Scams That Rattled Indian Stock Market.docx

SCAMS THAT RATTLED INDIAN STOCK MARKET CASE STUDIES

Introduction A scam is a means of getting money by deception or in an illicit way with a fake identity or documents. India, has now and then seen many scams in the financial world which has shaken Dalal Street. Some of these have caused a lot of financial distress to the common man. The Securities Exchange Board of India has been reviving rules and regulation in a aim to plug the loop holes in the securities market. Here are few famous scams from the long list of scams in India till date.

List of Scams that Rattled Indian Stock Market: 1. Harshad Mehta 2. Ketan Parekh 3. Yes Bank IPO scam 4. Satyam Scam 5. Roop Bhansali 6. Subrata Roy Scam 7. Saradha Scam 8. NSEL 9. Coal scam 10.2G Spectrum

1. Harshad Mehta Scam He was known to have fooled many investors by taking advantage of loop holes in the system. This was probably the most publicized scam and came to be know as the Harshad Mehta scam. Harshad and his associates initiated a securities scam by diverting funds of about Rs 5,000 crore from the banks to stockbrokers between April 1991 to May 1992. After the scam was

exposed, the stock markets crashed and Mehta was arrested and banned from trading in the

stock markets. Harshad Shantilal Mehta was born in a Gujarati Jain family of modest means. His early childhood was spent in Mumbai where his father was a small-time businessman. Later, the family moved to Raipur in Madhya Pradesh after doctors advised his father to move to a drier place on account of his indifferent health. But Raipur could not hold back Mehta for long and he was back in the city after completing his schooling, much against his father’s wishes. Mehta first started working as a dispatch clerk in the New India Assurance Company. Over the years, he got interested in the stock markets and along with brother Ashwin, who by then had left his job with the Industrial Credit and Investment Corporation of India, started investing heavily in the stock market.

Mehta gradually rose to become a stock broker on the Bombay Stock Exchange, who did very well for himself. At his peak, he lived almost like a movie star in a 15,000 square feet house, which had a swimming pool as well as a golf patch. He also had a taste for flashy cars, which ultimately led to his downfall.

RISE OF MEHTA The year was 1990. Years had gone by and the driving ambitions of a young man in the faceless crowd had been realised. Harshad Mehta was making waves in the stock market. He had been buying shares heavily since the beginning of 1990. The shares which attracted attention were those of Associated Cement Company (ACC),” write the authors. The price of ACC was bid up to Rs 10,000. For those who asked, Mehta had the replacement cost theory as an explanation. The theory basically argues that old companies should be valued on the basis of the amount of money which would be required to create another such company. Mehta was the darling of the business media and earned the sobriquet of the ‘Big Bull’, who was said to have started the bull run. But, where was Mehta getting his endless supply of money from? Nobody had a clue.

FRAUD COMMITTED The crucial mechanism through which the scam was effected was the ready forward (RF) deal. The RF is in essence a secured short-term (typically 15-day) loan from one bank to

another. Crudely put, the bank lends against government securities just as a pawnbroker lends against jewellery….The borrowing bank actually sells the securities to the lending bank and buys them back at the end of the period of the loan, typically at a slightly higher price. It was this ready forward deal that Harshad Mehta and his cronies used with great success to channel money from the banking system. A typical ready forward deal involved two banks brought together by a broker in lieu of a commission. The broker handles neither the cash nor the securities, though that wasn’t the case in the lead-up to the scam. In this settlement process, deliveries of securities and payments were made through the broker. That is, the seller handed over the securities to the broker, who passed them to the buyer, while the buyer gave the cheque to the broker, who then made the payment to the seller. In this settlement process, the buyer and the seller might not even know whom they had traded with, either being know only to the broker.

This the brokers could manage primarily because by now they had become market makers and had started trading on their account. To keep up a semblance of legality, they pretended to be undertaking the transactions on behalf of a bank. Another instrument used in a big way was the bank receipt (BR). In a ready forward deal, securities were not moved back and forth in actuality. Instead, the borrower, i.e. the seller of securities, gave the buyer of the securities a BR. A BR confirms the sale of securities. It acts as a receipt for the money received by the selling bank. Hence the name - bank receipt. It promises to deliver the securities to the buyer. It also states that in the mean time, the seller holds the securities in trust of the buyer. Having figured this out, Metha needed banks, which could issue fake BRs, or BRs not backed by any government securities. Two small and little known banks - the Bank of Karad (BOK) and the Metorpolitan Co-operative Bank (MCB) - came in handy for this purpose.Once these fake BRs were issued, they were passed on to other banks and the banks in turn gave money to Mehta, obviously assuming that they were lending against government securities when this was not really the case. This money was used to drive up the prices of stocks in the stock market. When time came to return the money, the shares were sold for a profit and the BR was retired. The money due to the bank was returned.The game went on as long as the stock prices kept going up, and no one had a clue about Mehta’s modus operandi. Once the scam was exposed, though, a lot of banks were left holding BRs which did not have any value - the banking system had been swindled of a whopping Rs 4,000 crore. Mehta made a brief comeback as a stock market guru, giving tips on his own website as well as a weekly newspaper column. This time around, he was in cahoots with owners of a few companies and recommended only those shares. This game, too, did not last long. Interestingly, however, by the time he died, Mehta had been convicted in only one of the many cases filed against him.

