US prosecutors have charged two former senior executives at private equity-owned software group Mobileum with fraud, alleging they falsified financial results to inflate the company’s value prior to its sale to HIG Capital. The charges represent a rare instance of criminal allegations stemming from a private equity deal between two buyout groups.
Andrew Warner, Mobileum’s ex-chief financial officer, and Kishore Vangipuram, former chief of delivery operations, are accused of orchestrating a scheme to “manufacture millions of dollars in imaginary revenue,” according to an indictment filed in the Southern District of New York. Both were arrested on , with Vangipuram appearing in court on .
The indictment details how Warner allegedly received approximately $5.2 million and Vangipuram around $5.5 million in proceeds from the sale of Mobileum, which was valued at $915 million. Prosecutors claim the inflated valuation was a direct result of the fraudulent activities.
The case centers on events surrounding Audax Group’s deal to sell Mobileum to HIG Capital. While neither Audax nor HIG has been accused of wrongdoing, the criminal charges have ignited a broader legal battle between the two firms. HIG has already filed a civil lawsuit against Audax, alleging accounting fraud designed to boost Mobileum’s sale price. Audax has countersued, citing corporate governance failures by HIG following the acquisition.
The alleged fraud involved manipulating Mobileum’s accounting system, which recognized revenue based on the proportion of work completed on a project. Prosecutors claim Warner and Vangipuram inflated the number of hours worked or reduced estimated project timelines to prematurely recognize revenue. They allegedly invoiced a client nearly €12 million between and , but received only €40,000 in payment, using these “sham invoices” to convert unbilled revenue to billed revenue.
The indictment further alleges that Vangipuram warned a junior colleague against sending emails about invoicing, fearing it would attract unwanted scrutiny. Prosecutors also state that a potential buyer explored a deal but ultimately withdrew due to insufficient financial information provided by Mobileum’s management.
Internal communications cited in the indictment reveal a deliberate effort to meet pre-determined financial targets. According to prosecutors, Warner told a colleague working on a financial forecast for investment bankers that they needed to “build the support that makes the number seem reasonable, but we cannot say that!!” In , Warner allegedly requested a “favour” from a Mobileum client – permission to issue additional invoices that wouldn’t require payment – to artificially boost revenue before the sale.
The charges come as US Attorney for the Southern District of New York, Jay Clayton, has signaled increased scrutiny of private market valuations. Clayton, formerly chair of the private markets group at Apollo Global Management, emphasized that Mobileum’s investors, creditors, and employees “deserved fair and complete financial information, not inflated numbers and schemes.”
Mobileum filed for Chapter 11 bankruptcy protection in and completed a reorganization later that year, a development prosecutors suggest was a consequence of the artificially inflated financial picture presented during the sale process. The “cycle of falsification” continued until , when the company ultimately sought bankruptcy protection.
Audax Group, founded in the late 1990s by former Bain Capital executives, manages over $40 billion in assets. HIG Capital, one of the largest privately owned buyout groups, boasts billionaire co-founders Tony Tamer and Sami Mnaymneh. Both firms are prominent players in the mid-market private equity landscape.
Audax stated it was “surprised by the indictment” and maintained it had no knowledge of or involvement in the alleged wrongdoing. HIG Capital, however, asserted that the criminal indictment “confirms the fraud that we alleged in our civil lawsuit against Mobileum’s former private equity owner.”
Warner and Vangipuram could not be immediately reached for comment. The case is being prosecuted by the US Attorney’s Office for the Southern District of New York and represents a significant development in the ongoing scrutiny of financial practices within the private equity industry.
