 million, represents one of the many challenges facing the edtech company. In January, lenders of BYJU’S, who collectively own over 85% of its $1.2-billion TLB, lodged an insolvency petition against the firm with the National Company Law Tribunal (NCLT).

“It is now clear that this so-called ad hoc group is working in cohort with certain large investors of BYJU’S to exploit the situation and make windfall gains...There should be no doubt that we will continue to fight this falsehood for the sake of all our stakeholders,” the spokesperson noted.

“This case represents a concerning attempt by a group of opportunistic foreign lenders to exploit an Indian startup by levelling baseless allegations with the sole intent of extracting punitive monetary concessions,” the spokesperson added.

In India, the Bengaluru-based edtech company is entangled in a dispute with its shareholders. During the extraordinary general meeting (EGM) on February 23, all resolutions presented for a vote were passed, including the dismissal of CEO Raveendran and the removal of Gokulnath and Raveendran from their management positions and director roles.

Earlier on Wednesday, the Karnataka High Court continued the stay on the decisions made by BYJU’S shareholders during the EGM, pending the next hearing scheduled for March 28.

Apart from the Karnataka High Court, a group of four investors—Prosus, General Atlantic, Sofina, and Peak XV—filed a lawsuit accusing the company’s management of oppression and mismanagement. They are seeking to invalidate the $200 million rights issue before the Bengaluru bench of the NCLT.

Following a directive from the NCLT, the funds from the issue have been deposited in a separate escrow account. The NCLT case is scheduled for further hearing on April 4, 2024.

(The copy was updated with a statement from BYJU’S.)