At a hearing in mid-March, the Delaware bankruptcy court held Camshaft Capital Fund, LP, Camshaft Capital Advisors, LLC, Camshaft Capital Management (collectively, “Camshaft”) and William Cameron Morton, principal of Camshaft, in civil contempt. The case is noteworthy because the court not only imposed monetary sanctions but also ordered civil confinement to compel Camshaft and Morton to comply with the court’s prior discovery order. The court issued a supplementary opinion on April 3, 2024, after Camshaft appealed. [1]
This case stems from the chapter 11 filing of BYJU Alpha, Inc. (“BYJU”), a special purpose financing vehicle of an Indian corporation providing accessible education technology. In November 2021, BYJU (and certain of its affiliates) borrowed $1.2 billion from lenders and then defaulted a short time later. Following the default, BYJU’s sole director authorized a series of six transfers to Camshaft totaling over $533 million. The transfers were purportedly in exchange for an ownership interest in Camshaft, but BYJU’s bank accounts show no evidence of return on this investment.
Actually, Camshaft may not be a legitimate company at all. BYJU has asserted that the company has no working telephone, and Camshaft reported to the Securities Exchange Commission that its principal place of business was an address in Miami that is actually the location of an IHOP. Furthermore, there is no evidence of anyone working for Camshaft other than Mr. Morton himself.
After continuing loan defaults, in March 2023, BYJU’s lenders exercised their remedies under the loan documents to (i) accelerate the loan, and (ii) replace BYJU’s sole director. In February 2024, BYJU filed for chapter 11 and brought an adversary proceeding against Camshaft seeking to claw back the $533 million as a fraudulent transfer. A key question is where the $533 million is now, and BYJU’s attempt to answer this question has been thwarted by Camshaft’s refusal to provide discovery.
On February 16, 2024, the court granted expedited discovery in the adversary proceeding. BYJU found Camshaft’s discovery responses inadequate and sought an emergency status conference on February 27. After the status conference, which Camshaft unsuccessfully tried to cancel, Camshaft filed a motion for a protective order. On March 1, the court denied the motion for a protective order and ordered Camshaft to either (i) provide the requested information to BYJU, or (ii) return to the court on March 4 to explain why the court should not issue an order to show cause as to why Camshaft should not be held in contempt. The court instructed Camshaft’s counsel that, if the March 4 status conference became necessary, then Mr. Morton should appear in person.
Not only did Camshaft fail to provide the information requested, but on March 4, Mr. Morton also failed to attend the status conference. The order to show cause was issued and scheduled to be heard on March 14, 2024. Mr. Morton again failed to appear in person at that hearing, claiming that he was recently hospitalized overseas. The court requested proof of hospitalization, but Camshaft’s counsel failed to provide that proof (Mr. Morton did not have his own counsel representing him). Camshaft’s counsel also explained that Mr. Morton did not intend to comply with the court’s order.
The court found that monetary sanctions would not be sufficient to compel Mr. Morton or Camshaft to comply with the court’s orders. As such, the court held that, until Camshaft produces the information it was required to produce, (i) Camshaft and Mr. Morton must remit $10,000 a day to the clerk of the court, and (ii) Mr. Morton should be held in civil confinement.
A warrant has been issued for the arrest of Mr. Morton, who, by all accounts, remains overseas.
[1] See Memorandum Opinion, NYJU’s Alpha, Inc. v. Camshaft Capital Fund, LP (In re: BYJU’s Alpha, Inc.), adv. pro. no. 24-50013 (JTD), April 3, 2024, ECF No. 115.
