A New York jury has found Vishal Garg, CEO and founder of digital mortgage lender Better.com, liable for breach of fiduciary duty and embezzlement in a decade-long lawsuit brought by former partner Raza Khan. Garg plans to appeal.
The court ordered Garg to pay $5.5 million to the Education Investment Finance Corporation (EIFC), which the partners set up in 2009. The amount includes $2.3 million for breach of fiduciary duties, $2.2 million for embezzlement and $1 million for punitive damages.
The funds will be used to pay the company's creditors, including the Internal Revenue Service (IRS). Garg said he was on the list because he lent the company at least $2.5 million. The trial took place in New York State Supreme Court in Manhattan from May 6 to May 17.
Garg was not found liable for unjust enrichment. Khan, who initially sought $100 million in damages, was also found liable for embezzlement, according to Garg's lawyers and a May court filing. Garg's lawyers told the judge on July 2 that Khan had not put money in escrow on a separate embezzlement judgment related to the case.
Khan's lawyer, David Moreno, said in a brief email that his client was not found guilty of embezzlement but did not immediately respond to requests for additional information or documents.
The civil lawsuit began in 2013 when Khan sued his longtime friend and business partner, Garg, for “unauthorized and fraudulent transfers” of approximately $2.8 million from two companies, EIFC and Embarc, to his own personal accounts and to funds owed to third parties.
Khan and Garg, who met at Stuyvesant High School and attended New York University together, co-founded EIFC, a company that focused on asset management and advisory services for private student loan portfolios, in 2009. They each owned 50% of the company. EIFC was also a 25% owner of Embark, a company that developed proprietary software for college admissions applications.
“Raza and I grew up like brothers in Queens and went to high school and college together. We were best friends when we started this business. I wish I had kept better books and records,” Garg told HousingWire in a statement. “I am grateful that the overwhelming majority of claims in this lawsuit have been dismissed over the years, and I am optimistic that the truth of these final claims will be admitted on appeal. I am pleased that this case has finally been resolved.”
Garg's lawyer, Jason Berland, said in a statement that Garg is liable for damages to EIFC: “No payment is owed directly to Mr. Khan. This was a derivative action.”
A Better spokesperson told HousingWire that the matter was a “personal issue” that predates the company’s founding and has no bearing on the company’s operations.
Garg will continue to lead Better. In the first three months of 2024, Better Home & Finance Holdings Inc., the parent company of digital lender Better, improved its mortgage business and revenue. But expenses continue to rise and the company remains unprofitable.
Recently, the company changed its leadership structure, hiring mortgage veteran Chad Smith, who previously served as CEO of Mission Loan, as president and chief operating officer.
James Kleiman contributed reporting.