There has been no end to the unusually public battle involving allegations of fraud and mismanagement between investors in Mobileum, a supplier of security, fraud and assurance products to communications providers worldwide. A court recently permitted private equity firm Audax, former owners of Mobileum, to proceed with their suit against two executives of HIG Capital, the business who acquired control of Mobileum in 2022, and against current Mobileum board member Gavin Patterson (pictured), per reports in the The Wall Street Journal and other news outlets.
HIG acquired 67% of Mobileum in 2022, with Audax retaining a 24% stake, but HIG then sued Audax over alleged financial irregularities that inflated the perceived value of Mobileum. Audax’s countersuit alleged mismanagement by HIG, including claims that the terms of their partnership agreement had been violated by excluding Audax from a special committee to investigate the alleged accounting irregularities. Judge Meghan Adams of the Delaware Chancery Court has decided to allow Audax to pursue their claim against three individuals who formed the special committee whilst dismissing Audax’s claims against HIG as a firm. HIG previously survived a bid to dismiss their claim that Audax had fraudulently exaggerated Mobileum’s revenues, although the court said they needed to show more evidence. Both suits now roll on, with the expectation of a court showdown in 2026 unless the two sides reach a settlement first.
Long-standing readers of Commsrisk will remember our detailed coverage of the allegations made by both sides. The takeaway from the current state of progress is that neither side appears willing to negotiate a settlement. This is causing consternation amongst other private equity firms who worry about the creation of legal precedents that might be used against them in future.
The core of HIG’s suit is that…
…Mobileum’s revenue recognition practices were fraudulent and rendered inaccurate the representations and warranties Mobileum gave to H.I.G. as part of the sale of the business
Audax’s ongoing countersuit targets Nishant Nayyar, a Managing Director at HIG, Alexander Thorn, a Principal at HIG, and Gavin Patterson, the former CEO of BT. Nayyar, Thorn and Patterson were all appointed to the board of Mobileum in April 2022. Of the three, only Patterson still remains as a board member. Audax says the three individuals violated a partnership agreement between Audax and HIG when they created a special committee to investigate accounting irregularities. Per their court filing, Audax contends the special committee…
…was designed not to get to the truth, but rather to benefit H.I.G. and falsely accuse Audax of impropriety
Audax further claims that the goal of the committee was to “deflect blame” for poor management decisions that were actually responsible for the decline of Mobileum following HIG’s acquisition.
Mobileum filed for bankruptcy in July 2024, and then emerged from the protection of chapter 11 in September. Mike Salfity, who had been appointed to lead Mobileum by HIG, continued in his role as Mobileum CEO and President.
There was a time when Mobileum appeared destined to become a dominant provider of some of the most important security, fraud and assurance products for comms providers. Former CEO Bobby Srinivasan used a private equity warchest to fund a string of high-profile acquisitions, then gutted existing employees so they could be replaced by cheaper substitutes. This makes Mobileum’s recent history a case study for what has gone wrong with European tech innovation more generally.
Successful European businesses like WeDo and SIGOS grew steadily to become global market leaders in their respective niches. This attracted the attention of American capital, in the form of the private equity backers of Mobileum, which is headquartered in California’s Silicon Valley. The people who engineered the rise of these world-leading European companies were then tossed aside simply because Indians will work for lower pay. The narrow pursuit of mindless ratios used to calculate if an investment has been successful has done immeasurable harm to thriving businesses, although it meant that Audax, the private equity firm that had backed Srinivasan, were able to profitably sell most of their stake to another investment group, HIG Capital. When HIG started running Mobileum they began to question if they had been duped. And so two world-beating European companies that innovated in the field of communications risk management were largely trashed by moneymen who played games with numbers.
Coverage of this story by The Wall Street Journal can be found here.
