How Better.com CEO Vishal Garg is manipulating the legal system to pad his pockets
When Better.com CEO Vishal Garg was questioned in a deposition about the source of his income before he founded tech startup Better.com, he threatened to kill the plaintiff suing him–a man named Raza Khan, who was his former business partner, childhood friend and best man at his wedding. After the court reporters stopped typing, Vishal’s relatively placid, court-approved demeanor vanished and he erupted into a rage. Like a dormant volcano now spewing lava, he pointed his finger in the direction of the plaintiff, yelling “I’m going to staple you to a fucking wall, and burn you alive.” Just as he was being whisked away by his lawyer, he had one final message to impart: that he would send someone to harm Raza and those close to him.
The violent outburst came after Vishal was asked a series of questions that probed into his employment history and earnings past. The goal was to find out the source of money that served as the seed capital for his new business ventures. One of those businesses is Better.com, a startup that went public via SPAC (Special Purpose Acquisition Company) a few months ago and made Vishal a billionaire. Vishal was in a deposition because Raza, for over ten years, has been the plaintiff in a case that alleges, among other things, that Vishal stole millions of dollars of corporate funds from their old company, along with the company’s intellectual property. If the money to seed Better did not come from Vishal and Raza’s company, then wouldn’t it be easy for Vishal to answer where that capital did come from, and how he made money in the past?
The explosion in the deposition (which resulted in further depositions being monitored by a former federal judge) shouldn’t be all that surprising to anyone who has skimmed the Google search results for “Vishal Garg.” He is now known to some as the infamous CEO of Better.com, who fired 900 people over a Zoom call during the holidays and while the pandemic was ongoing; showed up to the office with an toy hatchet after layoffs; would refer to his employees as “dumb dolphins;” had a compulsion of touting his money obsession to his team; and who promoted an executive and showered her with stock options despite her later being pushed out for bullying the staff.
What’s not as widely known, though, is Vishal’s past before Better.com—which has included over ten years of litigation with numerous parties: Raza, large financial institutions (US Bank, PIMCO, Goldman Sachs, and Citi), and Better’s former Chief Operating Officer Sarah Pierce.
After researching the many cases, one thing has become abundantly clear: that Vishal appears to have perfected the art of strategically making conflicting representations to different courts to secure a victory, while paying millions of dollars in lawyers’ fees with some of the allegedly stolen funds in question. Although Vishal is not the only person in business to take advantage of the system in this way, he provides a case study for us to understand what is broken in our judicial system. Here’s a brief look at Vishal’s background and the web of ongoing civil lawsuits in both state and federal court filed against him.
The boy who was beaten with rulers
Vishal was born in India. As he said to some Better.com employees, he went to a school run by strict nuns who beat students with rulers if they didn’t know multiplication off the top of their head:
He then immigrated to New York City where he later met Raza at Stuyvesant High. At times in their relationship, and discussed in an article written by Forbes, Vishal would make stray comments about how easy it could be to steal to get ahead. Eventually, as reflected by the allegations in the abundance of court filings by numerous different parties, Vishal appears to have transcended hypothetical fantasies about theft and manifested them in real-world schemes.
The First Lawsuit—Khan v. Garg—New York Supreme Court, New York County (652334/2013)
Vishal’s career as an entrepreneur began in 1999 when Raza and Vishal launched a business together called iEmpower. That business evolved into MyRichUncle, a startup that went public and then went bankrupt due to the credit crisis. From there, they formed Education Investment Finance Corporation (EIFC), which was conceptualized to serve as a specialty finance company that would be able to originate, analyze and service different types of credit products. In other words, the IP they built (and were continuing to build and improve) would be able to make a loan, then collect payments on a loan, as well as analyze data associated with the loans they made and serviced. Raza was the engineering and product backbone, and Vishal was the strategic business mind responsible for the company’s business development and finances, often making him the front-facing man.
But Vishal was volatile and erratic. He would often not show up to the office or respond to compliance-related matters, and failed to pay taxes for years despite EIFC consistently turning substantial profits. After Raza caught wind that something was amiss, he began further researching the company’s finances and brought in outside consultants (accountants and lawyers) to conduct a corporate clean-up and decipher what had happened to EIFC’s money. Unsurprisingly Vishal objected and insisted that EIFC use his family accountant that immigrated with him from India (Kalantry LLP).
What Raza and the outside consultants discovered was that over a million dollars ($1.1 million) had been transferred out of the corporate EIFC account directly to Vishal’s personal bank account and to the accounts of 1/0 Capital, an investment fund that now has a 10% equity stake in Better.com. During the time Vishal wasn’t tending to EIFC’s taxes, he was transferring corporate money to himself in huge chunks, ranging from $10,000-$40,000 in the beginning, and then ramped up with Vishal transferring six figures to himself at a time.
