India, Nov. 1 -- A massive financial scandal has rocked the global private-credit market, with US investment giant BlackRock's HPS Investment Partners and several major lenders reportedly trying to recover more than $500 million allegedly lost in a "breathtaking" loan fraud led by Indian-origin telecom executive Bankim Brahmbhatt.

According to an exclusive report by The Wall Street Journal, Brahmbhatt, owner of Broadband Telecom and Bridgevoice, is accused of fabricating invoices and accounts receivable that were pledged as collateral for multimillion-dollar loans.

The suit, filed in August in a US court, claims his network of companies created the illusion of profitability while allegedly transferring funds offshore to India and Maurit...