A recent court ruling in New York found Vishal Garg, the CEO and founder of Better.com, guilty of breaching his fiduciary duty and engaging in conversion in a lawsuit filed by his former partner, Raza Khan. Garg has stated his intention to appeal the decision.
The court has mandated Garg to pay $5.5 million to Educational Investment & Finance Corporation (EIFC), the company that Garg and Khan established in 2009. This amount includes $2.3 million for breaching his fiduciary duty, $2.2 million for conversion, and $1 million for punitive damages.
The funds will be utilized to settle the company’s debts, including those owed to the Internal Revenue Service (IRS). Garg revealed that he is also on the list of creditors as he had loaned around $2.5 million to the business. The trial took place from May 6 to May 17 at the New York Supreme Court in Manhattan.
Although Garg was not held accountable for unjust enrichment, Khan, who initially sought $100 million in damages, was found responsible for conversion as per Garg’s legal team and court documents from May 2023. Garg’s attorneys raised concerns on July 2 that Khan had failed to place money in escrow related to the conversion judgment.
Khan’s lawyer, David Moreno, mentioned in a brief email that his client was not found liable for conversion but did not provide further details or documentation.
The legal dispute originated in 2013 when Khan sued Garg for allegedly transferring approximately $2.8 million from EIFC and Embark, the two companies they co-owned, into his personal account or to third parties without consent.
Khan and Garg, who had been friends since their time at Stuyvesant High School and NYU, established EIFC in 2009. The company specialized in asset management and advisory services for private student loan portfolios. EIFC was also a 25% shareholder in Embark, a company that developed software for college applications.
Garg expressed regret over the situation, stating, “Raza and I were like brothers, and we should have maintained better records when we started this business.” He affirmed his belief that the truth will prevail on appeal and expressed relief that most of the claims in the case have been dismissed over the years.
Jason Berland, Garg’s lawyer, clarified that Garg is accountable for damages to EIFC and not directly to Khan. He described the lawsuit as a derivative action.
A spokesperson for Better mentioned that the legal matter predates the company’s establishment and does not impact its current operations.
Garg will continue to lead Better, which has shown improvements in mortgage production and revenues in the first quarter of 2024. Despite this, the company remains unprofitable due to rising expenses.
Recently, Better appointed Chad Smith, a seasoned professional from Mission Loans, as president and chief operating officer to enhance its leadership structure.
Contributions by James Kleimann
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