SCAMS

1.
2.
3.
4.
5.
6.

VAISHALI LAPASIA
MANSI MODY
PANKHURI PANDYA
BINOY PAREKH
HITESH RAMDASANI
SAHIL SHROFF

What is the IPO Scam?

It involved manipulation of the primary
market by using fictitious benaami accounts
Key Operators: Financiers and market
players

Yes Bank Scam

Roopalben Panchal of IndiaBulls Securities
was allegedly the mastermind of the scam
She had allegedly opened and was
controlling nearly 15,000 fake demat
accounts and subsequently had raised
finances on the shares allotted to her
through Bharat Overseas Bank branches

The Scam
Illegally obtained IPO shares reserved for
retail applicants
1000s of benaami demat accounts
Transferred the shares to financiers
Sold on the first day of listing
Made windfall gains

How it was detected?

Sebi - Detected irregularities
Roopalben Panchal- was the main culprit

Consequences
SEBI has banned 24 entities involved from
the primary and secondary market
85 Financiers barred from the market
12 DPs cant open fresh demat accounts

Few Others
Company

Fictitious
accounts

Suzlon Energy

21,692

% share of total
allotted to retail
investors
3.74

Tata Consultancy
Services

14,619

2.09

Jet Airways

1,186

0.52

National Thermal
Power corporation

12,853

1.3

Total Jhol..Rs
32 Cr

Ketan Parekh Scam

Chartered Accountant by
profession.
Managed family
business, NH Securities
started by his father.
Known as the Bombay
bull.

The Rise
Emergence of ICE (information,
communication, entertainment) stocks in
early 1999 along with the dotcom boom.
KP and his associates bought low priced
stocks belonging to companies which listed
high growth and small capital bases.

The Rise
By July 1999, KPs umbrella company
Triumph International held stakes in ABCL,
Mukta Arts, Tips and Pritish Nandy
Communications. HFCL, Global Telesystems,
Zee Telefilms, Crest Communications and
PentaMedia Graphics later known as the
infamous K-10 scripts

His Allies
Madhavpura Mercantile Co-operative
Bank.
KP used three main companies under his
umbrella company called Panther
Investrade , Panther Fincap & Classic
Share and Stock Brokers to borrow
money.

His Allies
These companies had up to 200 Crores of
line of credit with Madhavpura bank
against which KP gave a collateral of
shares worth 300 Crores plus
MMCB issued pay orders to these
companies which were discounted at BoI
for a hefty fee
Total Borrowings amounted to more than
1000 Cr

His Allies
Global Trust Bank
GTB issued loans to KP against shares as
collateral security
KP with support from GTBs then CMD
Ramesh Gelli rigged the prices of GTB
scrip just before the merger with UTI Bank
Total Borrowings amounted to 250 Cr with
Gelli going on record saying that GTB had
not given more than 100 Cr to KP

His Allies
Zee Telefilms
Subhash Chandra
Funding to KP = 365 Crores

Himachal Futuristic Company Limited

Vinay Maloo
Funding to KP = 304 Crores

Global Telesystems
Manoj Tirodkar
Funding to KP = 228 Crores

His Allies
Other traders
Market speculations and continuously
increasing prices of K-10 stocks led to
massive volumes of trading
This in turn increased the K-10 stock
prices tenfold.

KP used as much as 16 fictitious

companies to borrow money

The Fall
In 2001 all K-10 scrips were overvalued
The Bear Cartel - Shankar Sharma, Anand
Rathi and Nirmal Bang
They placed sell orders on all K-10 scrips
KP tried to buy back all the stocks sold by
the cartel but volumes were too large for
him to handle
Stock prices started falling

The Fall
Market crashed by 176 points in March 2001
SEBI launched investigation into volatility of
market
RBI declared Madhavpura Bank as a
defaulter due to which BoI demanded the
latest pay order of 137 Crores discounted by
it, directly from KP

The Fall
Scam uncovered, KP
arrested on March
30,2001 by CBI and
released on bail in
May
Arrested again on
December 2, 2002.

Total Jhol..
Rs 2250 Cr

Harshad Mehta Scam

Founder of GrowMore
Research and Asset
Management Company
Limited
Popularly known as Big Bull
Followed a Replacement
cost theory model
Scam in 1992
Arrested on June 5, 1992
Charged with 72 criminal
offence
civil suits were charged
Estimated scam Rs 4,000
Crs

The Plan

Buying stocks in large quantity

Triggering the price of shares
Ready forward (RF) deal
Making false bank receipt (BR)
Getting fake BRs from Bank of Karad (BOK),
Metorpolitan Co-operative Bank (MCB)

Favorite stocks

ACC
Apollo Tyres
Reliance
Tata Iron and Steel Co. (TISCO)
BPL
Sterlite
Videocon

The Scam RF Deal

Usage of flaw in RF
The RF - secured short-term (typically 15day) loan from one bank to another.
Given against government securities
The buyer and the seller go through
broker
They dont know who is buying or who is
selling

The Scam - BR
Non movement of securities
Instead, the borrower, i.e. the seller of
securities, gave the buyer of the securities
a BR.
BOK, MCB to issue fake
Money was transferred

The Fall
Fall of market
On April 23, 1992, journalist Sucheta Dalal
exposed him

Total Jhol..
Rs 4000 Cr

Satyam Fiasco

Satyam was established in 1987.