MEHTA DIED Mr Mehta was under judicial custody in the Thane prison after a special court remanded him and his two brothers, Mr Ashwin Mehta and Mr Sudhir Mehta, in a fresh case of

misappropriation. According to sources, Mr Mehta complained of chest pain late night and was admitted to the civil hospital where he breathed his last around 12.40 a.m.(jan. 1, 2002).

2. Ketan Parekh Scam: Following the footsteps of Mehta, Ketan Parekh had bigger plans. He conned banks and exchanges like the Allahabad Stock Exchange and the Calcutta Stock Exchange, and bought shares in fictitious names to manipulate the share prices in companies. Ketan was a chartered accountant who used to run a family business, named NH Securities. Ketan Parekh used the money of promoters of the companies and created artificial demand to increase the company’s stock prices. He was involved in circular trading scheme where buy/sell orders are entered by a person or by persons acting in collusion with each other to operate the price of the underlying security for mutual benefit. He was involved in driving the prices of these 10 stocks: Global Telesystems, Zee Telefilms, HFCL, Silverline, Satyam Computers, Aftek Infosys, DSQ Software, Ranbaxy, Pentamedia Graphics and Visual Soft. Ketan Parekh can best be described as the Pied Piper of Dalal Street. For two years, marketmen followed his every action because all he touched turned to gold. Better known as the Pentafour Bull, he kept a low profile, except when he threw a millennium bash that was attended by politicians, business magnates and film stars. A chartered accountant by training, Parekh came from a family of brokers, which helped him create a trading ring of his own. Between 1999 and 2000, as the technology bubble was engulfing the rest of the world, the stock market in India sprang to life too. Be it investment firms, mostly controlled by promoters of listed companies, overseas corporate bodies or cooperative banks, all were ready to hand the money to Parekh, which he used to rig up stock prices by making his interest apparent. In no time, scrips like Visualsoft rose from Rs 625 to Rs 8,448 per share and Sonata Software from Rs 90 to Rs 2,150. But the vicious cycle of fraud did not end with price rigging. The inflated stocks had to be dumped onto someone in the end, for which Parekh used financial institutions like the UTI. But the party ended rather abruptly a day after the Union Budget was presented in February 2001. A bear cartel started disrupting Parekh's party by hammering prices of the K-10 stocks, precipitating a payment crisis in Kolkata. As SEBI investigated, it was evident that bank and promoter funds were used to rig the markets. Parekh was arrested in March that year and was in custody for 53 days. In the aftermath of the scam, many gaping loopholes in the market were plugged. The trading cycle was now reduced from one week to one day. Badla was banned and operators could not carry forward trade in its primitive form. Forward trading was formally introduced in the form of exchange-traded derivatives to ensure a well-regulated futures market. Broker control over stock exchanges was demolished. It's perhaps thanks to the Pentafour Bull that India's stock markets are today considered safe. And to his credit, Parekh forced lethargic policy-makers to institute reforms in the financial system. He is, however, now suspected to be operating in the markets through conduits. Parekh will remain a work-in-progress for regulators.

3. Yes Bank IPO scam The capital market regulator, SEBI, has unearthed a large-scale multiple application case in the recent YES Bank IPO and banned 13 investors from trading in the bank's shares with immediate effect. These investors have manipulated allotment of shares by opening more than 7,500 `benami' depository accounts. They gained Rs. 1.7 crore by this manipulation on the first trading day of the IPO, according to a SEBI interim order issued today. SEBI has also referred the case to the Reserve Bank of India seeking investigation into the role of the Chennai-based Bharat Overseas Bank Ltd and Vijaya Bank in opening the bank accounts of these benami entities and funding their IPO applications. The modus operandi : According to SEBI report, an investor named Ms Roopalben Panchal had applied for 1,050 YES Bank shares and paid the application money of Rs. 47,250. Apparently she did not receive any allotment. Later she received 150 shares each from 6,315 allottees through off-market transfer. Thus, she received 9,47,250 shares in aggregate, which she sold through five other entities on the day of listing. Another investor, Sugandh Estates and Investments P Ltd, also received a large number of shares by similar method of manipulation and gained about Rs. 32 lakh through opening 1,315 benami accounts. Investigation by SEBI has found depository participant, Karvy-DP, which was used by these companies to open 7,630 benami dematerialised accounts (which served as a conduit for two entities) failing in the `know your client' norms in the issue. SEBI has asked NSDL to undertake comprehensive inspection of Karvy-DP to check whether it has implemented the `know your client' norms that DPs are required to follow. SEBI said: "Further probe is required for examining the systemic fault, if any, of the registrar to the issue - Karvy Computer Shares Pvt Ltd - and the lead mangers, DSP Merrill Lynch Ltd. And Enam Financial Consultants in identifying and the weeding out the benami applications."NSDL and Central Depository Services Ltd have also been advised by SEBI to enhance their surveillance and devise and put in place systems and procedures for identifying multiple dematerialised accounts of suspicious nature. Both the depositories have also been asked to report their findings to SEBI "as expeditiously as possible," according to SEBI order by its whole-time member, Mr G. Anantharaman. The 13 entities and individuals barred from further dealings in YES Bank and future IPOs are Ms Roopalben Nareshbhai Panchal, Ms Devangi Dipakbhai Panchal, Seer Finlease (P) Ltd, Excell Multitech Ltd, Zenet Software Ltd, Tauras Infosys Ltd, Mr Rajan Vasudev Dapki, Barghav Panchal (HUF), Mr Jayantilal Jitmal, Sugandh Estates and Investments Pvt Ltd, Sujal Leasing, Ms Ritaben R. Thakkar, and Mr Veenben Y. Thakkar. NO SYSTEM is foolproof from someone determined to undermine it. That is perhaps what the manipulation of the allotment process in Yes Bank's Initial Public Offering proves. A combination of factors appear to have led to the scam. It was a subversion of the system by one individual who applied to the IPO in 6,315 different names, from the same address, to get a large number of shares allotted. It was also a systemic failure as the depository participant (Karvy Stock Broking, in this case) failed to notice the abnormal fact of the same address supporting more than 6,000 different names.

