BlackRock, the world’s largest investment group, is confronting a $500 million (£380 million) setback after its shadow banking arm became embroiled in an alleged fraud.

HPS Investment Partners, BlackRock’s private credit investment unit, has initiated legal proceedings to recover loans made to a U.S. telecom company accused of falsifying customer payments.

The case has intensified scrutiny of the shadow banking sector, which has attracted billions of pounds from major financial institutions but now faces growing concerns over transparency and risk.

BlackRock’s legal action focuses on alleged fraud involving loans provided by HPS to Bankim Brahmbhatt, the owner of U.S.-based telecom firms Broadband Telecom and Bridgevoice.