4th fastest growing IT company in India.
9 % market share
40,000 employees
Revenue $2.1 billion
It is the first company of India listed in
three International Exchanges i.e.
NYSE, DOW and EURONEXT

MANAGEMENT

FOUNDER
CEO

:
:

Mr. Raju Ramalinga

Mr. A. S. Murthy

HOW IT HAPPENED
Maytas Acquisition.
Investors Aborted.
Board Members
Resigned.
On 7th Jan., 09,
Chairman resigned
after announced
involvement in fraud.

WHAT WENT WRONG?

Inflated figures for cash and bank balances of INR
5,040 cr. (as against INR 5,361 crore reflected in
the books).
Operating Profit were artificially boosted from the
actual 61 cr. to 649cr.
Satyam also showed an interest earning of Rs. 376
cr. that was fictitious.
Window Dressing V/S SCAM

IMPACT ON INDIAN IT INDUSTRY

Indian stock market slipped over 7% on 7th
Jan., 09.
Undoubtedly, this hurt the prospects of
foreign money flowing into India.
It surely could have hurt Indian Companies
like Infosys, TCS and Wipro and other Indian
IT service players to win business across the
globe.

PARTIES INVOLVED
Promoters of Satyam
Satyam Board of Directors
Auditors PWC
Bankers ICICI, Bank Of Baroda,
HDFC
Regulator SEBI

Share Prices.

Satyam CFO Vadlamani Srinivas (R) being brought

to the Chanchalguda prison after his arrest in Hyderabad.

Satyam's
Management
Founder Mr. Raju Ramalinga made a public

surrender on 7th January and was arrested.

Satyam's CFO Srinivas Vadlamani had been

arrested.
But could only two or three people have
managed to cook the books for years of a
company so large?
Highly unlikely

Directors and Independent directors

Board of Directors
The role of the company's directors, including
independent directors was essentially that of
'nodders
The Satyam board, including its five independent
directors approved the founder's proposal to buy 51
per cent stake in Maytas.
Despite the shareholders not being taken into
confidence, the directors went ahead with
acquisition.
The decision of acquisition was reversed 12 hours
later after investors dumped Satyam's stock.

Satyam's Auditors
So what were the auditors, PWC, doing?
Signed Balance sheets which showed cash
reserves which were non existent.
Not just the cash, even they even signed
off on the non-existent interest that
accrued on the non-existent cash balance!
The company officials said they relied on
data from the reputed auditors.

REGULATORS

SEBI
The SEBI in December given a clean chit to
Satyam saying that it had not found any violation
of norms relating to takeover and corporate
governance in its preliminary surveillance of the
deal involving the acquisition.
What can be done??
Analysts say the market watchdog lacks the teeth
for ensuring compliance on governance.

The Bankers

BANKERS
Satyam's banks -- ICICI Bank, HDFC
Bank, Bank of Baroda
Satyam's books showed cash to the tune
of over Rs 5,300 crore (Rs 53 billion) in
its banks.

INDIAS STEPS TO SAVE SATYAM

The Indian Government had provided temporary direct
or indirect support to the company.
Govt. has appointed 3 members board for Satyam
consisting of heavy weights from India's corporate
sector.
0n 06th March, SEBI approved for 51% sale of stake.
On 13th April, Satyam found a new owner after nearly
3 months. Tech Mahindra won the bid by quoting Rs.59
per share.

Total Jhol..Rs 8000 Cr

PONZI SCHEME
Is a fraudulent investment operation that pays
returns to separate investors from their own money
or money paid by subsequent investors, rather than
from any actual profit earned.
The scheme is named after Charles Ponzi who
became notorious for using the technique in early
1920.
Ponzi did not invent the scheme.

Reasons For Ponzi Being

Successful
Those who actually got paid reinvest their money in
the scheme.
Those running the scheme do not actually have to
pay out very much .
Targets are laymen.
Promoters ask scheme to be kept secret to ensure
competitive edge, may also be used to hide the
nature of the scheme.

Reasons For Failure Of Ponzi

The promoter will vanish.
If investment slows and the promoter
starts having problems paying out the
promised returns.
Promoter fails to validate the claims
when asked to do so by legal
authorities.
External market forces, eg- a sharp
decline in the economy

Who Is Bernie Madoff???...

Born on 29th
April,1928
Former chairman of
NASDAQ Stock
Exchange
Founder of Bernard L.
Madoff Investment
Securities LLC (1960)

The Scam
In early 1990s Madoff told family and
friends:
you invest your money in me and I
assure you consistent returns of 810%
Investors believed the 10% was put
into their account and spread the word
that Madoff was reliable, and his
popularity increased each year.

The Scam
People reinvested the money
If someone took out the money, Madoff
paid him with other peoples money
Continued to give higher returns for
almost 10 years

Feeder Funds

The Catch
Due to economic slowdown in 2008, people
started taking money out of the scheme
Madoff couldnt pay them back
His sons found out and informed the
authorities

Magnitude of the Scam

Scam worth almost 50 billion USD
It Affected thousands of investors:
white collars
blue collars (pension money)
NGOs

The Outcome
Madoff arrested on 11th dec, 2008
Faces 150 years of charges
Home auctioned to help out victims
SEC under the scanner

Questions Raised
Why didnt any investor try to find out where
Madoff is investing the money??
Why didnt SEC discover the scam earlier??
How did the scheme continue for almost 10
long years??

Ponzi

V/S

Madoff

Ponzi scheme failed

within 1 year in
1929

Madoff scheme
lasted for 10 long
years before it
failed

Ponzi showed
higher returns of
25-40% and so it
failed in short term

Madoff showed
consistent returns
of 8-10% and also
losses
sometimes