Investigations into one of the country’s largest financial scams involving Punjab National Bank and billionaire diamond merchant Nirav Modi is slowly revealing the extent of corruption that has seeped into the banking system. While political parties are busy playing the blame game, officials of the Enforcement Directorate have been seizing luxury cars belonging to Modi and his group of companies.
According to reports, it has also frozen mutual funds and shares worth Rs 94.52 crores from the Nirav Modi and Mehul Choksi groups, while the Income Tax department has attached assets worth Rs 145 crores. The PNB-Nirav Modi scam, which also involved rogue employees of the public sector bank, is estimated to be around Rs 11,300 crores.
The country has witnessed a number of financial scams in the past five years, which have siphoned off billions of Rupees from ordinary people, leaving chaos and a number of suicides in their wake. Here we take a look at seven major financial scams which have rocked the nation:
Harshad Mehta scam: In 1992, flamboyant stockbroker, Harshad Mehta, masterminded a number of financial crimes in the Bombay Stock Exchange, making use of the loopholes that existed in the banking system. Big Bull Mehta colluded with bank employees of the Bank of Karad and Mumbai Mercantile Cooperative Bank to get fake bank receipts issued, which he then used to get other banks to lend money to him under the impression that they were lending against government securities. Mehta then invested the money he earned out of these manipulations, into the stock market, thus enhancing the share prices, after which he would sell these shares at a profit, and return the principal amount to the banks.
This went on for a while and Mehta managed to swindle banks of around Rs 4000 crores in the process. The scam came to light after State Bank of India reported that there was a shortfall in government securities and it was journalist Sucheta Dalal who first exposed the story in her column in the Times of India.
When the scam hit the stock market in 1992, it crashed by more than 50 percent causing many to lose their money, and even triggered people to commit suicide. Mehta was arrested and charged with 72 criminal cases and over 600 civic action suits were filed against him. A Special Court was set up to try cases against him, a few other brokers and bank officials who were involved in the scam. He died in 2011 of a cardiac arrest while under custody in a Thane prison.
Ketan Parekh Scam: In the lull following the Harshad Mehta scam, another young stock broker was quietly learning the tricks of the trade. Trained by Mehta himself, Ketan Parekh started manipulating the stock market by artificially rigging prices of certain securities in collusion with smaller companies and large institutional investors. Thus, scrips of hitherto unknown companies such as Visualsoft rose from Rs 625 to Rs 8,448 per share. In 2001, just ahead of the Union Budget of the NDA, the stock market crashed after a bear cartel in the Bombay Stock Exchange, known as the Marwari cartel, started hammering prices of the K-10 stocks, and Parekh found himself running out of cash.
A probe by the government led to Parekh dumping his shares, leading to a further crash, with prices of stocks coming down to a fraction of what they were bought for. Many individuals and some banks such as the Bank of India lost huge sums of money, while the Global Trust Bank and Madhavpura Mercantile Cooperative Bank from where Parekh and his associates had borrowed Rs 1000 crore as loan, filed for bankruptcy.
An enquiry by a joint parliamentary committee revealed that Parekh had been involved in circular trading and in rigging prices of a set of 10 Indian companies. Parekh was convicted with a one-year sentence and barred from stock trading for 15 years, till 2017. However, in 2009, the Securities and Exchange Board of India (SEBI) alleged that a number of companies and individuals were trading on Parekh’s behalf. As a result of an investigation, 26 entities were further barred from trading. In March 2014, a special CBI court convicted Parekh for cheating and sentenced him to two years of rigorous imprisonment. In November, 2017, a special SEBI court sent Parekh to jail for non-appearance in a case filed by SEBI.
Roop Bhansali Scam: Chain Roop Bhansali, the chairman of CRB Caps, which called itself a complete global financial house, floated 133 companies through which he managed to siphon off funds to the tune of Rs 1,200 crore. Between 1992-96 CRB offered many attractive savings schemes such as mutual funds, fixed deposit schemes and debentures, getting individuals and organisations to invest in them. In 1994, Bhansali launched the CRB Arihant Mangal Fund with SEBI’s approval and raised around Rs 230 crore. Depositors in his financial savings schemes started to realise that something was wrong when the cheques that the company had issued to them started bouncing.
While the RBI had intimation of the financial irregularities and the way in which CRB was using public funds, it stepped in only after receiving over 400 complaints from depositors in his company’s financial schemes. Even credit ratings agency CARE had given CRB’s FD programme an A rating, despite noting that the company had liquidity problems and was defaulting on its loans. It was only later that it downgraded the rating to C or high risk.