Then, there is the possibility of collusion at the bank branch that extended a loan to so many `applicants' with the same address. This can be ascertained only by an investigation by the bank or the Reserve Bank of India. One cannot help asking the question though: Whatever happened to prudent lending practices that would have required the bank to verify the address of each borrower as also his personal identity? To be sure, the Yes Bank IPO may not be the only one where the allotment process was manipulated. There are probably others out there who are attempting or have attempted the same though the full picture may never be known. How do we prevent such acts that are obviously wrong but also patently unfair to investors who stick to the rulebook and are not allotted any shares? There is a suggestion to review the entire system of quotas for retail, high-net-worth individuals and institutional investors. It would be wrong to do away with a system that is desirable, just because one individual has manipulated it. The quota system was, after all, instituted to ensure that the small retail investor is not discriminated against in the allotment process. There is also talk that all depository accounts with the same address will now come under the scanner. While this will, no doubt, help identify benami accounts and those opened with fictitious names, care ought to be taken because there could also be genuine cases of more than one account having the same address. This will typically happen where more than one member of a family has an account or where an individual has an account in his name and also in that of his HUF. There could also be cases of an investor who already has one demat account with one participant opening a new one with another just to take advantage of lower transaction charges. Just as there is nothing wrong having multiple savings bank accounts so also with depository accounts. The problem arises only when such multiple accounts are misused. Any filtering exercise to identify fictitious accounts ought to, therefore, be done at the depository level and not at the depository participant level. There also needs to be coordinated action by the two depositories NSDL and CDSL, in this respect. One suggestion by Mr C. B. Bhave, CMD, NSDL, is to allot a unique identification number to every investor who will have to quote it in his IPO application. This is a workable suggestion that deserves serious thought. If allotting a unique identification number is a cumbersome process, the regulator can consider using the income-tax permanent account number (PAN) itself as a unique identification tag. It is now mandatory to quote the PAN for all applications exceeding Rs. 50,000 in value; the regulator can consider making it mandatory for all investors regardless of the value of shares applied for. The only problem is that not all investors are income-tax assessees and, therefore, may not have a PAN number. For instance, housewives and retired senior citizens may be investing in the stock market but may not be assessees. However, even a unique identification number cannot help where there is a systemic failure, as in the Yes Bank IPO case. Finding an answer to the following questions that arise from the episode may help. First, how did the depository participant fail to notice so many accounts with the same address even assuming that they were opened over several months? The sheer number ought to have caught the eyes of the depository participant.

Crucial is a periodic scan of all accounts with a depository participant not just to weed out benami and fictitious accounts but also to prevent other malpractices. Second, how did the registrar to the issue fail to notice thousands of applications with the same address? The mere fact that an IPO generates tens of thousands of applications cannot be an excuse, given that the entire process of allotment is computerised. Does the registrar scan the list of successful allottees at all? Finally, how did the applicant manage to secure loans under fictitious names to invest in the IPO? This is the most important question of all and deserves to be investigated fully. What aftermath measures taken by SEBI to plug the loopholes of the system?

4. Satyam Scam: India's one of the biggest corporate scandal affecting India-based company Satyam Computer Services in 2009 in which Satyam Company's chairman Ramalinga Raju confessed that he manipulated accounts to show increased sales, profits and margins from 2003 to 2008. CBI took over the investigation and filed three partial charge sheets over the course of the year. It later merged those three partial charge sheets into a single charge sheet. On April 9, 2015, B. Ramalinga Raju, along with 9 others were pronounced guilty in the Satyam Scam. The multi-crore Satyam Computers corporate scam was a jolt to the market, especially to Satyam stock-holders. A look at all the aspects of one of the biggest corporate frauds that raised eyebrows and highlighted the need for better government regulations among corporates. A special CBI court on Thursday sentenced B Ramalinga Raju, his two brothers and seven others to seven years in prison in the Satyam fraud case. The court also imposed a fine of Rs 5 crore on Ramalinga Raju, the Satyam Computer Services Ltd's founder and former chairman, and his brother B Rama Raju and Rs 20-25 lakh each on the remaining accused. HT presents a lowdown of the country's biggest-ever corporate accounting scandal.

