The MoneyOnMobile heist

Heading into 2018, mobile payment platform MoneyOnMobile was in a good place. While the company’s forward march was briefly halted by the dark, cashless cloud of demonetisation, it was now firmly in the ascendancy again. On the path to profitability, even.

In the third quarter of FY18, MoneyOnMobile posted revenues of $2.84 million, a year-on-year growth of 193%. The company’s net loss for the quarter stood at $0.42 million, a significant improvement from a loss of $1.11 million in the same quarter the previous year.

By all accounts, 2018 should have been a watershed year for the company. And indeed, it was shaping up to be just that. In January, the company raised $7.6 million through a Series F share issue, and two weeks later, in February, they raised a further $5 million from a Russia-based private aviation and aerospace holding company S7 Group. With money in the bank, the company had plans to uplist to the Nasdaq by summer; a move that would bring both visibility and liquidity.

By the third quarter of 2018, the company had enrolled over 3,50,000 merchants in 700 cities across India. It had over 350 employees on its payroll. Offices in Mumbai, Delhi, Kolkata, Hyderabad and Bangalore. It had processed over $2 billion and claims to have served over 200 million Indian mobile phone users since its inception.

But come August, the company was in turmoil. Harold Montgomery, Chairman and CEO of MoneyOnMobile, claims his company has been hijacked. An irate Montgomery—a US national—says that his Indian partners have betrayed the company. “The Indian partners betrayed our trust and broke our agreement,” says a livid Montgomery.

Since then, the company has filed an arbitration petition in the Bombay High Court, a lawsuit seeking $27 million in damages in the London Court of International Arbitration and a criminal case with the Mumbai Police against some of the company’s Indian partners, charging them with various cyber crimes.

MoneyOnMobile held great promise. It was a company that wanted to redefine financial inclusion. But it has become entangled in a web of deceit, greed and now, litigation. All of this, even as the company seemed on the verge of breaking even and going on to bigger and better things.

MoneyOnMobile’s office in Malad

A visit to the company’s headquarters in Mumbai—a five-storey building in Malad, a prominent commercial business suburb—belies all this chaos. Employees sporting “MoneyOnMobile” ID tags were smoking outside the premises. Couriers filed in and out of the building. Nothing untoward, it would seem. The company’s VP of corporate communications, Navaz Damania, did her best to further this facade. “We have new investors on board and the company is going through a restructuring,” said Damania, attempting to dispel notions that anything was awry.

But it isn’t business as usual at MoneyOnMobile. How did such a promising venture go off the rails?

The beginning of a partnership

Like so many stories that end in acrimony and failed potential, this one, too, starts with noble intentions. In 2010, a handful of Indian entrepreneurs—Shashank Joshi, Jolly Mathur, Rajat Sharma and Ranjeet Oak—came together to start My Mobile Payments Limited (MMPL).

Working under the brand name ‘MoneyOnMobile’, they entered the online recharge and bill payment space with an aim to provide financial services to the unbanked and underbanked population of India. The company would later get into domestic remittances, where it allowed transfer of funds using simple SMS text functionality. The company soon got a license from the Reserve Bank Of India (RBI) and was authorised to function as a Prepaid Payment Instrument (PPI).

In 2011, at a conference in London, MMPL MD Joshi met Montgomery and the two talked business. Montgomery says that after a few months of doing his due diligence, he decided to invest in the company. On 1 April 2012, Montgomery invested in MoneyOnMobile through his US-based company, Calpian Inc. At the time, Calpian was an acquisition vehicle in the US for credit card processing merchants. This was Calpian’s first investment outside the US.

As part of the memorandum of understanding (MoU), Calpian, which is also publicly traded on the over the counter (OTC) market in the US, agreed to invest up to $29.7 million in cash and stock in MMPL. The MoU also gave Calpian a pathway to 74% ownership and control of MMPL through a series of investments.

Now, this was 2012. The RBI still hadn’t established regulations regarding foreign ownership of or investment in a PPI licence holder company. As such, while foreign investment wasn’t forbidden, there was risk involved since there was little certainty about how future regulation around foreign investment would pan out in India.

After consulting with their legal advisors, Calpian established an operating company called Digital Payments Processing Limited (DPPL) in 2012 to serve the needs of the PPI license holding company, MMPL. In addition to Calpian representatives, DPPL’s board would also consist of the management of MMPL. On 31 March 2015, MMPL executed a business transfer agreement (BTA) to sell its business to DPPL.

By 2016, Calpian sold off its US operations and changed its name to MoneyOnMobile, Inc. “This was done to reflect the fact that our only business at that point was in India with MoneyOnMobile and we became 100% focused on our Indian operations,” Montgomery says. For simplicity, however, we will continue to use the name Calpian so as not to create confusion between the MMPL brand MoneyOnMobile and the renamed company.

