BlackRock's HPS Unit Faces $400 Million Loss in Elaborate Invoice Fraud Scheme
In a stunning revelation that has sent shockwaves through Wall Street, BlackRock's recently acquired HPS Investment Partners fell victim to a sophisticated fraud scheme involving counterfeit invoices, resulting in a devastating $400 million loan loss. The incident exposes critical vulnerabilities in the rapidly expanding private-credit industry, raising alarms about due diligence practices even among the most sophisticated financial institutions.
The Discovery That Unraveled a Multi-Million Dollar Deception
Just days after BlackRock finalized its acquisition of HPS Investment Partners in July 2025, an analyst at the firm's Midtown Manhattan headquarters made a crucial discovery. While reviewing collateral for a substantial credit agreement with telecom entrepreneur Bankim Brahmbhatt, the analyst noticed a discrepancy in email domains on invoices supposedly from legitimate business partners. This initial observation triggered a comprehensive investigation that would uncover a "breathtaking" fraud operation.
HPS had served as the lead lender on a credit facility exceeding $400 million extended to Brahmbhatt's companies. The collateral for this substantial loan consisted of accounts receivable that Brahmbhatt's firm, Carriox, claimed to have acquired from various businesses through factoring arrangements. As HPS delved deeper into the documentation, they discovered the same email domain inconsistencies repeatedly across multiple invoices.
A Borrower's Troubled History and Sudden Disappearance
Bankim Brahmbhatt, a 57-year-old telecom entrepreneur who brought his business from India to the United States in the early 2000s, presented what now appears as multiple red flags that should have alerted lenders. Public records reveal that Massachusetts and California regulators had previously taken action against his companies for compliance failures. Furthermore, Brahmbhatt had been sued by three separate telecom companies alleging non-payment for services rendered.
When HPS attempted to confront Brahmbhatt about the invoice discrepancies, they discovered he had departed for India and subsequently ceased all communication. Two weeks after the initial discovery, HPS filed legal action accusing Brahmbhatt of orchestrating a comprehensive fraud scheme. The lender alleged that both the emails and invoices were completely fabricated, rendering their collateral essentially worthless.
The Private-Credit Industry's Vulnerability to Sophisticated Fraud
This incident highlights significant risks within the $3 trillion private-credit industry, where direct loans to companies bypass traditional banking channels. Daniel Zwirn, CEO of alternative credit firm Arena Investors, noted that the early 2020s represented a "perfect setup for the worst combination of risk and reward" in private lending. Intense competition among lenders, combined with investors' lowered guard during periods of rapid growth, created an environment ripe for exploitation.
The private-credit sector faces additional challenges because companies receiving these loans don't publicly report earnings, and their loans rarely trade on secondary markets. This opacity makes it difficult for investors to assess performance and identify potential problems before they escalate into significant losses.
Due Diligence Failures and Industry-Wide Implications
Despite HPS's reputation as a gold-standard private-credit firm and their employment of third-party experts including accounting giant Deloitte, the fraud went undetected until after BlackRock's acquisition. Industry experts point to several warning signs that should have triggered more thorough scrutiny, including Brahmbhatt's history of regulatory issues and previous lawsuits.
Igor Zaks, president of receivables finance due diligence consultant Tenzor, emphasized that modern software tools exist to detect the type of email spoofing that occurred in this case. "Today there are many tools to detect the kind of fraud that occurred at Carriox," Zaks stated, raising questions about why these safeguards weren't implemented more effectively.
Financial Fallout and Broader Market Concerns
While the $400 million loss represents a small fraction of HPS's $179 billion in assets under management, it has substantially impacted the two main funds that held the Brahmbhatt loans. HPS has written the entire investment down to zero and informed clients—including pension funds and insurance companies—that recovery prospects remain uncertain.
The incident has triggered broader concerns within the financial industry. JPMorgan Chase CEO Jamie Dimon warned investors in October 2025 that "when you see one cockroach, there are probably more" regarding private-credit defaults. This sentiment reflects growing anxiety about what other problematic loans might surface, particularly if economic conditions deteriorate and place additional stress on high-risk borrowers.
Ongoing Investigations and Legal Proceedings
The Federal Bureau of Investigation has launched an investigation into Brahmbhatt's activities, while HPS continues legal proceedings to recover whatever assets might remain. Brahmbhatt's companies filed for Chapter 11 bankruptcy in August 2025, with the entrepreneur simultaneously filing for personal bankruptcy citing "financial distress" from multiple lawsuits.
This case follows similar fraud allegations in the private-credit sector, including recent meltdowns at auto-parts supplier First Brands and auto-lender Tricolor. These incidents collectively underscore the need for enhanced due diligence practices and more robust verification processes throughout the private-lending industry.
The BlackRock-HPS episode serves as a cautionary tale about the risks inherent in rapidly growing financial sectors, demonstrating that even the most sophisticated investors can fall victim to well-executed fraud schemes when competitive pressures override prudent risk assessment protocols.
