US probes telecom firms after BlackRock's HPS uncovers alleged $400M fraud, Financial Times reports

U.S. prosecutors are probing entities tied to Bankim Brahmbhatt after HPS Investment Partners—described in the report as BlackRock’s private credit arm—lent roughly $430 million to Brahmbhatt-linked telecom firms backed by receivables that HPS contends were fabricated, with a Delaware court filing calling the activity “an extraordinarily brazen and widespread fraud.” The U.S. Attorney’s Office in the Eastern District of New York is leading the investigation; roughly half of the lending was financed with leverage from BNP Paribas. The episode underscores mounting risks in niche asset-backed private credit vehicles and is likely to heighten scrutiny of aggressive, opaque lending structures amid recent bankruptcies and undisclosed debt in the broader private credit market.

Analysis

U.S. prosecutors in the Eastern District of New York are investigating entities tied to Bankim Brahmbhatt after HPS Investment Partners—identified in the report as BlackRock's private credit arm—lent about $430 million to Brahmbhatt-linked telecom firms using receivables that HPS alleges were fabricated; a Delaware court filing described the activity as "an extraordinarily brazen and widespread fraud." BlackRock and EDNY declined to comment and Brahmbhatt did not respond, leaving the size and recoverability of any losses unresolved.

Approximately half of the $430 million was funded with leverage from BNP Paribas and the loans were made by specialist asset-backed finance vehicles within the private credit niche, which increases counterparty and funding-chain risk. The probe follows recent bankruptcies at First Brands and Tricolor and fits a broader pattern of stress in opaque private-credit structures that have produced undisclosed debt and losses for banks and funds.

Market signals show a moderately negative sentiment (-0.5) and a material market-impact score (0.55), indicating reputational and regulatory spillover risk for private-credit managers and leveraged lenders. The immediate implications are tighter scrutiny of asset verification, potential reserve builds or write-downs by counterparties, and heightened legal and regulatory uncertainty until EDNY and Delaware court actions clarify liabilities.

Key Decisions for Investors

• Review and quantify direct and indirect exposure to HPS-managed and other niche asset-backed private credit vehicles and pause new allocations to similar strategies until legal outcomes and loss estimates are clearer
• Monitor BNP Paribas and other funding counterparties for disclosures of marks, reserve increases or liquidity strain that could signal broader contagion, and reduce concentrated counterparty risk where practical
• Demand enhanced due diligence on receivables verification, tighter covenants and audited collateral documentation for private-credit investments and price deployments to reflect verification risk
• Consider tactical de-risking or hedging of private-credit and related financials ahead of EDNY filings and Delaware court developments, and keep liquid buffers to meet potential redemption or margin events