US prosecutors have launched an investigation into a group of telecom companies after BlackRock’s private credit arm reported it lent more than $400 million backed by what appear to be fabricated receivables, according to people familiar with the matter.
The $400 million fraud probe centers on entities connected to Bankim Brahmbhatt, a little known executive whose companies borrowed heavily from HPS Investment Partners.
The case is emerging as a potential flashpoint for the private credit industry, which has ballooned in size in recent years and drawn heightened scrutiny from regulators.
The Department of Justice is examining transactions that date back to 2020, when funds managed by HPS began lending to companies linked to Brahmbhatt. Those loans were secured by receivables the firms said were owed by major telecom operators.
In a Delaware court filing earlier this year, HPS accused Brahmbhatt and several controlled entities of orchestrating “an extraordinarily brazen and widespread fraud,” alleging that supporting documents for the receivables were fabricated.
BlackRock, the DOJ and BNP Paribas, which funded roughly half of the lending through leverage facilities, declined to comment.
The $400 million fraud probe comes at a time when the private credit market is grappling with a series of high profile setbacks, including recent bankruptcies at First Brands and subprime lender Tricolor.
The fallout has fueled concerns about opaque financial structures and the growing risks embedded in the industry.
Regulatory experts said the case reflects a broader challenge as private credit gains influence across US corporate lending.
“This investigation is not just about one alleged scheme,” said Maya Ellison, a professor of financial regulation at Georgetown University.
It highlights structural weaknesses in private credit, where lenders sometimes rely on aggressive underwriting and limited transparency. The $400 million fraud probe could push regulators to tighten oversight.
Investigators from the US Attorney’s Office for the Eastern District of New York are leading the case, a sign that authorities view the matter as significant, said David Carver, a former federal prosecutor who now works in financial crime compliance.
“When EDNY takes the lead, it typically signals concerns about systemic misconduct,” Carver said. “Receivables backed loans are especially vulnerable to manipulation because paperwork can be falsified in ways that are hard to detect.”
He added that tighter disclosure rules could emerge if the inquiry uncovers wider industry gaps.
Private credit has expanded to an estimated $1.7 trillion globally, according to industry trackers, making it larger than parts of the traditional leveraged loan market.
Much of the sector operates outside the regulatory frameworks that govern banks, allowing lenders more flexibility but also leaving them more exposed to irregularities.
Receivables based financing has grown sharply in the last five years. Analysts said lenders often depend on borrower supplied data that is not always verified through independent audits.
“This case underscores that the risk is not isolated,” said Evelyn Morse, a senior analyst at Northbridge Research. “If the alleged fraud is validated, it will be one of the largest receivables related failures in recent private credit history.”
Bankruptcies in other sectors have contributed to unease. First Brands left behind billions in undisclosed liabilities, while Tricolor’s collapse wiped out substantial positions held by funds and regional banks.
Together, these events echo patterns seen in the $400 million fraud probe, particularly regarding questionable reporting practices.
Employees in the telecom supply chain said the news has shaken contractors and small vendors who rely on credit extensions to operate.
“When you hear about a $400 million fraud probe tied to receivables, it makes you wonder how many companies are using documentation that never gets independently checked,” said Omar Lewis, a telecom equipment distributor in New Jersey.
“Everyone is under pressure to move fast, and sometimes verification falls through the cracks.” Maria Ford, an accounts manager at a mid size telecom provider in Texas, said borrowers should expect deeper audits going forward.
“Our partners are already asking for more detailed proof of outstanding receivables,” Ford said. “It slows things down, but the trust is too important to risk. This case really opened people’s eyes.”
Legal observers said the investigation could take months as prosecutors collect documents, interview executives and review financial records. If evidence supports the allegations, charges could include wire fraud, bank fraud and conspiracy.
Regulators are also watching closely. Any findings from the $400 million fraud probe may influence policy debates in Washington about whether private credit should face stricter disclosure rules similar to those required of banks.
“The private credit market is only going to grow, and with growth comes greater risk,” said Ellison, the Georgetown professor. “This case will likely be cited in future proposals about oversight, transparency and borrower verification standards.”
Market analysts said that while the investigation is unlikely to destabilize the broader credit system, it could prompt lenders to tighten internal controls and raise diligence thresholds.
The federal investigation into alleged falsified telecom receivables marks one of the most significant tests of the private credit market’s resilience in recent years.
As prosecutors review documents and lenders reassess risk models, the $400 million fraud probe is drawing attention to long standing concerns about transparency and verification across the industry.
Its outcome may help determine how regulators and market participants approach similar financing structures in the future.