He was a monk, then a billionaire and now an alleged tax cheat

When Bhargava later struck it rich selling 5-Hour Energy caffeine shots, he decided to help India’s needy. He gave away hundreds of millions of dollars for the guru’s family members to disburse to charity and started a lab near his home outside Detroit for do-good inventions such as a stationary bike producing electricity.

Bhargava has said he follows a “zero-profit" business model of making money from the rich to give to the poor. He branched out into medical devices, a “super water" and a media empire that briefly made him the publisher of Sports Illustrated.

Not so fast, say U.S. tax authorities. They have another take on Bhargava’s Robin Hood moves: tax abuse.

Bhargava improperly lowered his tax bill by gifting a $624 million stake in his 5-Hour Energy partnership to charity, then buying it back with an IOU without ever giving up control of the company and its drink formula, the Internal Revenue Service alleged in civil tax court. It separately launched a criminal probe with the Justice Department into whether Bhargava used a daughter-in-law of the Indian guru, a Canadian citizen named Indu Rawat who heads his charitable giving, as a figurehead to shield additional wealth from U.S. taxes, according to people familiar with the matter and tax court filings.

Mr. Bhargava, through a spokesman, said he is focused on running his businesses and philanthropy, and endeavors to comply with laws, tax regulations and IRS guidance. The spokesman said Bhargava doesn’t know if the criminal probe is still open.

The tax allegations contrast with Bhargava’s public image as one of India’s biggest philanthropists, who came to the U.S. as a teenager and leapt onto the Forbes billionaire list after inventing his brand of caffeinated beverage shots. Plain speaking and disdainful of so-called experts, Bhargava, 71 years old, eschews many usual billionaire trappings and zips on cardigans for business meetings. A member of the “Giving Pledge" sponsored by Warren Buffett and Bill Gates, he has vowed to donate 99% of his wealth to helping the poor.

The Senate Finance Committee additionally alleged Bhargava hid Swiss bank accounts through Rawat, who helps channel his charitable donations to millions in India with healthcare, education and training. In a redacted March letter, Chairman Ron Wyden said Bhargava could face some of the largest tax penalties in U.S. history. CNBC previously reported Bhargava was a target of the Senate committee investigation.

The allegations are the latest by authorities in a broader crackdown on billionaires who use front people or bogus charitable donations to get out of paying taxes. The activities, once easier to keep secret, broke into the open in recent years because of pressure on banks in Switzerland and other wealth havens to share customer data.

Americans’ hidden overseas assets are a perennial bugbear for tax collectors. In 2020, authorities struck a record $140 million settlement with private-equity boss Robert Smith over undeclared profits and bank accounts, and charged one of his investors, Texas software billionaire Robert Brockman, with hiding around $2 billion income from tax. Brockman died in 2022 before trial.

Recently, Douglas Edelman, a military contractor, was charged with his French wife for allegedly pretending she owned his companies. He pleaded not guilty and she hasn’t entered a plea.

One of the main banks Bhargava used, Geneva-based Pictet, settled a decadelong U.S. criminal probe into its handling of American customers last year. It admitted helping hide around $5.6 billion and shared reams of information about its superrich clientele.

Bhargava disputes the IRS’s depiction. His lawyers in tax court said all tax benefits from his gifts were warranted.

The IRS and DOJ declined to comment, and a tax lawyer for Rawat declined to comment on her and her family’s behalf.

Divine Light Mission

Bhargava was born to a well-off family in northern India in 1953 and moved to Philadelphia at 14 for his father to pursue a doctorate. Bhargava attended Princeton but left after freshman year, later saying he needed a different education.

He read a book about a 19th century Hindu monk, and returned to India to live on ashrams devoted to deceased guru Hans Ram Singh Rawat, who preached union with god through meditation. Bhargava befriended one of the guru’s four sons, Mahipal, who married Indu Rawat, and stayed 12 years.

He later described it as a monkhood, and said the couple taught him everything. “What is wisdom, how to think, what is the process of thinking."

When Bhargava dropped out in 1973, the late guru’s movement, known as the Divine Light Mission, was at a high in the flower-power hippie counterculture. The guru’s youngest son, just 15 years old, was heralded as a god on earth. A public-television film documented a spiritual festival the family hosted at the Houston Astrodome that year for tens of thousands. Bhargava’s friend, Mahipal, grooved onstage leading a 50-person big band, Blue Aquarius.

Bhargava returned to the U.S. eventually, and reinvented himself as a businessman. He dabbled in chemical solutions to prevent runs in ladies’ nylons, and trademarked homeopathic treatments for stress and hemorrhoids. His break came after he tried a caffeine drink at a trade show and concocted a highly concentrated 2-ounce version, 5-Hour Energy.

Offered at gas-station checkout counters and convenience stores throughout the nation, it was a hit with truck drivers and sleep-deprived students, making hundreds of millions of dollars a year in sales.

“Oh, my God, we’re making a lot of money here. What do I do with this?" Bhargava recalled in a 2015 documentary about his lab inventions. He put his wealth then at $4 billion.

He saw his next mission as improving lives in India, and turned to Indu Rawat, who promotes the family’s spirituality and is revered as holy by followers. His financial life became commingled with hers. He started transferring his wealth to Indu, giving her a stake in 5-Hour’s partnership valued at $445 million, and bought a $5.7 million mansion in New Jersey for Indu and her husband and their two daughters to live in.

The elder Rawat daughter, Shweta, took charge of a charity Bhargava and her mother set up in Michigan, with Indu as trustee. Shweta and Bhargava co-founded a sister organization in India, and fused it to the family’s religious activities.

