U.S. Officials Allege Gopala Krishnan Ran Ponzi Scheme
October 19, 2023
This month, the Unites States Securities and Exchange Commission (SEC) obtained a temporary restraining order, asset freeze, and other emergency relief, from a U.S. court, to halt an alleged ongoing fraud conducted by Gopala Krishnan, Manivannan Shanmugam, and Sakthivel Palani Gounder.
“We allege that the defendants engaged in a large-scale affinity fraud that targeted hundreds of investors, largely from the DFW-area (Dallas Fort Worth) Indian American community,” said Gurbir S. Grewal, Director of the SEC’s Division of Enforcement in a statement. “Through allegedly false promises of unrealistic returns and lies about the success of their investing strategies, the defendants raised nearly $130 million from investors. But in classic Ponzi fashion, the complaint alleges, the defendants used investor money to make fake profit distribution payments, while allegedly siphoning off millions in investors’ funds for themselves.”
Since April 2021, Krishnan and the two other defendants allegedly conducted their fraud through Nanban Ventures and three other entities they co-founded.
The defendants allegedly overstated the profitability of the investments and paid early investors at least $18 million from fake profits. These were Ponzi payments, according to the SEC.
Also, the SEC alleges, the defendants misrepresented Krishnan’s expertise and success using his eponymous “GK Strategies” options trading method, claiming in a YouTube video that he achieved returns of “more than a hundred percent”.
In February this year, Hindenburg Research received a tip about an investment which promised gains of 20% per month through “a rare individual whose sole purpose in life is to help other people obtain wealth like he has.” The ostensible billionaire, a Hindenburg report on Nanban states, runs a group of entities that share the name “Nanban.”
In Tamil, an Indian language, “’Nanban’ means ‘friend.’ A person you can trust. Someone who desires to help without seeking anything in return,” according to Nanban’s website. The popular name for Krishnan, among some Indian Americans who knew him, is apparently Nanban GK.
In 2001, according to The Hindenburg report, Krishnan experienced a self-proclaimed “nirvana moment” that allowed him to devise a strategy using stock indices and derivatives that “works 100% of the time”, according a public interview aired on YouTube. The video is no longer available.
In 2019, Krishnan met Mani Shanmugam and Sakthivel Palani Gounder, who both shared GK’s philosophy “of giving back to the community with no strings attached,” The Hindenburg report notes. The trio started Nanban Foundation, a non-profit organization, “just to teach people how to make money.”
“After several months of research, we concluded that the Nanban group of companies was likely running an investment scheme and shared our findings with the government,” Hindenburg report notes. Based on the SEC’s “rapid and thorough response, we suspect”, Hindenburg states, the agency was investigating Nanban prior to its report.
Since 2016, Hindenburg has published critical reports on several companies. On its website, it lists cases where its research led to declines in company valuations and fines and other punitive actions by regulatory authorities. In January this year, a Hindenburg report stated that the “Indian conglomerate Adani Group has engaged in a brazen stock manipulation and accounting fraud scheme over the course of decades.”
Video of Gopala Krishnan’s speech, American Tamil Entrepreneurs Association, May 2023
Nanban Ventures claimed in its venture capital funds’ private placement memorandums that Krishnan would manage the funds to generate returns that would “consistently overperform the S&P 500 Index”, according to the SEC.
The SEC alleges that the three defendants raised more than $89 million from more than 350 retail investors for investments in purported venture capital funds and more than $39 million from selling high-yield promissory notes to ten investors.
In reality, Krishnan and the two other defendants “grossly misrepresented the nature and performance of GK Strategies for luring investors,” according to the SEC. The returns were allegedly lower than those claimed by Krishnan in YouTube videos, and negative on numerous occasions.
Krishnan and the others had careers in the Information Technology industry, with little or no experience or training in the investment industry.
Since 2020, Krishnan has been Nanban’s co-founder, Chairman, Chief Executive Officer, and Managing Partner, according to his LinkedIn profile.
Earlier, from 2015 to 2020, he was at DXC Technology Services, a Richardson, Texas, IT services company; including as a vice president of its India operations. From 2002 to 2015, Krishnan was at Hewlett Packard Enterprises, including as an account service executive; and from 1998 to 2002, he was a senior systems analyst at Verizon Data Services, Topeka, Kansas. From 1996 to 1998, he was a systems developer at Mahindra Satyam, Hyderabad, India.
Krishnan earned an MBA from Washburn University, Kansas, 2009-2011, and a B. Tech in Computer Science from Jawaharlal Nehru Technological University, Hyderabad, India, 1992-1996. He graduated high school from Kendriya Vidyala, Pathankot, Punjab, India.
Shanmugam, Chief Operating Officer at Nanban, earlier worked in various IT roles at USAA, PwC, SunGard, IBM, Tata Consultancy Services, and other companies, according to his LinkedIn profile. He earned a Master of Computer Applications from Bharathidasan University, Tamil Nadu, India.
Gounder, Nanban’s Chief Investment Officer, attended the College of Engineering, Guindy, Tamil Nadu, India, according to Crunchbase. He apparently deleted his LinkedIn profile.
The SEC alleges that the defendants, being investment advisers, violated their fiduciary duties by investing more than $70 million into companies they controlled. Further, according to the SEC, the defendants used investor funds to make Ponzi payments and pay themselves at least $6 million.
In May, Krishnan was the Keynote speaker at an American Tamil Entrepreneurs Association meeting. At the event, he was introduced as one with 20 years of experience and a selfless leader.
The SEC’s complaint notes that Krishnan and the other defendants are engaged in an ongoing fraud, seeking to expand their operations globally in 2023, soliciting international investors from the United Kingdom, Singapore, India, and the Persian Gulf region to invest in their funds.
“As we allege in our complaint, the defendants used the ‘Nanban’ branding, a word that means ‘friend,’ when raising nearly $130 million from investors of mostly Indian descent,” said Eric Werner, Director of the SEC’s Fort Worth office, which is conducting the investigation. “However, the defendants have been the furthest thing from ‘friends’ to their investors, raising money and paying false returns on a foundation of lies.”
Grewal, SEC’s Director of Enforcement, said in a statement: “We urge all investors to confirm the credentials of supposed investment professionals and to view investments that advertise outsized returns skeptically.”
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