EDISON, NJ (TIP): Paul Parmar, the embattled ex-CEO of bankrupt Constellation Healthcare Technologies Inc, alleges he has been the victim of a sophisticated investor’s takeover scheme that has roots in profiting from a “fraudulent” bankruptcy.
Parmar of Colts Neck, NJ, along with former Constellation CFO Sotirios Zaharis and Ravi Chivukula, a former executive director of the company, was charged in May this year by the U.S. Securities and Exchange Commission with conspiracy to commit securities fraud and securities fraud. Parmar’s charges included the scheme to falsely inflate Constellation’s value to induce an investment firm to buy his company.
Chinh Chu, a former Blackstone senior executive, purchased Constellation last year, through his investment firm CC Capital.
Constellation filed for bankruptcy in March 2018, claiming that some of the businesses it had purchased while Parmar was in charge were fictitious.
Parmar alleges in court documents that Chu pushed Constellation into bankruptcy and then rigged the subsequent auction of assets to his benefit, so he could purchase Constellation after bankruptcy proceedings at a fraction of the actual value.
The SEC has launched a parallel civil action into Parmar and his associates. Separately, the United States has filed a civil complaint seeking forfeiture of four properties that Parmar owns or controls, including a house in Colt’s Neck, NJ and three apartments in New York City.
“There is more than what meets the eye,” says Parmar’s attorney Timothy Parlatore. “The direction and intent of Chinh Chu and CC Capital’s various court actions raise more questions than answers.”
In court documents, Parlatore, says “rather than conducting a full, complete and independent investigation, the DOJ and SEC were hoodwinked by Chu into bringing these specious claims against Mr. Parmar.”
Parlatore further explains the case against his client in what he believes involves a unique set of intriguing circumstances.
Firstly, despite the government bringing a separate civil suit against Parmar, Parlatore says in court documents, that the DOJ is now surprisingly seeking a stay in the civil case on the theory that if the SEC were required to respond to a motion to dismiss by Parmar, their response would damage the “integrity” of the criminal prosecution.
“It is understandable that the Government is concerned that the more expansive rules of discovery that the civil rules permits would significantly decrease their chances of convicting Mr. Parmar because a full discovery process will help to establish that Mr. Chu is the true architect of the fraud, not Mr. Parmar,” Parlatore submitted in his brief to the US District Court in New Jersey.
He also pointed out that it was highly implausible and strategically convenient that a highly sophisticated investor like Chinh Chu could spend $7 million on due diligence and then make an investment decision to acquire Constellation based just on a few inaccurate statements made very early in the process by Parmar, rather than the mountains of data that were subsequently provided. What Parlatore implied was how an investor could just rely on any management reports or documents after such an extensive due diligence?
In court papers, Parmar’s lawyers have also laid out what they believe is a critical omission on part of Chinh Chu. In the middle of the due diligence process, Constellation received a series of questions from a reporter at the Financial Timesasking about the legitimacy of the acquisitions made earlier by Constellation. Once the Financial Timesarticle was published, it discussed the empty shells, concluding that “the cat’s cradle of corporate entities and generalized opacity across Constellation’s operations could be seen as a red flag to potential investors and financial journalists alike.”
While such an article would normally cause a deal like this to be derailed or delayed to perform additional due diligence, Chinh Chu incredibly had the opposite reaction, demanding to immediately close the deal. Apparently, Chinh Chu felt no fiduciary duty to either the banks or his investors to investigate and assess the allegations raised in the article, court documents say.
Interestingly, just as reported in the Financial Timesarticle, Parlatore says in court documents, that while Chinh Chu was alleging fraud in his court submission about Parmar’s empty shell companies, he conveniently failed to mention that subsequently, Parmar bought four more companies without raising any additional funds and the combined financials of these acquisitions were far greater than the “empty shells.”
“Chu wants the government and the world to focus on a selective time window where his allegations might look real, but in a larger context those allegations are baseless” Parlatore replied when asked to comment about the case.
Parlatore also pointed out that while Parmar was arrested on May 16, 2018, there had been no progress in the ensuing four months and that the Government had not yet obtained an indictment of Parmar. Although the time to file an indictment had been extended twice, no discussions have occurred, and the Government had made no offers to settle the case.
Parlatore said he is also seeking to dismiss the federal forfeiture claim against Parmar, and that Parmar’s bankruptcy counsel is working to dismiss adversary claims against him in bankruptcy court over the merger and the alleged fraud.
In the government’s forfeiture claim, Parlatore points out what he believes is gross misrepresentation. Although the government seeks forfeiture of four properties based on a theory that they represent the proceeds of illegal activity, amounting to securities fraud and money laundering, in court filings it is clearly established that three out of these four properties were purchased or refinanced prior to any alleged violation of US law.
At press time, representatives of CC Capital, and Chinh Chu did not immediately respond to requests for comments.