Indu Rawat, 68, and also known as Mata Shri Mangla Ji, has said helping those in need is a responsibility that gives life meaning. Vivacious and an elegant dresser, according to associates, she instructs devotees at the family’s holy events on how to achieve higher knowledge.

She won a court case against the IRS over the summer, successfully rebuffing the agency’s efforts to collect tax on transactions related to Bhargava’s $445 million gift.

Bhargava, meanwhile, got audited after giving a separate, $624 million interest in 5-Hour’s corporate partnership to the Michigan charity in 2009. What caught the IRS’s attention is that Bhargava repurchased the stake with a promissory note due in 20 years, signing as a representative of a separate company.

For Bhargava, the financial upside was potentially enormous. The promissory note had a so-called earnout provision that grew with the assessed value of the underlying 5-Hour interest. As his patented energy drink flew off the shelves, that $624 million IOU swelled to $1.32 billion in just the first two years. By his calculation, that allowed him or his companies to take half a billion dollars in tax breaks over five years—well over what he could have claimed had he just stuck with the initial donation.

All of this was a bridge too far for the IRS, which argued that the value of the charitable gift was inflated, since the partnership relied on Bhargava licensing the 5-Hour formula, and that no independent investor would have paid so much without that assurance. It also disputed the treatment of the earnout provisions.

Bhargava’s lawyers said he wanted his charitable gifts to have maximum impact. The Michigan charity said it has granted $125 million since 2015, mostly to Bhargava’s charity in India, which in turn said it has helped millions of people. Most of the money has gone to general healthcare and specialist clinics and surgery, according to the Indian charity’s annual reports.

“If the government gives me a choice of whether to give my money to a charity and help those in this world who are truly poor, or give it to the government, which is rich, I’m going to give it to the poor," Bhargava told Crain’s Detroit Business in 2012. In another interview, he said he’d be known as a stupid rich man if he didn’t try to save on his taxes.

Bhargava’s growing wealth attracted the attention of Geneva-based Pictet, serving the global rich since 1805. Bankers flew regularly to visit him outside Detroit, where he had settled with his wife and son.

Early in 2013, 5-Hour paid a $255 million dividend to Bhargava at Pictet, where Indu Rawat also maintained accounts.

Pictet treated the Bhargava and Rawat accounts as members of the same client group, according to people familiar with the matter. So, few questions were asked when Bhargava deposited the $255 million the next day into the account of a Bahamas investment company nominally owned by Rawat, people familiar with the matter said.

But the transaction popped up later. Pictet compliance officers were combing through American-tied accounts under pressure from the Justice Department, which was scouring around 100 Swiss banks for tax-evading Americans. Pictet sent letters to Bhargava’s advisers for clarification, and wasn’t satisfied with an explanation that it was a loan or that she actually controlled the account.

Among other discrepancies: A 5-Hour executive previously transferred $5 million from the account to fund a film company Bhargava backed, distributing movies produced by the Rawats’ younger daughter, who attended film school in New York. Her production company’s credits include the 2021 Academy Awards best-picture nominee The “Trial of the Chicago 7" about Vietnam War protesters Abbie Hoffman and Rennie Davis, who went on to become a follower and spokesman for Divine Light Mission in the 1970s.

Control of the account mattered, because Americans must declare their overseas finances every year—in part to discourage tax evasion. The Senate committee found Bhargava received advice to disclose the Bahamas company account as his, but didn’t do so.

Bhargava was also pouring money into new inventions to deliver clean water and energy, and narrated a documentary about them in 2015, “Billions in Change."

They included bikes for pedaling a family’s daily electricity in an hour, and plans to desalinate seawater on barges and flow it to land in floating pipes.

“The more wealth you get, the bigger your duty becomes. Which is to help those who have less, who are suffering," Bhargava said.

In 2018, the IRS issued Bhargava a notice disqualifying hundreds of millions of dollars in deductions.

Bhargava challenged the IRS, eliciting fresh allegations from the agency that the purpose of the deals was tax relief. Before trial, the case got put on hold in late 2019.

That was because a criminal probe was picking up steam, according to people familiar with the matter.

A federal grand jury convened, and in April 2021 requested 12 years of financial records from the firm handling Bhargava’s accounting. The accounting firm declined to comment.

Around the same time, Indu Rawat became a permanent resident in Singapore, and Bhargava relocated some business operations there. The Michigan charity transferred nearly $1.4 billion to the city-state, into a private trust there that, unlike the Michigan charity, doesn’t disclose what it does with its money or file U.S. tax returns.

In the summer of 2023, Bhargava pounced on the troubled publisher of Sports Illustrated, to combine with his next venture: a media group that would report unbiased news and give advertisers more power over their spending. A Singapore medical devices company in Bhargava’s business group, owned by Rawat through the Bahamas investment company, backed the combination with $111 million.

Bhargava flew some of the magazine’s famous swimsuit models to his business compound to discuss selling products on a television shopping channel. But he lost the publishing rights in a cash crunch, sparking a back-and-forth of lawsuits. He abruptly shuttered the news station in August.

The inventions in the 2015 documentary didn’t pan out. The bikes were expensive and inefficient, and caught women’s saris. Converting ocean water proved cumbersome too. The lab is working on new products, Bhargava’s spokesman said, and that they are proud of the Hans Premium water filtration system named after the guru.

The Indian charity said it is working toward Indu and Mahipal Rawat’s grand vision for humanity.

“My choice was to ruin my son’s life by giving him money or giving 90+% to charity," Bhargava wrote in announcing his participation in the Giving Pledge in 2012. “Not much of a choice."

His son, who has said on social media he is working on a project in India training farmers how to fertilize soil with leaves and cow dung, didn’t respond to requests for comment.

Krishna Pokharel in New Delhi contributed to this article.