The US securities regulator has accused the founder of trade finance platform provider Triterras of knowingly misleading investors ahead of a company merger that allegedly earned him US$60mn in cash.
The Securities and Exchange Commission (SEC) filed a fraud complaint last year against Srinivas Koneru, founder and chief executive of Singapore-based Triterras, accusing him of presenting a “false picture” of the business prior to its November 2020 merger with Nasdaq-listed vehicle Netfin.
The complaint alleged Koneru directed staff to compile transactions that had already taken place “off-line” and add them to Triterras’ platform, Kratos, creating what the SEC described as a “false impression” that several lenders were using the platform to finance commodity trades totalling billions of dollars.
The SEC also claimed 90% of trade finance volumes reported by Triterras actually consisted of extended credit terms between counterparties, rather than loans from external lenders, and the remaining 10% only involved entities majority-owned by Koneru, such as collapsed Singapore trader Rhodium Resources.
Koneru filed a motion to dismiss the claim in May, saying the “total mix of information available to investors” included all the information the SEC claimed was hidden.
Koneru argued there was no evidence he had “intent to deceive, manipulate or defraud” or that he knew securities filings drafted by other professionals may have contained omissions. Emails cited by the SEC and details of when transactions were recorded “are too thin” to support allegations he knowingly misled investors, he said.
However, in a response to that motion filed in late June, the SEC alleged that because Koneru personally directed employees to record old transactions on the platform, there is a “strong inference” he was knowingly misleading investors.
The regulator said a Triterras employee was instructed, with Koneru’s knowledge, to add historic trades financed by one lender to the platform “without waiting for [the lender] to approve”. The SEC said he also directed the same pattern for trades financed by two other lenders.
“Those instructions – to fabricate activity on the trade finance module – are ‘strong circumstantial evidence of conscious misbehavior’,” it said.
The SEC also alleged Koneru regularly received documents showing which transactions had been entered onto Kratos, yet continued making misleading statements.
In July 2020, less than two weeks before the Netfin merger, a Triterras employee sent Koneru a spreadsheet containing every platform entry since its launch, and said “most of the lending is between counterparts giving credit extension”.
Koneru responded by saying “we are not going to reveal the names of the buyer/seller/lender” to Netfin, the SEC said.
“For Netfin and its investors preparing to vote on the merger, the spreadsheet would have told them exactly what the complaint alleges Koneru was concealing – that the overwhelming majority of trade finance activity consisted of Rhodium credit extensions, not third-party lender financing,” the regulator added.
Koneru’s motion said that email was more likely an attempt to protect customer confidentiality, but the SEC alleged it “shows he understood what the spreadsheet revealed and chose to hide it”.
Koneru also alleged the SEC did not explain his purported motive for carrying out such a scheme, such as selling shares.
He added that the most likely explanation for suggesting lenders were highly active on the platform “simply is that Mr Koneru believed in the potential of the Kratos platform and was excited that lenders had been ‘onboarded’ onto the platform, even if many transactions in the immediate wake of the onboarding still involved traditional counterparty trade credit”.
But the SEC alleged that Koneru, through his investment vehicles, received US$60mn in cash once the merger was closed.
The regulator said the details of his shareholdings are not required at this stage of proceedings, and that the cash payment “is the concrete personal benefit” required to pursue its case.
Koneru sought to dismiss the case on the grounds the SEC filed its complaint during a US government shutdown, which would only allow emergency actions, and filed a separate lawsuit against the regulator late last year.
The SEC said its complaint qualified as an emergency, because the limitations period on its claims was set to expire within a few days. If that had happened, the SEC said it would have been stripped of the ability “to recover millions of dollars through monetary remedies”.
Representatives for the SEC and Koneru did not comment when contacted by GTR.