In 1997, the CBI registered a case against Bhansali for cheating the State Bank of India. When the scam came to light, Bhansali escaped to Hong Kong with his family. He was arrested in January 2013 and brought back to India from Hong Kong by a team of CBI officials. However, his wife, a director of CRB Capital Markets, was allowed to go free along with the rest of the family.
Sahara Scam: In January, 2010, the National Housing Bank (NHB) received a letter from a Roshan Lal, who claimed to be an Indore-based chartered accountant, wherein he requested the regulator to look into anomalies in the bond issues of the two of Sahara India Pariwar’s companies, Sahara India Real Estate Corporation and Sahara India Housing Corporation. The companies had issued optional fully convertible debentures (OFCDs) in 2008 to about 30 million investors, collecting around Rs 24,000 crores in the process. NHB then forwarded this note to SEBI, which had already received a note of a similar nature from an Ahmedabad-based group called the Professional Group for Investor Protection.
SEBI objected to the issuance and asked why the company had not taken permission for it, considering the sheer size of its investment. Sahara’s response was that the bonds were hybrid products, and hence did not come under SEBI’s jurisdiction. Rather, it came under the control of the Registrar of Companies and the company had already taken permission from the body.
In 2011, SEBI passed an order against the two unlisted companies asking them to return the money to the investors, along with the interest. This order was challenged by the company, who then went to the Supreme Court, which upheld the directive. In February 2014, the SC ordered the arrest of Sahara India Pariwar chief Subrata Roy for failing to refund the investors.
Roy was lodged in Tihar jail for two years until 2016, when he was granted parole on humanitarian grounds for six week following the death of his mother. This has been extended since. The Supreme Court also attached Sahara’s Aamby Valley project, its expansive planned city located near Pune, to force the company to pay Rs 14,799 crores to SEBI. The project is currently being auctioned to raise funds. In October, last year, the apex court had taken strong objection to the obstruction tactics which were being employed by Sahara, warning that anyone who delayed the proceedings would be liable to contempt and sent to jail.
Satyam Scam: In one of the largest scams to hit the IT industry, Satyam chairman Ramalingam Raju confessed in 2009 that the company’s accounts had been falsified from 2003 to 2008 to show increased sales, profits and margins, to the tune of Rs 4,783 crores. Around 7,561 fake bills were recovered during the investigations, apart from false receipts and expenditure accounts. In April 2015, Ramalinga Raju and his brothers were convicted and sentenced to seven years in jail and a fine of Rs 5.5 crores. In January 2018, SEBI banned the Indian wing of audit firm PricewaterhouseCoopers for two years for their role in auditing Satyam’s accounts.
Stamp paper scam: From 1992 to 2002, counterfeiter Abdul Karim Telgi created fake copies of stamp papers, revenue stamps, judicial court fee stamps, foreign bills, brokers notes, insurance agency stamps and other legal documents by bribing officials of the Indian Security Press and getting hold of official printing and perforating machines. Telgi employed close to 350 people as agents who then sold these fakes to bulk purchasers which included banks and insurance agencies. The team also created an artificial scarcity of these documents by sending documents to addresses which did not exist.
Based on a tip off, a team of Bengaluru police arrested Telgi in 2001. The extent of the scam was unraveled after his arrest, and security and intelligence agencies have pegged it at Rs 20,000 crores. Telgi and his associated were convicted and sentenced to 30 years’ rigorous imprisonment. He died on October 26, 2017, of meningitis and other ailments, including AIDS, after spending 13 years in jail.
Saradha Scam: Lakhs and lakhs of investors in west Bengal and other parts of the north east were left in the lurch when chit-fund company Saradha Group, a consortium of around 200 private companies, collapsed. The chit fund company, which had collected more than Rs 20,000 crores from over 1.7 million depositors promising them of huge returns, sank in April 2013, and its chairman Sudipta Sen was arrested along with the executive director Debjani Mukhrjee, in Kashmir.
While may agents and brokers committed suicide, the arrests that followed revealed that many prominent personalities were involved in the scam. These including sports and transport minister and a confidante of chief minister Mamata Banerjee, Madan Mitra, and two MPs from Trinamool Congress. The CBI had even questioned Nalini Chidambaram, wife of former Finance Minister P Chidambaram in connection with the scam and on the legal fees paid to her by the Saradha group. Sen had mentioned about hiring Nalini at the request of Manoranjana Sinh, who was the estranged wife of Cingress leader Mantang Sinh.