What is the Satyam scam about? It is about corporate governance and fraudulent auditing practices allegedly in connivance with auditors and chartered accountants. The company misrepresented its accounts both to its

board, stock exchanges, regulators, investors and all other stakeholders.

Is this an accounting fraud, a market manipulation/fraud or both? It is a fraud, which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating profits, interest liabilities and cash balances were grossly inflated to show the company in good health.

Who is to blame here? The promoters? The promoters are primary culprits, although it is almost impossible to misrepresent such facts without the connivance of the auditors and some executive board members. Independent directors, it seems, were kept in the dark about the actual books of accounts.

What about the auditors? The role of external third party auditors, who were tasked to ensure that no financial bungling is undertaken to carry out promoters’ interest or hide facts, have also been brought to question.

Anatomy of a fraud

1. Maintaining

records

· Raju maintained thorough details of the Satyam's accounts and minutes of meetings since

2002. · Raju stored records of accounts for the latest year (2008-09) in a computer server called "My Home Hub."

2. Fake invoices and bills · Details of accounts from 2002 till January 7, 2009 – the day Raju came out with his

dramatic, five-page confession - were stored in two separate Internet Protocol (IP) addresses. · Fake invoices and bills were created using software applications such as 'Ontime' that was used for calculating hours put in by an employee · A secret programme was allegedly planted in the source code of the official invoice management system creating a user id 'Super User' with the power to hide or show the invoices in the system.

3. Web of companies · A web of 356 investment companies was used to allegedly divert funds from Satyam. · These companies had several transactions in the form of inter-corporate investments, advances and loans within and among them. · One such company, with a paid up capital of Rs 5 lakh, had made an investment of Rs 90.25 crore and received unsecured loans of Rs 600 crore. 4. Why

did he need the money

· The cash so raised was used to purchase several thousands of acres of land across Andhra

Pradesh to ride a booming realty market. · It presented a growing problem as facts had to be doctored to keep showing healthy profits for Satyam that was growing in size and scale. · Every attempt made to eliminate the gap failed. · As Raju put it, "it was like riding a tiger, not knowing how to get off without being eaten." · Cashing out by selling Maytas Infrastructure and Maytas Properties to Satyam for an estimated Rs 7,800 crore was the last straw. The attempt failed and Raju made the stunning confessions three weeks later.

5.

Roop Bhansali scam

CRB was once a top-notch investment banking firm, started by C R Bhansali. Roop Bhansali, through mutual funds, fixed deposits and debentures collected money from investors. With the help of non-existent companies he is raised money and transferred to his other shell companies or others who invested with him. Chain Roop Bhansali always did so much for the place, was so generous with money. When Dr V.V. Vyas was running around for funds to set up scanning facilities for his Sujalam Nursing Home, banks turned him down, but CRB Capital Markets chipped in with Rs 7 lakh in low-interest loans. When Adarsh Vidya Mandir wanted to buy a school bus, the two lakh rupees came easy. And didn't the man himself show up last December, canvassing support for a fixed-deposit scheme, offering returns as high as 24 per cent? And isn't he the same man who everybody says has run away with other people's money? "Sujangarh kapaisa ayega, Chain Roop paisa dega (Chain Roop will pay Sujangarh back its money)," mumbles C.M. Chauhan. The medical representative had placed Rs 10,000 in a fixed deposit with CRB Capital Markets last year. Like 2,000 others in this sun-blasted town four hours west of Jaipur, who invested amounts between Rs 10,000 and Rs 15,000. For some like Chauhan, an opportunity to turn over hard-won savings by a quarter every year, quicker than any other way. For Gopal Prajapat, to buy some equipment for his rundown photo studio. "I am not so certain about the money now," he says. Neither are almost three lakh other depositors and creditors - among those who were taken for a ride are the State Bank of India (SBI) and the Bank of Tokyo. They have, in the past one month that India's newest white-collar whiz kid shyster has hit the headlines, wondered about Rs 1,200 crore of their money borrowed by Bhansali's eponymous operations, a clutch of six companies. The funds either not there, not adequately guaranteed, "No lessons have been learnt from or backed by overvalued assets. Meanwhile, the 41- the Harshad Mehta and MS Shoes year-old chartered accountant with a well-honed gift scams." of the gab has simply disappeared. He was supposed Arup Patnaik, DIG, CBI to turn up for an inquiry at the Reserve Bank of India's (RBI) headquarters in Mumbai on May 22. It was spurred by charges that between March 1 and April 9, he duped SBI of Rs 59 crore by issuing fraudulent dividend warrants and encashing them. The fall of the first domino that ultimately led to RBI banning CRB from raising deposits, leading to run on the company, and the unearthing of the swindle. To nobody's surprise, Bhansali never showed up. What is surfacing - as red-faced RBI officials, wrong-footed creditors and slow-moving investigators try and patch together evidence - is a scam far murkier and larger than the public first imagined. It is quite clear now that the hardest hit will be simple, small investors like Bhansali's credulous fans in Sujangarh. Public deposits, debentures, shareholders and subscribers to a CRB mutual fund are the hardest hit, with over Rs 1,000 crore that is unlikely to be ever recovered in full. This underscores what is wrong with India's financial regulatory system. And this is just one case being caught out among many just waiting to happen in a largely unregulated market where deposits worth a mind-boggling Rs 70,000 crore, according to RBI's own estimates, are totally unsecured. How Much Bhansali Walked off With ... ... and the likelihood of recovery

