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Business News/ Companies / Deal unravels as Sahara says Mirach forged bank letter

New York/Mumbai: The Sahara Group indicated on Thursday that its deal with Mirach Capital Group LLc to secure a $2 billion loan to pay bail for its jailed chief Subrata Roy had collapsed after it discovered that a Bank of America letter guaranteeing the money had been forged.

In a statement late Thursday night, Sahara said it had asked its counsel in London to visit the Bank of America branch in Los Angeles and verify the letter.

“We have now received the report...the information to us is absolutely right and it was a forged letter," the statement said.

Sahara said it had submitted an affidavit to the Supreme Court to the effect on Monday.

Mirach Capital had submitted the letter from Bank of America assuring that it had enough money to enter the loan arrangement, which would have secured bail for Roy and two group directors, who have been in jail since March 2014.

The loan transaction received approval from the Supreme Court. Mirach also received crores of rupees towards facility fee in the matter, the Sahara statement said.

“Because of having focus on this transaction, we could not take up other offers for last three–four months. We are astonished and feel cheated in such an adverse environment against us. We strongly condemn such inhuman conduct of MCH (Mirach) and its officers and make it clear that Sahara will not spare them," said the Sahara statement.

“We will take up all suitable legal proceedings including civil and criminal, against MCH and their all officers involved in
the transaction, both in India
and in USA, for such reckless conduct of MCH," according to the statement.

Reuters reported earlier that it was unclear if the man orchestrating the deal, a 34-year-old former broker named Saransh Sharma, had the money to pull it off.

Sahara’s head of corporate finance, Sandeep Wadhwa, said Sahara’s lawyers had verified with Bank of America that Sharma has deposited just over $1 billion in an account at the bank that is “earmarked for the said transaction".

That account, however, doesn’t appear to exist, the Reuters report said. A manager at the bank told Reuters that he didn’t write a crucial document attributed to him: an email, sent in his name to Sahara, which purported to verify the account’s existence.

After Reuters asked the bank to look into the account, spokeswoman Jumana Bauwens issued a statement saying: “Bank of America isn’t involved in the transaction."

What’s more, Sharma, who lives in San Jose, California, has admitted to stealing a database from a former employer. There are also two pending lawsuits against him alleging that he forged a letter and produced fake documents to obtain a loan.

Bank of America’s assertion that it has nothing to do with the deal, as well as details about Sharma’s past, could throw a wrench into Sahara’s efforts to free Roy in a case that has made headlines in India for almost a year.

Roy is being held in Tihar jail, the largest in India, on contempt charges for failing to comply with a court order to repay investors in a bond scheme later ruled to be illegal. The bail amount, the largest ever in India, reflects the cost of the illegal scheme, estimated by Indian regulators to be as much as $7 billion.

Sharma told Reuters that he is backed by a group of US and UK investors for the refinancing and that the funds in the account have come from them. Both he and Sahara declined to identify the investors.

Sharma, who spoke with Reuters on 23 January and sent a subsequent email on 28 January, said in an emailed statement on Wednesday that Mirach had faced “a number of challenges in closing this transaction" and that he wouldn’t disclose “sensitive details" about the deal until it closes.

Under the proposed deal, which Sharma said he reached with Sahara in December, Sharma’s investor group would help pay off about $880 million of a Bank of China loan for the hotels. Besides the Plaza, which Sahara bought for about $570 million in 2012, the properties also include the Dream Hotel in downtown New York and Grosvenor House in London.

Sharma and the investor group also agreed to lend $650 million to Sahara and make a $450 million investment in the conglomerate’s properties in India. Sahara and Sharma have said they expect to finalize the deal by 20 February.

It is unclear how paying off the Bank of China loan, or obtaining the loan and investment, would help Sahara pay Roy’s bail and refund money to the bond investors.

Sahara’s troubles started in 2011 when it was found by the Securities and Exchange Board of India (Sebi), the markets regulator, to have illegally sold billions of dollars of bonds to investors. After a legal battle that reached the Supreme Court, Sahara was ordered to refund investors the money.

The Supreme Court threw Roy in jail last March after he failed to appear at a contempt hearing related to the dispute with the regulator and set his $1.6 billion bail. Sahara has said that it has repaid most investors, a claim Sebi has disputed.

Since Roy’s imprisonment, Sahara has been trying to raise cash. It has been reporting its progress to the court and regulators, and needs approvals from them to do these transactions.

Sahara told the Supreme Court last month that it is in talks with Mirach Capital, the company Sharma set up to do the deal with Sahara. Sahara has shown the court a 5 January letter from Bank of America, saying it is holding $1.05 billion in funds in an account on behalf of Mirach Capital for Sahara, according to a court filing. Sahara and Sharma declined to show Reuters a copy of the letter.

Bank manager

Reuters has seen an email, dated 17 December, sent in the name of Nuno Marques, a Bank of America banking centre manager in Wellington, Florida, to Sahara finance executive Wadhwa. In the email, the writer attests that Mirach “has sufficient liquidity with Bank of America to undertake the said transactions" with Sahara. The email does not specify the amount of funds Mirach has, but says the money would be put into escrow after anti-money laundering-related checks.

Marques, contacted by Reuters for comment on 3 February at his office in Florida, denied having written the 17 December email. He said he had been called by another Bank of America employee to verify whether there were Mirach Capital funds on deposit and that he told her he couldn’t do so.

Shekhar Naphade, an independent lawyer advising the Supreme Court on the case against Roy, said he had “no concrete details about the Bank of America escrow account" beyond the letter submitted by Sahara. Naphade said he didn’t have the means to independently verify the claim made by Sharma about the bank account.

People familiar with the Reserve Bank of India’s investigations into Sahara said the regulator had not received a request from the Supreme Court to probe whether the money is in the Bank of America account, but was making some initial checks of its own.

People familiar with Sebi said if the hotel deal does not go through, Indian government officials would seize and sell Sahara assets, including its hotels and properties, to raise cash.

Former broker

Sharma has spent the past decade working on and off for small independent brokerages in the US, a Reuters review of US regulatory filings shows.

He said in an interview that he had experience “transacting several multi-billion dollar deals." He declined to give details, however, and said he had not successfully completed such deals before.

In 2013, Sharma sued a US hedge fund for alleged breach of contract. In a 15 December 2013 deposition in a New York federal civil court case, Sharma admitted to fabricating an email; to selling for $10,000 a database of contacts he stole from a previous employer, the investment bank AllianceBernstein; and to lying about the sources of funds he had obtained. A spokesman for AllianceBernstein declined to comment.

Sahara has filed a defamation case in a Patna court against Mint’s editor and some reporters over the newspaper’s coverage of the company’s dispute with Sebi. Mint is contesting the case.

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Updated: 05 Feb 2015, 11:35 PM IST
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