Scams, Scandals, Speculations and Society

History rhymes - events will always repeat . The players differ. New players have no idea of past events, or worse choose to ignore them thinking “this time it is different”. Hence history repeats.

Misuse of common man's hard earned savings is a cardinal sin: Deepak Parekh. ... Amid the crisis at Punjab & Maharashtra Cooperative Bank (PMC), HDFC chairman said it is "brutally unfair" we have regular loan waivers and corporate loan write-offs but no financial system to protect the common man's savings.

The fate of families who had plans for their health care, their daughter’s wedding, children’s education, or family travel get wrecked; the retired are forced to get back to work. People make harsh decision like, never to have children; given the uncertainty around. People lose jobs and the worst affected are those in the age group of 45-55 years as no one would be ready to recruit them for their skill set and pay.
Top Financial Scams during recent past continues to be:

1) Enron where the balance sheets were inflated using mark to market valuations and income statement was inflated using future probable incomes of investment done at present and making huge payoffs to the top management..
2) Worldcom, attempted to falsely inflate the earnings on its profit and loss statement by nearly $4 billion. It was a household name and one of the world's largest telecommunication companies, and also a core dividend-paying stock that many retirees held in their portfolios, This shook the world in 2001
3) Lehman Brothers, came to light on Sept 15, 2008; Lehman's loss resulted from having held onto large positions in subprime and other lower-rated mortgage tranches when securitizing the underlying mortgages. They first got into mortgage-backed securities and CDOs in the early 2000s before acquiring five mortgage lenders. The firm posted multiple, consecutive losses and its share price dropped. CDOs, or collateralized debt obligations, are financial tools that banks use to repackage individual loans into a product sold to investors on the secondary market. These packages consist of auto loans, credit card debt, mortgages or corporate debt. Lehman’s big investment in mortgage securities made it especially vulnerable as the housing market started to crash.

Some major financial scandals that have taken place in India or in the world in which the ORDINARY MAN lost money are:
1. Sharada Group - Value of scam about USD 2 Billion from about 20 Lakh Depositors. The group collected around ₹20 to 30 billion (US$4–6 billion[5][6]) from over 1.7 million depositors[7] 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.[8] The State government also set up a fund of ₹5 billion (US$70 million) to ensure that low-income investors were not bankrupted. The scam has often been compared to the Sanchayita investment scam, a multi crore rupees scam that occurred in West Bengal in the 1970s, complaints related to which led to the formation of the Prize Chits and Money Circulation Schemes (Banning) Act of 1978
2. Heera Gold - USD 1 Billion from about 1.72 lakh Depositors . The Enforcement Directorate pegs the scam to be worth Rs 3,000 crore, and the number of Heera Gold victims to be around 1.72 lakh. The Hyderabad Central Crime Station (CCS) pegs the scam to be over Rs 5,460 crore and called the 15 companies floated by the Heera Gold as shell companies. Halal investments, is a form of non-interest-paying investments conforming to the Islamic Sharia laws. Unlike fixed bank interest rates, which are considered to be anti-Islam, halal schemes sell their plans as a form of partnership business with the promise of high returns. Nowhera Shaikh the chairperson, CEO and founder of Heera Gold; the company director Biju Thomas; and General Manager Mary Thomas were arrested in relation to this case.
3. Quest Net Gold Quest - USD 1.20 Billion 2 Lakh Depositors ; Gold Quest is the previous avatar of QNet, the multi-level marketing (MLM) company. QuestNet and GoldQuest, which all but closed down in 2009, emerged bigger and stronger as QNet. But the hype and hard-sell by this MLM company to ensnare people into enrolling distributors and hawking lifestyle products such as watches, gold coins, bio-discs, herbal products and travel packages was worrying. Such a model can be represented as a binary tree with each node representing a person and the 2 children nodes under it representing the referred friends. It is also called “Pyramid scheme”. Top level would be occupied by promoter and family members. By the 30th level, the entire population of the earth will be in the system and the last 3 billion people who just entered the system into the 30th level have nobody else to refer. If each member is allowed to refer 6 friends, then the entire world population will be covered by the time it reaches 13th level itself . Everybody they try to approach is already a member. The forerunners would have made huge amount of money by now and would go absconding, leading into a fraud. Vihaan, a franchisee of QI Group in India being marketed under the brand name of QNet. According to the police, Vihaan, formerly known as Gold Quest and Quest Net, is a Hong Kong-based direct selling/multi-level marketing (MLM) company owned by the QI Group. They were targeting software employees, unemployed youth and homemakers.
4 The Arbuthnot Bank crash of 1906 where everyone from the Governor downwards lost money..So scams are not a modern day invention, or something that has erupted only in free India. The Arbuthnot Bank crash led to the fall of Arbuthnot & Co, a premier British-owned financial institution in Madras Presidency, British India. In October 1906. The incident is considered to be one of the key events which influenced the Indian independence movement in Tamil Nadu. In the last quarter of 1906, Madras (now Chennai) was hit by the worst financial crisis the city was ever to suffer. Of the three best-known British commercial names in 19th-century Madras, one crashed; a second had to be resurrected by a distress sale; and the third had to be bailed out by a benevolent benefactor. Macfadyen, one of the partners, engaged in speculation, in the process losing huge amounts of the firm's money. Prior to its collapse, Arbuthnots employed between 11,000 and 12,000 people, had 7,000 creditors and £1,000,000 in liabilities. It was ascertained that the liabilities of Macfadyen's were £400,000 and there were 1,000 creditors. It was agreed by the English trustee in bankruptcy and the official assignee in Madras that the assets of the two insolvent firms were to be treated as one and the same business, all creditors were to be entitled to share rateably in the pooled assets.
5. Yes Bank/PMC, - NPA assets being concealed, depositors unable to withdraw their money. In FY16, Yes Bank’s NPAs were at over Rs 4,900 crore, while it had reported an official number of only Rs 749 crore; PMC Bank; by concealing the default on loans to the tune of Rs. 6,500 crore taken by real estate firm Housing Development and Infrastructure Ltd (HDIL).
6. DHFL and related UPPCL/EPF, through layers of shell companies allegedly siphoned off Rs 31,000 crore; UPPCL deposited its EPF money with DHFL
7. IMA Ponzi scheme scandal – compared to others a 4,000 crores scam, but over 76,000 investors not getting back their deposit and interest. Promoter-director Mohammed Mansoor Khan is the brain and beneficiary behind it.