After RBI relaxed the norms for foreign investment in a PPI licence holder, Calpian began investing directly into MMPL as well. As of 31 March 2017, the Company had acquired 75.1% and 13.7% of the outstanding common stock of DPPL and MMPL, respectively, as per their filings.

“We were doing fine with growing the business and finding new pockets of demand,” Montgomery says.

But even as Calpian tightened its grip on both MMPL and DPPL, the first signs of trouble were just around the corner. Ironically, the victim would be the man who brought Calpian and MMPL together.

An unpleasant parting

In 2016, the US board moved to replace Shashank Joshi as MD of both DPPL and MMPL. It didn’t come entirely out of the blue. According to Montgomery, it was a question of health. Joshi suffered his second stroke in 2015, said Montgomery, adding that he had complained for some time about the physical demands of the job.

On condition of anonymity, a former employee disagreed with Montgomery’s assessment of the situation. He told The Ken that while Joshi wasn’t doing too well after the stroke, it had not completely limited Joshi’s capability to serve as managing director of the company. “He [Joshi] wasn’t doing too good, but he would come to office. His full-time focus was on one thing—MoneyOnMobile,” the former employee adds. In addition, he says, though there were three other founders, Joshi was clearly the leader. The one who built the company.

Nevertheless, Montgomery deputed Ankit Sahu, a California-based shareholder in Calpian, to travel to India in 2015 to assess first-hand whether Joshi was capable of carrying out his duties.

Sahu’s verdict was that Joshi was not fit for the job. Sahu told The Ken over a phone interview that apart from his health, Joshi had a lot of background issues in his other startups. However, when pressed for details on these issues, Sahu offered none.

Joshi eventually stepped down from his executive position in 2016 itself, but he didn’t go quietly into the night. He felt betrayed, not just by Calpian but also by his co-founders.

In an email reply to The Ken, Joshi accused the erstwhile Calpian and his co-founders of orchestrating his ouster as the MD and CEO of MMPL and DPPL. Joshi claims that he “was compelled to proceed on a Forced Leave” after signing an MoU on 1 April 2016 to sell his stake in the company.

Joshi further alleges that his co-founders and the American investors had indulged in serious criminal offences, which includes the forgery of his signature to document his resignation as the MD of the company, among other allegations. In response, Joshi lodged a complaint with the Economic Offence Wing (EOW) of the Mumbai Police on 11 July 2016 against Calpian and his co-founders. Montgomery refutes these allegations, claiming it was actually Shashank “who forged or submitted false signatures.” A detailed questionnaire sent to the Indian board members went unanswered.

With the situation getting increasingly ugly, the company reached out to Ankit Sahu once again. Sahu, by this point in 2016, was VP of business development at MoneyOnMobile Inc. That same year, while on a trip to Delhi, he introduced Montgomery to an individual called Ashutosh Verma. Sahu told Montgomery that Verma could help resolve the dispute with Joshi. With the Joshi situation threatening to worsen, Montgomery enlists Verma’s help to broker peace.

Enter the Vermas

“Ashutosh Verma positioned himself to me as a consultant who helps foreign companies navigate India,” said Montgomery, adding that Verma claimed to work for a firm called LI [LexInnova] Consulting.

Ashutosh Verma’s visiting cards

But the man tasked with resolving Calpian’s problems is a controversial figure, to say the least.

An Indian Revenue Service officer of the 1999 batch, Verma first came under the spotlight a decade ago due to the Barak missile scandal. The incident involved former Lt Commander for the Indian Navy Suresh Nanda, who was accused of facilitating kickbacks for Indian politicians—including former defence minister George Fernandes—in exchange for India procuring Israeli arms.

In March 2008, Verma was arrested by the CBI along with Suresh Nanda, his son Sanjeev Nanda and Nanda’s chartered accountant for allegedly conspiring to suppress an income tax case against Nanda. At the time, Verma was handling the Income Tax department’s case against Nanda. Verma would later be granted bail in the case. Despite all of this, his visiting cards state that he is Additional Commissioner, Income Tax.

On 19 August 2016, an MoU was signed between Montgomery and Verma’s younger brother, Abhishek Verma. The MoU states that the Vermas were to help Calpian “sustain and expand its business operations of MoM in India” and “resolve external and internal issues”, along with a couple of other tasks. On the successful completion of each objective, Calpian was to issue equity to the Vermas in lieu of monetary payments.

As per the MoU, the Vermas had also proposed to invest a total of $1 million into Calpian and take a Board seat.

Dubious dealings

With the MoU inked, the Vermas set about their first task—brokering a deal with Joshi. Mere months later, in November 2016, Joshi signed a settlement agreement with the other parties involved. The deal soon fell apart as Calpian and the other founders defaulted on the agreed terms. As per Joshi, he was supposed to get Rs 2 crore (~$278,370) at the time of signing. However, he was only paid Rs 50 lakh (~$69,592).