In 2013, after Vishal transferred a lump sum of $1.065 million to himself from EIFC’s bank account, Raza retained counsel and filed an emergency lawsuit in the New York Supreme Court. Vishal was ordered to immediately put the $1.065 million back into an attorney escrow account, to be paid to the tax authorities. But as the $1.065 million was only the tip of the iceberg, the case against Vishal has continued, with Raza alleging numerous breaches of fiduciary duty related to Vishal’s destruction of the enterprise value of EIFC along with conversion of EIFC’s assets. Among other allegations, Raza has claimed that Vishal funneled EIFC’s cash and IP through Vishal’s vast web of entities—including 1/0 Capital and related entities holding an equity interest in Better.com. Some court documents show there are over 30+ entities in this web.
While Better.com’s SPAC (merger with a blank check Icelandic corporation) was a spectacular flop and utter failure—its stock is under $1—it was valued at $7 billion at the time it went public due to a mega-infusion from SoftBank. You better believe that Vishal and some of his confidants with equity were able to cash out before the stock price plummeted (more on this to follow below).
Pissing more people off…
Black et al v. Phoenix Cayman Ltd, Garg et al New York Supreme Court, New York County (652460/2020)
But this isn’t just a story of a business divorce between childhood friends.
In 2011, Vishal needed to raise $5 million to purchase assets from a man who had to fire-sale a firm that managed collateralized debt obligations (CDOs). The CDOs were bundles of distressed residential mortgage-backed securities, and Vishal saw an opportunity where EIFC as a subcontractor could provide the algorithm to analyze consumer loan data, to show the breaches by the originators of the mortgages (i.e. the banks) and provide greater recoveries for the CDOs. The documents governing the CDOs allowed administrative fees to be paid for these types of services, and Vishal saw an opportunity to take full advantage of capturing those fees charging anywhere between $100,000 and $460,000 a month. Before we move on with the facts alleged in this lawsuit, let’s put that monthly amount into perspective: $460,000 a month would mean two people working full time at a billable hourly rate of $1,437.50. That is more than the hourly rate for most senior partners at premiere NYC law firms.
Now turning back to the Black et. al. case…in order to score the contract to act as the service provider and capture the administrative fees, Vishal had to first close the deal to purchase the firm that was acting as the CDOs collateral manager at that time. This was the Phoenix investment. Vishal went to friends and family of employees, as well as select high-net worth individuals, to raise the $5 million for the Phoenix investment, pitching it as a huge arbitrage opportunity that promised monthly returns and huge payout on the backend through an equity kicker. And so he convinced the investors (LPs) it would be a great addition to their portfolio, which for many included their retirement investment strategy.
But as alleged in court documents, even though Phoenix was generating significant revenue that should have resulted in major monthly payouts for the LPs, only some of these investors got their basis and 8% back following sporadic payments (that’s not why you get into something high risk)—while bank statements show that Vishal was transferring millions from Phoenix to himself and then onto his other entities, including Better.com and a company run by his wife Sarita James called Embark. Sound familiar? So, the group of LPs are currently suing him.
In a yet another federal lawsuit (see next section), Vishal bizarrely testified that he was going to withdraw another $5 million from Phoenix to pay himself and his deputies, rather than distribute this money to the LPs. It was perplexing that Vishal would make such a claim on the stand, but when the Phoenix LPs saw the transcript of his testimony, they immediately took matters into their own hands and called a shareholder vote. Eleven out of the fifteen shareholders voted to remove Vishal from his leadership position at Phoenix for failing to be transparent about the company’s finances. Unsurprisingly, Vishal has still refused to abdicate his position.
In the face of this decisive shareholder vote to oust him over questionable management, what is required to actually make him leave? Maybe you guessed: more money. Vishal is heavily incentivized as a GP of Phoenix (with a 75% stake) to retain control of an $11 million payment the company is anticipating soon from a court-ordered escrow account. So his lawyers, similarly incentivized, came back with a legal defense saying that the shareholders acted in “bad faith” by trying to cut the GP out of the economics of escrow.
No matter how likely this is to be struck down by the judge–the Limited Partnership (LP) agreement plainly states that if the LPs find cause to vote you out, then you’re out–lawyers on all sides and judges alike will have to spend more time, fees, and labor responding to this flurry of legal activity from the defendants looking to preserve their piece of the pie.
Flying too close to the sun?