That is, if anything goes wrong, there is no guarantee for the money. "CRB is a pattern fraud,'' says Arup Patnaik, DIG of the CBI's Bank and Securities Offences Branch. "And sadly, no lesson has been learnt after the Harshad Mehta and MS Shoes scams. It also shows that regulatory bodies have hardly any control over systems or people." That much is true, and tragic. But what is also emerging is a classic cocktail of connections in high places, money laundering deals with companies, bankers looking the other way, and investigators quite clueless about where to begin looking for a person who is said to be hiding everywhere, from Canada, Jaipur and Calcutta - where he grew up and earned a CA's stripes - to Kathmandu and Noida in Uttar Pradesh, just across the border from New Delhi. So who's Bhansali, and what did he do to get where he is - or isn't? From all accounts, it started in 1991, when the soft-spoken Bhansali converted his core company from CRB Consultancy Private Ltd into a public limited company and then renamed it CRB Capital Markets, a non-banking financial company (NBFC). He also shifted base from Calcutta, where he had moved with his father Fateh Chand from Sujangarh as a child, to the Mecca of the money mantra: Mumbai. Over time, he developed key connections, say former associates: maverick politician Subramaniam Swamy, Rajasthan Chief Minister Bhairon Singh Shekhawat and his son-in-law Narpat Singh Rajvi, Uttar Pradesh Chief Minister Mayawati, Orissa Chief Minister J.B. Patnaik and godman Chandraswami. In three years - from March '93 to '96 - the net worth of CRB Capital Markets moved from Rs 11.65 crore to Rs 436.6 crore, a 37-fold increase. Surely, this was the signal to read. The RBI read it. Wrongly. And considered his application for a bank licence. This, when CRB was borrowing - in business parlance, raising deposits - at between 24 and 32 per cent a year, rates no legitimate business can sustain. It was clear Bhansali was creating a numbers bubble to pay for his ultimate dream: running a bank and sealing his stamp as a financial bigwig. Between May 1995, when it was informally known that the RBI had considered CRB for the licence, and September 1996, the company had juiced the market for deposits with rates as high as 24 per cent plus a 10 per cent incentive upfront. Indeed, brokers in Gujarat and Mumbai were offered Mercedes cars and Maruti Esteems if they managed to cross the Rs 10 crore mobilisation mark. To be issued a licence, CRB needed a capital of Rs 100 crore, and the exercise was aimed at raising that amount, whatever it took - including the SBI fiddle. The other side of the moneyraising effort was a constant pressure to pay returns which were not possible given the high rates. So CRB was simply raising more money to pay interest and, in some cases, the principle. Bhansali even had the audacity, cleanly overlooked by the market watchdog SEBI, to claim an RBI clearance for a bank even after the application had been rejected last December. The prospectus of CRB Corporation Ltd, a group company, for private placement of CRB Power Bonds opening March 15, said quite clearly that "CRB Group has promoted its own private Public deposits of Rs 189 cr. No guarantee of getting anything back. Debentures worth Rs 200 cr. No guarantee of recovery. Investors in CRB Capital Market can kiss their Rs 252 cr goodbye. CRB Arihant Mutual Fund picked up Rs 229 cr. Recovery remote. Over Rs 200 cr in inter-corporate deposits. Recovery if they have assets. CRB Capital owes over Rs 90 cr to banks; other group firms Rs 43 cr. Co-op banks' credit exposure to CRB group: over Rs 50 cr. Part recovery. (Source: Reserve Bank of India; Central Bureau of Investigation; Market Intelligence)

sector bank, CRB Global Bank Ltd, and is shortly to begin commercial operations". Estimated hit: over Rs 100 crore. Till today, RBI has no explanation as to how it could have even considered issuing an inprinciple licence for a bank to an unregistered finance company like CRB, when even applications by Reliance, Essar and the AV Birla Group were being rejected. RBI also had a report of a SEBI inspection of the group's merchant-banking division and asset-management Company which came up with some routine and some serious violations. The group was banned from lead-managing any new issue and the mutual fund was barred from floating any new schemes till July 1996. (Bhansali lobbied unsuccessfully against the order and against key SEBI officials). This was conveyed to the RBI. In response, on July 1, 1996, the RBI issued the in-principle approval letter to Bhansali. For their part, say RBI officials, till March 27, 1997, when the RBI Act was finally amended after three years, it had no powers to inspect any NBFC unless it came for registration. Even when it did come for registration, the RBI could not scrutinise everything. Says Deputy Governor S.P. Talwar: "They could only look at the liabilities - that is the deposits - and not the assets side." Simply put, it couldn't check if there were any assets at all against the money raised. By the time it did get the powers, it was too late. Loopholes in the law and plain fraud are things not many attributed to Bhansali till three years ago. In March 1994, Daewoo Securities was impressed enough by Bhansali to consider a tieup with CRB. This was also the time when Bhansali would trumpet to INDIA TODAY, one of the few times that he went to the media, about his going in for joint ventures "so that we can bring some expertise into India and so that CRB's reputation is enhanced". He even commissioned Arthur Andersen to evolve a group strategy for CRB. Managing partner Sid Khanna was moved to say, "He is very dynamic and entrepreneurial." It is easy to say in hindsight that perhaps there was a streak of pushiness and greed in Bhansali that nobody detected. And even if they did, everyone kept quiet in a convenient confederacy of thieves. They included companies Bhansali allegedly laundered money for - Rs 10 crore in cash for a Rs 8 crore cheque with 20 per cent as his commission. Reports of stashing money overseas through dummy accounts are coming in. There are rumours floating in investigative circles that if Bhansali turns himself in, it will be to escape those he moved money for. This may seem a bit extreme, but Bhansali, a mild-mannered, teetotalling vegetarian, appears to have been involved in some extreme deals for extreme greed. "Safety is inversely proportional to greed,'' says S.K. Shelgikar, adviser to Videocon. "Higher the greed, higher the risk." Bhansali will pay for it, one way or another. His investors already have.