A fresh settlement agreement, dated 11 March 2017, was then brokered. Later, a second addendum to the settlement agreement was signed between the parties on 4 August 2017. It stipulated that Joshi would withdraw his complaint with the EOW in lieu of a cheque of Rs 6.33 crore (~$882,084). A cheque for the same amount was issued on 11 October 2017 by Scott Arey, Director of DPPL, CFO of MoneyOnMobile and a signatory to the settlement agreement. Once again, it bounced. “They [Calpian] told me that it bounced due to insufficient funds,” Joshi says.

Montgomery claims that the payment to Joshi wasn’t made on account of him providing false signatures and not delivering specified share certificates as an earlier part of the deal. Montgomery even sent photos of the alleged false signatures, but The Ken could not independently verify whether these were indeed done by Joshi.

In response to the second failed settlement, Joshi opted for arbitration instead.

Even as the episode with Joshi continued to drag on, Calpian would soon face a new problem. Once again, with more than a hint of irony. Things were fast going south with the Vermas. Yes, the same Vermas who came onboard as troubleshooters.

New friends, new problems

Remember that $1 million the Vermas were going to invest in Calpian? Well, they never quite reached that point. They did invest $100,000 across four instalments of $25,000 each as a private investment in public equity (PIPE). However, says Montgomery, they never signed the paperwork for the share subscription documents. As such, the shares were never issued to them. The $100,000 investment is listed as a payable on the MoneyOnMobile balance sheet, Montgomery says.

Montgomery claims that the Vermas also failed to deliver on other promises in the MoU. These included things like helping the company with banking and credit facilities and the addition of new business lines. Since these objectives were never achieved, says Montgomery, the corresponding shares of Calpian stock were never issued to the Vermas.

With their investments halted and further equity not forthcoming, the Vermas’ ties with Calpian seemed effectively severed. Or so it seemed. But this was only the beginning of Calpian’s real problems.

In fact, this is where things start to really get ugly.

According to a Medium blog by Abhishek Verma, the Vermas didn’t simply lose interest in MoneyOnMobile after the first $100,000 dollars. They stopped investing once they realised that Calpian held precious little stake in MMPL, the real cash cow in the whole business as it held the PPI licence.

See, while Calpian held 90% of DPPL’s shares, they controlled just 12.50% in MMPL. As per their 2012 MoU, they need to invest another $1.6 million in MMPL to own 74% of the company.

“In 2018, we had reached a point where we had invested more than the mandate of our investment agreements calls for and the last amount of $1.6 million that we were supposed to invest was poised and ready to be invested in March,” Montgomery says.

After this, MMPL and DPPL were to be merged into a single company. “We were going to be one company. It was always run as one company and never as two companies, they’re [MMPL and DPPL] completely intertwined and dependent on one another,” Montgomery adds.

But the last tranche of investment never went through.

Access denied

When Calpian approached MMPL’s board of directors in March to make its final round of investment, the board turned it down. “We couldn’t really understand what was going on there,” Montgomery says. “We even tried to negotiate buyout agreements for the remaining shares with the founders for which they never warmed up to,” he adds.

The Indian management didn’t just shut out Calpian’s last tranche of investment, they also cut off standard information flows about the business from April onwards, Montgomery says. As a result, RBSM LLP, the firm hired to audit the consolidated financial statements of MoneyOnMobile (Calpian), was never able to complete the audit. A financial audit was necessary for the company to file its earnings for FY18 and to get listed on the Nasdaq.

In an email to Calpian, Sam Berde, Partner at RBSM stated that there was a lack of transparency and cooperation from the company and its subsidiaries. He also mentioned that the firm has “become aware of information that indicates illegal acts have occurred.”

Regarding the existence of fraud and confirmation of related party transactions, Berde wrote that responses to their enquiries “have been consistently ignored and have purposely not been provided.” He mentioned that none of the Indian founders had responded to the firm’s enquiries.

But bad was followed by worse.

“Sharma threatened to call the police if I didn’t leave, saying that I was trespassing and creating a hassle for their Indian employees.”

-Ankit Sahu

Coup d’etat

On 8 June, DPPL held a board meeting where Jolly Mathur was installed as Chairman for the meeting and all meetings thereafter. “This was a violation of our 2012 shareholder agreement,” Montgomery claims. A clause from the agreement states: “The Chairman of the Board at all times shall be a Board Nominee of Calpian. Initial Chairman shall be Mr. Harold Montgomery. The Chairman shall have a casting vote.”

To keep a check on things, Calpian signed a contract with Ankit Sahu to be a consultant to DPPL and to take a resident position. However, when Montgomery went to the company office in Malad along with Sahu on 17 July, Rajat Sharma blocked their entry.  “Sharma threatened to call the police if I didn’t leave, saying that I was trespassing and creating a hassle for their Indian employees,” Sahu told The Ken.