U.S. Bank N.A. v. Triaxx Asset Mgmt. LLC--Southern District of New York (Case No. 18-cv-04044)
Vishal is currently facing yet another civil lawsuit in federal court from large financial institutions that invested in the CDOs mentioned earlier. These include PIMCO, US Bank, Citi and Goldman Sachs (who settled at a curious point in time, when they were contemporaneously an investor in Better.com). In that lawsuit, the banks are curious about the necessity of the “administrative fee” work performed by Phoenix while under the control of Vishal. While there was work being done, the banks have questioned what work was actually being performed for the millions of dollars that went to Phoenix (controlled by Vishal) instead of being distributed to the CDOs investors (and as we saw above, the revenue was largely diverted from the Phoenix LPs). Same story, same defendant, different plaintiffs…
Lipstick on a pig
Pierce v. Better Holdco, Inc.—Southern District of New York (Case No. 22-cv-04748)
If being sued by the best man at your wedding (and business partner for over 15 years) and a group of mostly retired individuals and major financial institutions is not enough, Vishal’s former Chief Operating Officer at Better.com filed a whistleblower lawsuit last year with the Securities and Exchange Commission, alleging that Better was misrepresenting the capability of its tech to jack up the valuation and force through the SPAC.
In running operations, Pierce was responsible for the hiring of 10,000 people. These are more employees than Rocket Mortgage has, a company that was doing many more times the volume of loan originations than Better. Pierce saw that it wasn’t some groundbreaking artificial intelligence that was making the business run, but the blood, sweat, and tears of thousands of people from the U.S. to India (who Vishal would call “mech turks”—as in human beings doing tasks that computers cannot do economically).
Believe it or not, it doesn’t stop there. Below are yet more lawsuits against Vishal or his many entities:
US Bank NA, Pacific Investment Management Corp. v. Triaxx Asset Management LLC, Serengeti Asset Management LP. Southern District of New York (Case No. 16-cv-8507) PIMCO awarded judgment in its favor and against the Defendants at trial with the Judge describing Garg’s longtime lawyer and left hand man, Nicholas Calamari, as “evasive,” “non-credible,” and not making certain decisions in “good faith.” (See Findings of Fact and Conclusions of Law).
Badru Valani v. Better Mortgage Corporation; Better Holdco, Inc. New York Supreme Court, New York County (655567 / 2018). The former owners of the company that became Better Mortgage, who also happen to be the parents of Better board member Riaz Vilani, have sued Vishal for failing to pay money due after the parties’ merger and acquisition transaction. Garg countersued, claiming that Riaz’s father had breached his employment contract and fiduciary duties. The case remains ongoing.
Pinebrook Capital Partners II LP vs. Better Holdco, Inc., Aurora Acquisition Corp., Aurora Merger Sub I, Inc.. Delaware Court of Chancery (2021-0649). Pinebrook filed a lawsuit alleging that Better was improperly reducing Pinebrook’s equity holdings in Better and it was being coerced into signing documents that would further impact any equity it held following Better’s SPAC. This lawsuit was confidentially settled.
Icahn School of Medicine at Mount Sinai v. Embark Corporation. New York Supreme Court, New York County (653449/2014). This lawsuit filed against Embark Corporation, a company formerly run by Garg and now run by his wife Sarita James, alleged that Embark had fraudulently taken money that was due to Mount Sinai for medical school application fees. The case was discontinued by the parties and therefore presumably settled.
Thomas Devane v. Vishal Garg. New York Supreme Court, New York County (155096 / 2017). Vishal was sued in this lawsuit by Thomas Devane who worked as an investment banker in helping Better secure $45 million in financing but then allegedly stiffed Devane of almost $1 million for his investment banking fee.
The tangle of testimonies unraveled
There are several discrepancies across different testimonies that need to be examined in the many suits filed against Vishal or against the businesses he is associated with. A few glaring examples are discussed below.
First is Vishal’s confusing response surrounding the intellectual property owned by EIFC. In the Raza v. Vishal case regarding the conversion and misappropriation of EIFC’s assets, Vishal took the odd position of telling the Court that EIFC did not own IP, stating: “In fact, the parties dispute whether EIFC even owned any intellectual property, with Defendants’ position being that it did not.” Put simply, Vishal took the position that EIFC never owned property, because if it did, Raza would have some claim to it, resulting in Vishal being liable for millions of dollars in damages and possible claims against any of his entities that may have benefited from that stolen IP (e.g. Better.com).
But in the federal case filed by PIMCO and the other large financial institutions, Vishal testified:
“In 2009, I co-founded a business called EIFC which managed and serviced student loan portfolios. EIFC was founded based on an understanding that post the credit crisis, the servicers of student loans were ill-equipped to handle the defaults and delinquencies that happened, and in particular lacked the tools to properly decision loan modification and remediation that was both fair to investors and consumers. EIFC was able to leverage the burgeoning field of big data, technology-driven processes and social media to make better decisions on the valuation of individual student loans in loan pools, both in whole loan format and securitized.”
Why the change in testimony? Well, EIFC was the subcontractor that built the IP necessary for Phoenix to perform the work for the CDOs that was discussed above. So in order to make the case that an efficient algorithm was behind the scenes and that the gigantic administrative fees were worth it for the bank investors in the CDOs, EIFC had better not be vaporware.