Some other major corporate scams are:
1. KETAN PAREKH SECURITIES SCAM (2001) =_ Parekh was involved in circular trading and stock manipulation through 1999-2001 in a host of companies. Like his mentor Harshad Mehta, Parekh too borrowed from banks like Global Trust Bank and Madhavpura Mercantile Co-operative bank, and manipulated a host of stocks popularly known as K-10 stocks.
2.SATYAM (2009)An accounting scandal where Ramalinga Raju confessed to having cooked up the accounts of Satyam Computers and inflated its bank balances. He has, along with his family members, also been accused of laundering money through a mesh of hundreds of companies.
3. SAHARA (2014) Sahara - SEBI case is the case of the issuance of Optionally Fully Convertible Debentures issued by the two companies of Sahara India Pariwar to which Securities and Exchange Board of India had claimed its jurisdiction and objected on why Sahara has not taken permission from it. Sahara group grew with political support -- the samajwadi party when amar singh was a strongman there. It had its genesis when the yadav patriarch was a central minister.The group's promoter raised a lot of money through political funding (euphemistically called crowdfunding). So long as the group's business enterprise was limited to UP the funds needs were manageable. With the launch of the Sahara airlines and the foray into real estate , the funds need grew by leaps and bounds . The tradition of crowdfunding was tweaked into accepting public deposits and simultaneously the political funding dried up with the waning influence of amarsingh / yadav patriarch in SP , resulting in cash flows of the magnitude that was required to run the conglomerate, drying up.Sebi initiated prosecution and the supreme court came down heavily on the promoter as he failed to encash the real estate assets and pay off the depositors- genuine as well as benamies. The promoter was consequently jailed and the group met its deathbed status.
4. KINGFISHER SCAM After acquiring Air Deccan IN 2008, Kingfisher suffered a loss of over 1,000 crore (US$199.5 million) for three consecutive years. Payment problems(Delayed salary, Fuel Dues, Aircraft lease rental dues, Income Tax,Non-payment of dues to lenders).Ncorporate ethics were compromised in the merger. Allegations of money laundering were first made when it was speculated that Mallya had used loan money received from the banks and diverted them overseas to various tax havens. Mallya laundered the money with the help of shell companies with dummy directors that were controlled by him. The shell companies were located in seven countries, including the United Kingdom , USA, Ireland and France.

Then there are stories like that of Jet airways, ADA'S reliance.

Systems are fragile. We need to be alert where we keep our money. No institution is guaranteed to be safe.