Calpian had also sent Karl Power, an investor and director in the company, to India to navigate the audit process. “Karl was present in the Malad office for about six weeks, and around the third week of July, the Indian management told him that he was an unwelcome person in the office and had to leave,” Montgomery says.

Shortly thereafter, on 1 August, an MMPL Board meeting was held without due notice to Calpian. As per an email chain viewed by The Ken, the US team had raised objections to this meeting. They were not present for this meeting, nor had they requested a leave of absence from it either. However, the meeting proceeded without them. When it was done, MMPL had three new board members—Ram Nawal Verma, the father of Ashutosh Verma, Abhishek Verma, Ashutosh’s brother, and Vinamra Shastri, grandson of former PM Lal Bahadur Shastri and partner at accounting firm Grant Thornton.

“The election of these new Board members was made without our consent and was a violation of our agreement, as such hirings require our approval” Montgomery says. Detailed questionnaires were sent to the Vermas, but no response was received. Vinamra Shastri, too, did not respond to requests for comment.

But even as Calpian was trying to make sense of what was going on, the Vermas acquired a majority stake in the company.

In his Medium blog, Abhishek Verma sheds light on how this all transpired. After realising that Calpian had only a small stake in MMPL, the Vermas decided to begin talks with the founders and shareholders of MMPL. They then set-up a company called LI Digital Payments Private Limited (LI-DPPL), and had the founders—barring Joshi—and public shareholders of MMPL transfer their shares over to the new company. Through LI-DPPL, the Verma’s now own 50.49% of MMPL.

“The share transfer is a violation of our right of first refusal to acquire those shares,” claims Montgomery. “They did so without informing us or allowing us to match the offer,” he adds.

Family business

Interestingly, while Ashutosh Verma is not listed as a director in LI-DPPL, the company’s registered address is the same one mentioned on his business card.

If the first day of August rocked Calpian’s boat, by the second day, everyone had abandoned the vessel. By 2 August 2018, all the employees of Calpian-controlled DPPL—some 350 in all—had resigned from the firm and joined LI-DPPL. While Verma, in his Medium blog, maintains that this was done voluntarily, an employee who recently resigned from LI-DPPL says that it was anything but. According to the source, Calpian had frozen salary payments after everything that had transpired in the preceding months. “Before Calpian could communicate with the employees, LI-DPPL told us to resign and join them if we wanted our salary,” says the ex-employee. They were told there had been a takeover.

Where do we go now?

For the first person who seemed like the first casualty of this saga, Joshi finds himself in the odd position of being the second largest shareholder in MMPL after LI-DPPL. Along with his friends and family, he commands a 33.5% stake in the company. He maintains that he has had no dealings with the Vermas barring his initial settlement negotiations, nor does he have any clue about LI-DPPL.

For employees who moved from DPPL to LI-DPPL, the transition has come at a cost. While changing companies, many had raised concerns about things like gratuity. LI-DPPL had pacified them by telling them it would be carried over to the new company, leading them to sign new employment contracts in good faith. Now, employees who are leaving the company are being told to follow up with DPPL for gratuity, the ex-employee quoted earlier told The Ken.

To overturn the recent events that took place and seek damages, Calpian has filed an arbitration petition in the Bombay High Court. Another lawsuit has been filed in the London Court of International Arbitration (LCIA) seeking damages worth $27 million.

Apart from these lawsuits, Montgomery has also filed a criminal case with the Mumbai Police against Rajat Sharma and Sumit Kumar Das, CTO of MoneyOnMobile, for various cyber crimes. These range from hacking Montgomery’s email to the takedown of the domains moneyonmobile.in, moneyonmobile.com and moneyonmobile.net. Detailed questionnaires were sent to all members of the Indian management team, but no response was received.

Since then, while a judge has granted a stay on the appointment of MMPL’s new board members and ordered that there be no further transfer of shares, the 1 August share transfer to LI-DPPL was not invalidated, nor were the board appointments. In a subsequent order on 28 November, the judge clarified that the parties involved cannot act upon transferred shares, in any manner.

The LCIA process, according to an open letter by Calpian to its shareholders, will take a minimum of 3-6 months to complete, leaving the future of the company in limbo.

More worryingly though, says Joshi, MMPL could find itself in hot water with the RBI, which regulates it. Four out of its nine directors are currently facing charges against them. In Joshi’s opinion, this goes against the “Fit and Proper” criteria of the RBI as people with criminal records or facing charges are not allowed on the boards of companies regulated by the central bank. “If you get your company back after a year and they have finished everything, then what do you do?” Joshi says. This whole ordeal began with MMPL’s quest for growth, but in that quest to go bigger, it may just have irreversibly damaged its prospects.

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