The Insitutions: What happened? Chain Roop Bhansali in better times: high-profile persuader The oversight: In three years, between March '93 and '96, the net worth of CRB Capital Markets jumped from Rs 11.65 crore to Rs 436.6 crore, or over 37 times. Alarm bells should have gone off about manipulation, especially as SEBI, which had sent in an inspection report on the group's merchant banking division and asset Management Company, came up with serious violations. The group was banned from lead-managing any new issues and the mutual fund was barred from floating any new schemes till July 1996. Despite this, on July 1, 1996, the RBI issued the in-principle approval letter to Bhansali. In hindsight: Though it oversees their activities RBI has no powers to deal with NBFC violations. After the '92 securities scam, RBI had appointed the A.C. Shah Committee to look into NBFCs. Its recommendations were accepted by RBI on April 10, 1993. But these required legislative changes which didn't happen till an ordinance was issued on January 9, 1997 and an Act on March 27, 1997. The significance of the delay is that till then RBI had no powers to inspect any NBFC unless it came for registration. And even when it did, RBI could not scrutinise assets. In fact if it wasn't for CRB's sudden desire to get CRB Capital Markets registered with the RBI in September 1996, neither RBI nor the public would have been any wiser. Foresight: There is now an Act and there is talk of introducing insurance against fraud, as in the UK. The fact is, it is almost next to impossible to monitor 45,000 NBFCs playing around with as much as Rs 70,000 crore with today's laws and enforcement capability. There could be other disasters waiting to happen.

5. Subrata Roy scam: Subrata Roy case is also called Sahara India Pariwar investor fraud case. In this case Subrata Roy, the chairman of the Sahara India failed to return Rs 24,000 crore plus interests to its investors as directed by the Supreme Court of India. Eventually, he was arrested by Uttar Pradesh police on a Supreme Court warrant. Then Supreme court of India granted interim bail on condition that he should deposit Rs 10,000 crore with Securities and Exchange Board of India(SEBI). Subrata was eventually taken into judicial custody and sent to Tihar jail, along with two other Sahara directors, for failing to deposit Rs 10,000 crore to SEBI as per Supreme court of India orders. He got released on parole in May 2016 to attend the last rites of his deceased mother then the parole got extended. The nationwide bust up over how a certain liquor baron made bankers kiss dirt, walking away with bagful of cash through a VIP channel, possibly to an undisclosed city in Europe, is making headlines and triggering breaking news almost every day now. But questions need to be raised about the curious case of billionaire Subrata Roy who paid loads of cash to the market regulator and last week completed two years behind bars in Delhi's maximum security prison.

Roy, who recently wrote a tome on his life experiences, is now called a philosophical author by many .

File photo of Subrata Roy. PTI Jokes apart, someone seriously needs to scrutinise the case again, especially at the way the Securities and Exchange Board of India (SEBI) handled it and the way Sahara group demonstrated considerable resilience. A few days ago, a handful of Sahara employees protested the delay in payment of salaries; they were in their undergarments. The idea was to be visible on television. But what's happening in the case? On 31 August, 2012, the apex court had asked SEBI to return money to Sahara’s investors. In the last 40 months, it has been able to pay Rs 50 crores. The Mumbai-based market regulator advertised four times in as many as 144 newspapers, inviting demands for repayment. Worse, the fourth advertisement said it was the last opportunity for raising demand for repayment. Does that mean that - under any circumstances - SEBI won't be able to pay over Rs 100 crores? And what has it got in its kitty? It has received a whopping Rs 12,000 crores and even earned interests on FDs. Also, SEBI has the property papers of Sahara’s land bank worth Rs 40,000 crore in its custody. There are chances it will have another Rs 5,800 crore ( Rs 800 crore cash and Rs 5,000 crore bank guarantee) by the time Roy and his two directors walk out of the prison gates. Sahara, which sought time for raising the stipulated cash from its assets for SEBI, was