Another discrepancy arose when Vishal had to address the issue of whether or not Better was a tech company. When confronted with that issue in Raza’s case, Garg represented that Better is not technology-driven, instead claiming its “key innovation was not software at all, but the use of a customer centered business model with no commission loan consultants.” But in his S-4 filing ahead of the SPAC, it said:
“Better’s proprietary, data-driven technology platform. The Aurora board of directors believes that Better’s platform called “Tinman” is among the leading supervised learning networks for homeownership finance. It automates special underwriting functions and enables Better to provide customers faster turnaround times, lower rates, more certainty of decisions, and most importantly, allows Better to empower its customers by more clearly presenting the rules and criteria for underwriting a mortgage that were previously hidden in someone’s mind, sitting in a bank branch or a central processing facility. The Aurora board of directors believes that Tinman underpins Better’s efficient, low-cost model and allows Better to offer customers lower rates.”
Naturally, he did not want the market to think that Better was just another mortgage company in an already saturated market before going public; framing everything as bringing Better into the future. But he still did not want to let on that EIFC had any IP that Raza could have claim to.
And, in yet another example of his willingness to say anything to the courts to further his position, Vishal represented that certain intellectual property claims in Raza’s case should be given no value because EIFC sued the wrong party in an arbitration against Phoenix Real Estate Solutions (another Garg-controlled entity). His reasoning was that the IP was actually owned by his close inner associate Ziggy Jonsson, not Phoenix Real Estate Solutions. But in the US Bank/PIMCO federal case discussed above, Vishal and his inner associates (Ziggy, Nick Calamari, and Mingling Tang) made it clear it was Phoenix Real Estate Solutions’ intellectual property responsible for the millions of dollars in administrative fees (remember this from above?)
In fact, it was argued in the federal case that it cost nearly $10-20 million to build that IP! So if the IP cost Phoenix Real Estate Solutions that much money to build, why would it then be owned individually by Ziggy Johnson? The answer seems pretty clear: in Raza’s case, Vishal stood to lose almost $30 million if those IP claims moved forward, but in the federal case he stood to gain nearly $30 million for Phoenix Real Estate Solutions.
What’s next and why does this all matter, who cares?
Now, you might be wondering why these cases are taking so long—over 10 years for at least one! And how is it that Vishal has been able to maneuver his way into becoming a billionaire as all of these people and institutions accuse him of theft?
You (hopefully) are not in a position to ever find yourself in civil court for ten years with a stapler-happy former business partner or tracking down money that you thought would have been invested properly. But if you do, you will have to familiarize yourself with what sadly appears to be a broken judicial system that is completely overwhelmed, particularly following the COVID-19 pandemic.
Judges have not been shy about their backlog or lack of resources. The sheer number of motions and evidence that needs to be filed, particularly complex commercial cases like those against Vishal, makes it nearly impossible for the court to dedicate the proper hours to truly understand and digest the issues if a decision is going to be made quickly, let alone review every piece of evidence submitted by the litigants. For example, in Raza’s case, over a period of 90-120 days, 11 different motions were filed which included at least 3 briefs per motion, multiple affidavits, and hundreds of pages of supporting evidence. In the federal court trial for the matter where PIMCO and the other banks sued Vishal’s company Triaxx Asset Management, there were more than 3,000 pages of evidence for the court to consider! This scenario creates the perfect storm for routine defendants to make conflicting statements to different courts to try and secure the win.
Another major challenge is money—litigation is expensive. If preparing a brief and the supporting evidence can cost anywhere from $10k-$50k, then how is the average person expected to pursue valid claims? As you probably guessed, many cannot. But of course, if you are a billionaire with access to boundless corporate resources, defending a host of lawsuits is no sweat. In the case study of this blog, lawyer invoices have shown that Vishal has been largely bankrolling some of his lawyers’ fees through various corporate entities: in the state case brought by Raza, for example, he has paid for lawyers one-third from Embark (the entity run by his wife that received $1.25M after Vishal personally received money from Phoenix) and one-third directly from Phoenix. This is significant when outside legal bills can cost over $400k a month in Vishal’s case.
But his use of corporate funds for personal means doesn’t stop there. It’s been two years since his infamous Zoom call where he laid off 900 employees right before the holidays, and his startup Better.com has only continued laying off employees left and right. Not surprisingly, rather than try and allocate corporate funds for saving jobs, Vishal has instead paid himself a $750,000 annual salary, received a $9.7M bonus for closing the Better SPAC, and partial forgiveness of $41 million in exchange for stock.
Sadly, this list is likely not comprehensive given the high costs to litigate, which prevents others who may have valid claims from filing suit. Have a tip or info about Vishal Garg and the inner workings of Better.com? Email us at betterdolphins@protonmail.com.