Two weeks after BlackRock closed its $12 billion acquisition of HPS Investment Partners, an analyst in their Midtown Manhattan office noticed something odd about an email address…
The domain on an invoice didn't match the company's actual website.
That one detail unraveled a $400 million fraud.
Yesterday I told you about Tai Lopez separating retail investors from $230 million with fake credentials and social media hype.
Today's story is different.
This time, it wasn't desperate retail investors chasing 25% returns on Instagram…
It was one of the most sophisticated private lending firms on Wall Street, backed by BlackRock's $12 billion stamp of approval. And they still got absolutely duped.
Here's what happened…
HPS lent over $400 million to a telecom entrepreneur named Bankim Brahmbhatt.
The collateral? Money owed to his firm from other businesses.
When HPS finally asked their auditor to verify these invoices, they discovered the email addresses were fake. The invoices were fake. The signatures were forged.
The collateral was worthless.
Remember how I said the red flags with Tai Lopez were everywhere? Same thing here.
Brahmbhatt had been sued three times by telecom companies claiming he refused to pay for services. Massachusetts and California regulators had suspended his companies for failing to file paperwork. Pennsylvania regulators called out "an unacceptable history of compliance."
Industry insiders knew to avoid him. But somehow HPS missed all of it.
These weren't amateurs either.
They hired Deloitte for assurances…
They did annual audits…
And had every resource a $12 billion firm could throw at the problem.
Modern software can easily flag spoofed email addresses (your Gmail account does it dozens of times a day)
So the tools existed to catch this fraud immediately… they just needed someone to actually look.
The lesson here is, sophistication doesn't equal immunity.
The Tai Lopez victims fell for social proof and FOMO. They saw other people investing and assumed it must be legitimate.
HPS fell for... basically the same thing.
When you're in a frenzied market where private credit is booming and every firm is racing to deploy capital, even the smartest players get sloppy. Competition breeds carelessness.
As one alternative credit CEO put it
"It was the perfect setup for the worst combination of risk and reward."
The most dangerous moment isn't when you're inexperienced.
It's when you're experienced enough to think you can't be fooled.
JPMorgan CEO Jamie Dimon nailed it when other private credit defaults started surfacing
"When you see one cockroach, there are probably more."
Whether it's retail investors on Instagram or institutional investors on Wall Street, the pattern is the same…
People ignore red flags when they're caught up in momentum.
HPS told investors they've written the entire $400 million investment down to zero. The FBI is investigating. Brahmbhatt stopped answering his phone and bottled back to India.
And somewhere in a Garden City office, locked and empty, sits the wreckage of what happens when expertise meets hubris.
Tai Lopez's victims lost their retirement savings to fake credentials and social media hype.
HPS's clients lost their money to fake invoices and competitive pressure.
Different markets. Same human psychology.
Oliver
P.S.
We’re just 3 months away from Investormania 2 in Tampa, Florida.
2 days of fun in the sun (and air conditioning), meeting fellow investors, going deep on topics and strategies that are simply too long and nuanced for these emails.
I’ll be providing 2 deep dives, one on the next wave of AI winners (after going 3 for 3 on my talk last year)… the other on 3 big potential turnarounds (great if you like LEAPS).
Plus the whole Freeman team will be there, Anthony, Miles and Florian dropping gems as well