given a 45-day extension that ended in November 2015. The group claimed it had five "solid offers" for its properties. The slugfest between the market regulator and Sahara has been described as corporate India's best known samudra manthan. SEBI disputes Sahara's claim that it has paid 95 per cent of its investors from whom it had collected Rs 24,000 crores through optionally fully convertible debentures (OFCD) in 2009-10, after the written permission from 2 Registrars of Companies. The Supreme Court however, upheld SEBI’s plea and directed that Saharas’ investors have to be refunded the money along with interest through SEBI. The billion dollar question that needs to be raised is when will SEBI verify the authenticity of these investors? If four advertisements have failed, doesn't it become obligatory for SEBI to verify Sahara's repayment claim? After all, the Supreme Court says the the final decision on the issue of unpaid investors lies with SEBI. The market regulator, which said in January 2013 that it wanted to hire a verification agency, has reportedly failed to organise one. So who will help ascertain the genuineness of bondholders in the Sahara case. Look at the way the events have progressed. SEBI has not given any reason for withholding its notice inviting the tenders. The first tender to seek a verification agency was floated on 2 November, 2012. SEBI asking for applications by 22 November, 2012. It did not happen and so the deadline was extended to 21 December, 2012, and again extended till 15 January, 2013. After the expiry of this last deadline, SEBI decided to withhold the tender notice. It is now March 2016. Someone must ask questions, either in court or on televised debates. Otherwise, the billionaire, will have no option but to write the second sequel of his planned trilogy.

6. Saradha Scam Chit-fund company Saradha Group's Chairman Sudipta Sen ran various investment schemes and collected money from many investors in West Bengal and Odisha. The Saradha Group financial scandal was a major financial scam and alleged political scandal caused by the collapse of a Ponzi scheme run by Saradha Group, a consortium of over 200 private companies that was believed to be running collective investment schemes popularly but incorrectly referred to as chit funds.The group collected around US $4-6 billion from over 1.7 million depositors before it collapsed in April 2013. In the aftermath of the scandal, the State Government of West Bengal where the Saradha Group and most of its investors were based instituted an inquiry commission to investigate the collapse. The State government also set up a fund of US $74 million to ensure that low-income investors were not bankrupted.

The central government through the Income Tax Department and Enforcement Directorate launched a multi-agency probe to investigate the Saradha scam and similar Ponzi schemes.In May 2014, the Supreme Court of India, inter-state ramifications, possible international money laundering, serious regulatory failures and alleged political nexus, transferred all investigations into the Saradha scam and other Ponzi schemes to the Central Bureau of Investigation (CBI). Many prominent personalities were arrested for their involvement in the scam including two Members of Parliament (MP) - Kunal Ghosh and Srinjoy Bose, former West Bengal Director General of Police Rajat Majumdar, a top football club official Debabrata Sarkar, Sports and Transport minister in the - Madan Mitra.

7. NSEL Scam : Money from investors were siphoned off as the most of the underlying commodities did not exist and the buying and the selling of commodities was being only conducted only on paper. Investors were attracted by offering fixed returns on paired contracts in commodities. And it was lately, found out the stocks were missing. The NSEL is a company promoted by Financial Technologies India Ltd and the NAFE. Jignesh Shah along with Shreekant Javalgekar were accused of the scam. Jignesh Shah, founder of MCX, was arrested for his alleged involvement in the Rs 5,600-crore National Spot Exchange Limited (NSEL) scam. Shah was involved in various wrongdoings and irregularities at NSEL, due to which NSEL faced a payment crisis and over 13,000 investors lost their money. The Central Bureau of Investigation (CBI) has charged 20 entities and some of their officials for cheating state-owned commodities trading firms PEC Ltd and MMTC Ltd in connection with the Rs5,600 crore payments fraud that surfaced in 2013 at the National Spot Exchange Ltd (NSEL).The entities include NSEL, its parent Financial Technologies India Ltd (FTIL), PD Agro Processors Ltd, Dunar Foods Ltd and Mohan India Ltd. CBI, in a chargesheet filed with a special court in Mumbai in December, accused Jignesh Shah, former chairman of FTIL, of cheating and criminal conspiracy, and breaching the prevention of corruption act. Mint has a copy of this chargesheet. Shah and FTIL, now known as 63 Moons Technologies Ltd, denied these charges. Hearing in this case is scheduled on 3 May. The December chargesheet made CBI the third agency to file a chargesheet in the NSEL case. The Economic Offences Wing of Mumbai police filed a chargesheet in 2014, and the Enforcement Directorate in 2015. According to the 150-page chargesheet, CBI has found a fund trail that led to losses of Rs120 crore for PEC and Rs105 crore for MMTC. CBI had first registered a first information report in the case in February 2014, alleging that a “conspiracy was hatched” by the accused to cheat PEC and siphon off its funds by floating “accommodative and fraudulent paired contracts”. Paired contracts entail investors, through brokers, buying a spot contract and selling a futures one for the same commodity, and pocketing the difference. Paired contracts violate the Forward Contracts Regulation Act (FCRA) as they are financial transactions. NSEL was allowed to deal only in spot delivery contracts to be exempt from FCRA.

