The economy of Greece is in shambles, and its citizens have unanimously voted in the negative for receiving further financial dole from the European Union. A majority of companies in that country are also citing factors like political brinkmanship, promotion and application of economic policies in an irresponsible manner and manipulation by private equity fund companies for their current predicament.
One such company which has reportedly become a victim of financial abuse by two private equity fund firms is Wind Hellas now known as Tim Hellas.
It is being reported that liquidators of Hellas Telecommunications (Luxembourg) II SCA, Andrew Hosking and Simon Bonney, after consultation with legal advisors and the company's creditors' committee, have reportedly filed a lawsuit in a New York court against Softbank's Indian-origin Vice Chairman Nikesh Arora, TPG Capital Management, L.P. and Apax Partners LLP, seeking damages of over USD 1.3 billion, plus interest.
The complaint, which has been filed in the United States Bankruptcy Court for the Southern District of New York in the last week of June, alleges that Arora, TPG and Apax of allegedly engaging in wrong financial activities.
According to the complaint, Arora, TPG and Apax reportedly leveraged acquisition of two Greek telecommunications businesses before forcing Hellas to heavily borrow further. The amount is said to be in excess of USD one billion, and has allegedly been siphoned off without following due legal process.
Arora and the two firms he is allegedly involved with, have reportedly earned huge profits, and left Hellas in heavy debt caused by indiscriminate borrowing.
Softbank is a leading Japanese multinational telecommunications and Internet corporation. The company has operations in broadband, fixed-line telecommunications, e-commerce, Internet, technology services, finance, media and marketing, and various other businesses.
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Last month, The Economist and thegroundreport.com web site reported that Apax Partners and TPG joined hands to drive Wind (Tim) Hellas, towards bankruptcy, and it is being alleged, but yet to be confirmed, that Arora, who was formerly Chief Business Officer (CBO) at Google, may have a hand in it.
Arora and Masayoshi Son, Softbank's Chief Executive, recently visited India and announced plans to invest USD 10 billion in technology and USD 20 billion in solar projects. These are significant figures, but if it is proved that Arora is suspected of insider trading on the lines of what happened with Rajat Gupta and Galleon Group hedge fund founder Raj Rajaratnam in 2008, portfolio manager Mathew Martoma in 2014, and in April this year with Amit Kanodia and Iftikar Ahmed, as is being alleged, it should make him a subject of scrutiny.
Gupta, a former Goldman Sachs Group Inc director, recently failed to persuade a U.S. judge to overturn his insider trading conviction for passing tips about the bank's financial results and a crucial investment from Warren Buffett's Berkshire Hathaway Inc.
Arora's move to Softbank from Google, where he was the Chief Business Officer, has been the topic of much discussion. His annual salary is over 135 million dollars, an amount that is reportedly said to be more than what top CEOs like Tim Cook of Apple and Satya Nadella of Microsoft earn. It is of interest to also note that he being considered an heir-apparent to Son at Softbank.
It is being reportedly said that Arora is allegedly involved with many private equity fund companies, and there is reportedly a concern in some business circles that he could be held guilty of conflict of interest and potential insider trading.
The liquidators' key claim is that the money lent by the banks has been misused, and that no money was invested in Tim Hellas, as was reportedly agreed upon. They claimed that the money was transferred to speculators.
The liquidators also maintain that Tim Hellas was in decent shape before Arora became involved in its operations, and reportedly helped both TPG and Apax Partners recover 90 percent of their 390 million Euro investment in the first year itself.
It is being said that the Wind Hellas scandal is just starting to surface.
A creditor has been quoted, as saying that Hellas was systematically pillaged by its sponsors, rendering its debts unsustainable, and maintained that the law will take its course in what appears to be an open and shut case.
Andrew Hosking, the UK court appointed liquidator of the company, has reportedly described the whole episode as one of the worst abuses to have taken place in the private equity industry, and accused the defendants of "piling on debt, extracting exorbitant management and consulting fees, and making massive and improper distributions to themselves."
The Economist's report last week followed a decision by the Institute of Chartered Accountants in England to reprimand Ernst & Young for its involvement in the Wind Hellas scandal. Ernst & Young is reportedly being charged with signing off the big increase in debt and payments to the private equity firms in 2006-07, and of allegedly acting as an administrator when Hellas was put into liquidation.
According to the Economist, further action is expected to be taken against Apax and TPG by the Luxembourg authorities. The latter has reportedly ruled that these two private equity firms wrongly took money out of Tim Hellas and are demanding more than 200 million Euros in unpaid taxes.
It is being reported that Arora is hoping for this storm to pass, and is maintaining a low profile. He, however, is on record as advertising his role at Wind Hellas/Tim Hellas and its offshore holding company Hellas Telecommunication on his curriculum on the Sprint Telecom board. This is visible on Sprint Telecom's web site -https://bsmedia.business-standard.cominvestors.sprint.com/od.aspx.
Sprint Telecom is said to be the biggest issuer of high yield debt in the United States, with USD 40 billion outstanding.
In 2011, according to reports filed by Britain's The Guardian newspaper, and Law360.com, a trusted news source for top lawyers and business leaders in the United States, a Google Inc. investor had sued the company and its directors, including CEO Larry Page and Arora, alleging they had breached their fiduciary duties by facilitating illegal imports of prescription drugs through the advertising program AdWords, leading to a USD 500 million settlement with the U.S. government.
The Hellas case is sub-judice and not much more can be said at present. There are other charges, equally serious, against Arora, which could come out once the verdict is made public.