BECSR ASSIGNMENT

Case Analysis of
Fraudulent Portfolio Management:
HSBC versus Suchitra Krishnamoorthy

BY-
VIRESH GUPTA (19202065)

1) What are the key ethical issues concerning the transactions between Ms
Krishnamoorthi and HSBC?
Deception
 Expert wealth managers from the bank had misguided her on almost every investment – a
dubious smart loan for her home, unit linked insurance products and churning of mutual
funds.
 The officers of HSBC Bank also informed her that “portfolio management is one of the
prime businesses of HSBC Bank other than banking. But they had not acted as portfolio
managers but merely advised on the management of her wealth.
 She had received Rs3.6 crore as part of a settlement in September 2006. The money was
supposed to be the means of livelihood for herself and for her daughter. The bank used
confidential information about the hefty deposit in her savings account and began to
market its toxic services to her. Since bankers are seen as trustworthy, she believed that
her relationship manager was advising her correctly.

Churning
 Whenever she complained about losses, the standard reply from HSBC Bank was that the
relationship manager has been fired and that the bank will make up for the losses with
judicious investments.
 Toxic churning of the Portfolio management system.

Suitability
 Many investments were done in schemes which were under-performers.

2) Evaluate the conduct of the relationship manager(s) with reference to standard code of
ethical conduct.

Professional Competency
 Misguided Krishnamoorthy on almost every investment.
 Banks’ relationship managers have been particularly brazen in recommending financial
products to their customers while completely disregarding their financial situation.

Confidentiality
 The bank used confidential information about the hefty deposit in her savings account
and began to market its toxic services to her. Since bankers are seen as trustworthy, she
believed that her relationship manager was advising her correctly.

Integrity
 Churning of her mutual fund portfolio. Assured a return of 24% but did not suffice on it.
 HSBC claimed Portfolio Management as their prime businesses. But their managers did
not act as portfolio managers.
 Did not discharge their Fiduciary duties.

3) How would you rate the final decision to compensate Ms. Krishnamoorthi with
reference to corporate moral development?
 I will rate it as an Amoral Organization since the point to compensate came to HSBC only after
it was caught for their wrong doing and were forced by the regulatory authorities to do so.