'What about your Virgin Galactic fiasco,' tech CEO asks Chamath Palihapitiya after his X post on Byju's

Silicon Valley investor Chamath Palihapitiya on Thursday faced unexpected backlash on the X platform (formerly Twitter) when he posted that Byju's could have hid $533 million in an obscure hedge fund in Miami.

"You can’t make this up:

1) Byju’s raises billions from every name brand investor you can think of and becomes valued at more than $20B to disrupt the education system - first in India - and now globally

2) They use the money to go on an M&A spree - a hard strategy for any company to do well let alone a fast growth tech company

3) In June their auditors quit and three board members resign

4) A creditor sues them to get $1.2B back

5) Now it turns out they may have transferred $533M to a hedge fund run by a 23 yo whose 2020 SEC filings listed an IHOP in Miami as their office address," posted Palihapitiya, who is also known as "SPAC King" for having lent his reputation to a slew of companies going public via his special-purpose acquisition companies (SPAC).

Chris Bakke, a former tech CEO, said before Chamath could ask Byju's questions he needs to be accountable for allegedly pocketing $315 million in stock sales after he took Virgin Galactic public in October 2019 through his SPAC. 

"You can't make this up: 

1) Virgin Galactic raises hundreds of millions from name brand investors and becomes valued at more than $20 billion to disrupt space tourism

2) They use the money to do flashy partnerships with brands like Under Armour for the fabrication of space suits

3) In 2022, their chairman (Chamath) quit

4) In late 2022, the company is hit with a fraud lawsuit

5) Now it turns out that Palihapitiya profited $315M in stock sales + Richard Branson sold $1.4B in stock before the stock declined by 96% from 2021 highs," said Bakke, who is currently working at X and founder of Laskie, a startup that develops job-matching technology and has been acquired by X.

Bakke's comment has been muted by Palihapitiya, which further fueled netizens' anger against him. 

Lenders have alleged that Byju's hid $533 million in an obscure three-year-old hedge fund to avoid it being seized to make up for a loan default, but the ed-tech titan claimed its agreement with lenders did not explicitly proscribe movement of funds.

Byju's US-based subsidiary Alpha Inc transferred more than half a billion dollars to Camshaft Capital Fund in 2022, Bloomberg reported, citing a lawsuit in US court.

The investment firm, founded by William C Morton when he was just 23 years old, received the funds despite an apparent lack of formal training in investment.

Since the transfer, luxury cars - a 2023 Ferrari Roma, a 2020 Lamborghini Huracan EVO, and a 2014 Rolls-Royce Wraith - have been registered in Morton's name, according to a lender petition in the court.

Lenders claim the cash was collateral for a $1.2 billion loan and now want control over it as there has been a default in payments. Byju's, however, said the transaction was fully within the bounds of its credit agreement with lenders, which explicitly does not proscribe or limit the movement or investment of funds disbursed under its terms.

''As a commercially prudent borrower and like any other large corporate treasury, Byju's Alpha has made investments in a multi-hundred billion dollar fund with high security fixed income instruments. Our Credit Agreement with the lenders does not prohibit or restrict the movement or investment of monies disbursed thereunder. There is no requirement for Byju's to maintain cash as collateral,'' a company spokesperson said.

Lenders in Miami-Dade County court filings contended that Byju's made significant efforts to obscure the destination of the borrowers' USD 533 million, purportedly with the intent of impeding and protracting creditors' efforts.

''For the record, the Byju's entities are not parties to the proceedings mentioned in the recent media reports, and have not been served with copies of the complaint or motion. This is the first that we are hearing of these proceedings. The court filing appears to have been made prior to the latest loan repayment proposal. The parties continue to engage in negotiations to settle the dispute, and we remain committed to an amicable outcome,'' the spokesperson said.

Byju's had in November 2021 raised $1.2 billion term loan from a consortium of US-based creditors. In June this year, it missed a USD 40 million interest payment. Since then, Byju's has been negotiating with its TLB (Term Loan B) lenders to find an amicable resolution. Earlier this week, it proposed to sell two of its assets - Great Learning and Epic - to repay the loan.

With inputs from PTI