US charges two ex-executives at private equity-owned group with fraud

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US prosecutors charged two former senior executives at a private equity-owned software group with fraud, accusing them of falsifying financial results to inflate the company’s value when it was sold to another buyout group.

Mobileum’s ex-chief financial officer Andrew Warner and former chief of delivery operations Kishore Vangipuram allegedly “pocketed millions of dollars in personal proceeds” when the company was sold at an “inflated” $915mn valuation in a pandemic-era deal, according to an indictment.

Warner was arrested in California on Friday after having been indicted by a grand jury in New York, according to a federal court filing.

The US attorney’s office in Manhattan said Vangipuram was arrested on Friday at San Francisco International Airport and was due to appear in court on Tuesday.

Warner received about $5.2mn in proceeds from the sale, while Vangipuram received about $5.5mn, the indictment by prosecutors in the Southern District of New York said. The indictment was attached to Warner’s arrest warrant.

The criminal charges are a rare instance of prosecutors alleging criminal misconduct over a private-equity owned company’s sale from one buyout group to another.

The case centres on events around mid-market private equity group Audax’s 2021 deal to sell Mobileum to its peer HIG. The deal was completed in 2022. The indictment does not name either Audax or HIG, and neither group has been accused of wrongdoing.

Mobileum filed for Chapter 11 bankruptcy protection in 2024 and it completed a reorganisation later that year.

The charges against Warner and Vangipuram — one count of conspiracy to commit securities fraud and wire fraud, and separate securities fraud and wire fraud counts — are the latest twist in a saga that has gripped HIG and Audax.

HIG has sued Audax in a Delaware civil court for alleged accounting fraud to boost Mobileum’s sale price. Audax has countersued HIG for alleged corporate governance failures after the latter purchased Mobileum.

Audax was founded in the late 1990s by senior executives at buyout industry pioneer Bain Capital and has grown to become one of the largest independent US PE firms, with more than $40bn in assets. HIG is one of the most valuable privately owned buyout groups and its co-founders Tony Tamer and Sami Mnaymneh are billionaires, according to Forbes.

The dispute comes as Jay Clayton, the US attorney for the Southern District of New York, has signalled an interest in scrutinising private market valuations. Clayton was previously chair of private markets group Apollo Global Management.

Warner and Vangipuram could not immediately be reached for comment. Audax did not immediately respond to a request for comment.

HIG said the criminal indictment “confirms the fraud that we alleged in our civil lawsuit against Mobileum’s former private equity owner”.

The indictment alleges Warner and Vangipuram “manufactured millions of dollars in imaginary revenue”.

They did so by manipulating an accounting system in which revenue was recognised over the life of a project in proportion to work performed, prosecutors said. The scheme allegedly worked by inflating the number of hours worked or reducing the estimated amount of work required for a project, leading to revenue being fraudulently recognised.

After the company’s sale, Vangipuram told a more junior colleague not to send emails about their invoicing because it would land them in “a lot of trouble”, prosecutors said.

Prosecutors added that during the sale process another potential buyer had explored a deal but did not move forward because Mobileum’s management did not provide adequate financial information.

After the unsuccessful effort, they said, Warner told a colleague working on a financial forecast for investment bankers that “the reality is we have a target number” and should “build the support that makes the number seem reasonable, but we cannot say that!!”

In November 2021, the month before the sale was agreed, Warner asked a Mobileum client for a “favour”, according to the indictment. The favour was permission to “invoice some more $$” on the understanding that it would not have to pay, allowing Warner and Vangipuram to recognise millions of dollars of revenue shortly before the deal, the indictment said.

Between September 2021 and July 2022, prosecutors said, the pair invoiced the client nearly €12mn, but was paid only €40,000.

A rise in “unbilled revenue” — income recognised for accounting purposes but not yet billed to clients — was flagged during a due diligence process ahead of the sale, prosecutors said. But it said the pair used sham invoices to report that “unbilled” revenue had been converted to “billed” revenue.

Warner left Mobileum as an employee in October 2022 but remained there as a consultant until about April 2023. Vangipuram resigned in about May 2023. The “cycle of falsification” allowed an “illusion of solvency” to continue until 2024, the year the company filed for bankruptcy, prosecutors said.