U.S. prosecutors in Manhattan are looking into possible fraud surrounding the sale of telecom software provider Mobileum by private equity firm Audax Group to rival H.I.G. Capital for $915 million, according to a court filing.
Andrew Warner, former chief financial officer of Mobileum, has received a subpoena for information about the company’s finances and the 2022 sale, which H.I.G. officials claim was rife with fraud, according to a filing in a California lawsuit. H.I.G. was duped into paying a “grossly inflated purchase price” that “unjustly enriched” Audax, according to another suit by the buyer, in Delaware.
H.I.G. accuses Warner and other Mobileum officials of misleading it about the financial health of the software company, which emerged from bankruptcy court protection last year. Audax has countered that mismanagement by H.I.G. is to blame. In the California filing, Warner’s lawyer Blake Zollar says his client has asserted his constitutional right against self-incrimination in declining to provide the information.
The court fight involves two of private equity’s most active players among smaller firms that generally buy companies in fragmented markets and build them up through acquisitions. H.I.G. has $67 billion of assets under management, according to its latest press release. Audax’s most recent disclosure puts its AUM at $19 billion as of June.
In the Jan. 24 California filing, Zollar says the U.S. attorney’s office for the Southern District of New York told Warner that he is “a subject of its investigation into the alleged violations of law” detailed in the subpoena. H.I.G. said in Delaware court filings on Monday that the U.S. Justice Department had asked that certain proceedings in the civil litigation between the two firms be paused during the criminal investigation. The investigation was reported earlier by the Wall Street Journal.
Zollar didn’t immediately respond to calls and an email seeking comment. The prosecutors’ office declined to comment on whether it is probing the Mobileum deal.
An Audax spokesperson didn’t comment on the subpoena but said H.I.G.’s civil claims against it are unfounded.
“The court has ordered H.I.G. to identify all facts that support its allegations against Audax, and as we have said repeatedly in court, no such facts exist,” the spokesperson said in a statement.
An H.I.G. spokesperson said in a statement that, “given the seriousness of our allegations,” the firm “welcomes the fact that the DOJ is investigating this matter.”
H.I.G. claims that Mobileum managers, at the behest of Audax, inflated Mobileum’s revenue by making up phony client invoices from a sham company, and that H.I.G. executives learned about the allegedly pumped-up numbers only after the deal closed. It is seeking monetary damages over what it paid for the software company.
Mobileum, of Cupertino, California, filed for bankruptcy protection from creditors last year to wipe out more than $500 million in debt. It emerged from Chapter 11 in September.