Their all very good friends I know for a fact this is well thought out :-)
After reading all the articles since 2017 till date I believe there was a mutual understanding between Mr. Chinh Chu and Mr. Parmar, Parmar helps get CHT sold for under 50% of value and in return Mr. Chu keeps his due diligence discovery under wraps and help rebuild and relist at a billion dollar value on NYSE and something went horribly wrong in this Bee and Wasp Dance as it always does, now they are in front of the Govt. and the world with their dirty laundry.
Otherwise if you read Chinh Chu’s story, the whole scheme was executed by three people to defraud $309 million Dollars from a very experienced and sophisticated PE manager Chinh Chu, Largest Bank BAML and other experts like KPMG, McKinsey?
Was the Due Diligence just limited to the three-charged people (CEO, CFO and Controller)? are we missing something here or there are more defendants that will be added? KPMG, the Banks and CC Capital just spoke to Paul Parmar and were limited to data from Paul Parmar and his two other co-conspirators, is this plausible at all in a 309 million dollar deal?
Here is a statement by Chinh “Mr Chu say he’s “comfortable” proceeding, having spent $7m and three months’ work on due diligence alone. He clearly knows what he’s doing and is well aware of his new business partner’s colourful past.”
So where was the $7 million spent? Talking to Paul Parmar and only looking at data he personally supplied.
Does this Story make any real practical sense or there a dozens of defendants still to be exposed or the real story will be CC Capital master minded this along with Paul Parmar, to defraud the investors? this is more believable story at this point reading everything – at what point will we get the truth.
A seasoned sophisticated and highly experienced Blackstone (The Best ) M&A / PE expert like Chinh Chu knew about the problems if not from Truc To ( KPMG ) then from Jan 26th FT Article and I really think Parmar smooth talked his way through explaining the discrepancy between management reported financial statements and the KPMG Diligence findings regarding the alleged acquisitions. When they discussed it with Parmar Chinh Chu and KPMG drank his Kool-Aid Pie in the sky stories coupled with a dirt cheap sale price of the company and quick listing of the company in USA through Chinh’s SPAC would have been the plan. The Banks and Investors may have been left out of this information purposefully by Chinh Chu and Truc To (KPMG). As the banks started to find out Chinh raised his hands and gave up Parmar.
like this article
It is not at all possible that Three people can Fool M&A Experts from KPMG, CC capital and their consultants and Chin Chu and USD$7 million of Due Diligence with such a basic fraud.
Mr. Chinh Chu thought he could manage what he had discovered and net result was getting a bargain price, Mr. Chu thought with his network and experience he can fix it, also Mr. Chu must have understanding and assurances from Parmar, but when the Banks started sniffing around, Chinh did not want to be caught with his pants down, so he immediately rang the alarm bell and tried to act as if he never discovered anything in due diligence and is shocked with the fraud.
This statement from Chinh Chu from the Jan 30th FT Article says it all He knew, and he thought he can manage it.
Mr Chu say he’s “comfortable” proceeding, having spent $7m and three months work on Due Diligence Alone. He clearly knows what he’s doing and is well aware of his new business partner’s colourful past.
https://ftalphaville.ft.com/2017/01/30/2183483/a-region-of-the-financial-celestial-sphere-just-disappeared/
Excellent article, thank you for the research, but it still leaves so many questions unanswered, I was a investor in CHT and continue to watch the story unfold. Here is my take so far – if you read Chinh Chu’s story, the whole scheme was executed by three people to defraud $309 million Dollars from a very experienced and sophisticated PE manager Chinh Chu, Largest Bank BAML and other experts like KPMG, McKinsey?
Was the Due Diligence just limited to the three-charged people (CEO, CFO and Controller)? are we missing something here or there are more defendants that will be added? KPMG, the Banks and CC Capital just spoke to Paul Parmar and were limited to data from Paul Parmar and his two other co-conspirators, is this plausible at all in a 309 million dollar deal? Here is a statement by Chinh “Mr Chu say he’s “comfortable” proceeding, having spent $7m and three months’ work on due diligence alone. He clearly knows what he’s doing and is well aware of his new business partner’s colourful past.”
So where was the $7 million spent? Talking to Paul Parmar and only looking at data he personally supplied.
Does this Story make any real practical sense or there a dozens of defendants still to be exposed or the real story will be CC Capital master minded this along with Paul Parmar, to defraud the investors? this is more believable story at this point reading everything – at what point will we get the truth.
I personally think this is very simple like any other story, Paul and Chinh had a understanding to steal and relist CHT in New York, something went wrong and the understanding fell apart.
A seasoned sophisticated and highly experienced Blackstone (The Best ) M&A / PE expert like Chinh Chu knew about the problems if not from Truc To ( KPMG ) then from Jan 26th FT Article and I really think Parmar smooth talked his way through explaining the discrepancy between management reported financial statements and the KPMG Diligence findings regarding the alleged acquisitions. When they discussed it with Parmar Chinh Chu and KPMG drank his Kool-Aid Pie in the sky stories coupled with a dirt cheap sale price of the company and quick listing of the company in USA through Chinh’s SPAC would have been the plan. The Banks and Investors may have been left out of this information purposefully by Chinh Chu and Truc To (KPMG). As the banks started to find out Chinh raised his hands and gave up Parmar.