In the chargesheet, CBI has alleged that FTIL was the major beneficiary of the revenue earned by NSEL and that paired contracts were the major source of income for the commodities bourse. “All the minutes of the board meetings of NSEL were vetted and approved by FTIL before issuance,” said the CBI chargesheet. In an emailed response sent on 10 March through its lawyers, FTIL said that it is yet to receive a copy of the chargesheet. “However, assuming your information is correct, our client strongly denies such charges, which have no legal or factual basis. Our client is confident to come out clean through the judicial process,” said Manik Joshi from Crawford Bayley and Co, the lawyers representing FTIL, in an emailed response. The email added that NSEL was a separate company with its own board of directors. It said NSEL became a “material subsidiary” of 63 Moons only from April 2011. “The duly approved board minutes of any such material subsidiaries for all listed companies for compliance purpose are required to be placed on a ‘post-facto’ - ‘for your information’ basis before the board of the parent company. In any event, none of these board minutes of NSEL raised any red flags,” the email said. FTIL also said that it did not derive any benefits as NSEL never declared any dividends or issued bonus shares. The CBI chargesheet highlighted that FTIL received a sum of Rs90.69 crore from NSEL as software maintenance charges during 2011-13. The specific allegations against Shah pertain to his presence in board meetings where launch of contracts was approved. The CBI also alleged that Shah was also named as a key management personnel (KMP) of NSEL during 2008-12 when the concept of paired contracts was introduced. The chargesheet said that Shah had also made a presentation to the Forward Markets Commission (FMC) and consumer affairs ministry on adequacy of stocks a mere 20 days before the settlement crisis erupted. The mail from FTIL lawyers said that Shah was never a KMP at NSEL and he had just delivered the presentation that was prepared by NSEL executives. “Shah has informed that he has never met or interacted with any officials of PEC or MMTC, therefore the question of connivance does not arise. Shah was non-executive vice-chairman of NSEL. He never received any compensation nor any salary and not even the sitting fees from NSEL,” the mail said. To be sure, CBI also mentions that Shah was briefed by Anjani Sinha, former CEO of NSEL, before the presentation was made. According to CBI, Sinha was responsible for creating

paired contracts—a “financing mechanism”. Sinha also devised a system which encouraged parties to engage in financial transactions without underlying stocks. “He was the sole approving authority for all the limits granted to the defaulters PD Agro Processors and Mohan India and others who subsequently siphoned off the huge public money without having sufficient collateral/ commodities,” CBI said in the charge sheet. Sinha did not respond to an email sent to him by Mint. A spokesperson for Mohan India and its group companies Tavishi and Brinda told Mint that the companies never interacted with the government entities directly. “Interactions were limited to NSEL only. We are ready to refund the dues of investors by selling assets which are not attached by enforcement agencies and some assets that are being released by the income tax department,” said the spokesperson. PD Agro and PEC did not respond to emails sent to them.

8. Coal Scam : Coal allocation scam also know as Coalgate scam is a political scandal concerning the Indian government's allocation of the nation's coal deposits to public sector entities (PSEs) and private companies. There was wrongful allocation of coal deposits among government employees without competitive bidding. A special court of the Central Bureau of Investigation on Friday sentenced former secretary H.C. Gupta, former joint secretary in Coal Ministry K.S. Kropha and former director of Coal Ministry K.C. Samaria two years in prison for their involvement in the Coal Scam. They were, however, granted bail on the same day and could now challenge the sentence in High Court. The three were found guilty under Prevention of Corruption Act and Indian Penal Code. Among the charges, one of the prime offences was abuse of public office, securing pecuniary advantage without public interest and criminal conspiracy. This case dealt with alleged irregular allocation of coal blocks in Madhya Pradesh to Kamal Sponge Steel & Power Ltd. (KSSPL). Coalgate, as it was popularly known snowballed into a huge political scandal which pulled top leaders and bureaucrats from the previous UPA regime into the probe. A report by the Comptroller and Auditor General of India showed inefficient and possibly illegal allocation of coal blocks between 2004 and 2009. It estimated loss to the exchequer to the tune of Rs 10.7 lakh crore but it later toned this amount down to Rs 1.86 lakh crore in the final report.

The central point of the CAG report that showed improper allocation was that the government had the authority to allocate the coal blocks. However, this was to be done via competitive bidding. But the government chose to take another route and avoided competitive bidding, the CAG report said. CAG observed the revenue secured from the allottees for allocation was much less than what could have been if there was competitive bidding–hence presumptive loss to the exchequer. The presumptive loss was factored in to estimate the windfall gains to allottees first at Rs 10.673 lakh crore and later toned down to Rs 1.856 lakh crore. After the CAG submitted its final report to Parliament, then Prime Minister Manmohan Singh read a statement that rebutted the report in the alleged/presumptive loss as well as the reading of the law. He had also said that the observations of the CAG were disputed. The initial CAG report didn’t talk about corruption, rather inefficient allocation. However, after BJP filed a complaint with the Central Vigilance Commission, the CVC directed CBI to probe the matter for corruption. At least a dozen companies were named in the FIR that resulted in a criminal investigation. Accusations ranged from malicious means for securing allocation, overstating net worth, non-disclosure of prior allocation and hoarding rather than the development of allocated resources. Industrialists like Naveen Jindal and Kumar Mangalam Birla have also found their name in FIRs in the Coal Scam probe. A report of the parliamentary standing committee said that the allocation of blocks between 1993 and 2008 had been unauthorised. It recommended deallocation of all blocks where construction had not started and forfeiture of bank guarantees in others. Over the course of the investigation, Supreme Court constituted a special court to try all cases related to the coal scam.