Scam of 2001: Fodder for Ripley's Believe It or Not
June 29, 2001
The Scam of 2001 is more a case for Ripley's Believe It or Not, rather than for the Joint Parliamentary Committee to investigate. Every day brings a bizarre new development, which makes you wonder if the investigation is a big joke that is being played on the Indian people, literally at their expense. And the tragedy is that most people neither know nor care. Here is a sampler.
Scamsters who have bilked the system for billions of rupees are screaming about defamation, indulging in slander, blaming a section of the media and actually finding newspapers ready to print their ranting.
Journalists are maligning other journalists who are investigating the scam instead of chasing down the scamsters.
Politicians hand-in-glove with scamsters are themselves sitting on the scam trial and successfully skewing the investigation.
A senior minister has worked out a brazen bailout at the cost of exchequer to protect his political constituency.
Law enforcement agencies are simply sitting around and trying to gauge the seriousness of the witch-hunt while the JPC is busy with history and tutorials. Finally, on top of all this, the market continues to be manipulated with impunity. Do you find it difficult to believe?
Take a look at trading on Tuesday, June 26, 2001. The BSE Sensitive Index which had dropped 30 points at the start of trading, soared nearly 90 points on rumour that the introduction of rolling settlements, scheduled to commence on July 2 may be postponed by Securities and Exchange Board of India. The result: many momentum scrips and most of the K-10 stocks shot up to the upper circuit barrier of 16 per cent. Since many of these had started the day with an eight per cent drop, it meant a 24 per cent intra-day rally in prices.
The rumour was well-timed. Sebi Chairman D R Mehta and Executive Director in charge of secondary markets Pratip Kar are both in Stockholm and Dharmishta Raval, who is holding temporary charge, was locked into a JPC hearing for most of the day. This meant there was nobody to scotch the rumours during trading hours. The casual impunity with which sentiment can be manipulated is just one aspect of the ridiculous charade that is being played out in the market.
Then there was the shameful Rs 12.64 billion bail-out of the Madhavpura Mercantile Cooperative Bank last week which virtually proclaimed that scamsters will always go scot-free and the people will pay the price -- directly or indirectly. MMCB flouted every lending norm in the country to lend over Rs 10 billion to market operator Ketan Parekh's companies and his cartel members. MMCB had issued fake pay orders to Parekh without collecting funds from the broker and Bank of India discounted these and suffered a loss of Rs 1.3 billion.
Last week, Home Minister L K Advani, who also happens to be a Bharatiya Janata Party MP from Gujarat, presided over a meeting to bail out the bank. The sum of Rs 12.64 billion is being split between Gujarat-based cooperative banks (Rs 8 billion) and the Deposit Insurance and Credit Guarantee Corporation (the balance Rs 4.64 billion).
While the DICGC has clearly been induced to bail out Madhavpura Bank, it is not clear if it will be similarly generous to the five other cooperative banks already declared 'weak' by the Indian central bank. It is not even clear if the DICGC has certain norms on how much insurance would be paid out when top management is directly involved in fraud.
Let's move over to the JPC, which is the highest body in the country to investigate the scam. Instead of getting on with the investigation and preventing the scamsters from alienating their assets, it is engrossed in a long exercise to understand capital markets and hear briefings from a variety of persons and institutions connected with the market.
Its other pastime is to upbraid and humiliate government officials from the Central Bureau of Investigation, the Income Tax department and the Department of Company Affairs for failing to follow up on 1992. That in itself would have been a useful exercise, but for the fact that most of the officers who were in charge of the investigation or who buried the investigation have long been transferred or retired. Also, let's not forget that most investigations have been scuttled on political orders, while the same set of politicians who wrote the last report are in Parliament, either on the Treasury benches or the Opposition.
While the signals of inaction are loud and clear, the eternal optimists believe the Opposition parties on the JPC may turn more aggressive when several important states go in for an election in the next few months. But that too will be mere play-acting which will die down after the election. Now look at what is being said by those who are responsible for the scam.
After a couple of weeks when they made media headlines and seemed sure of being sacked, the chiefs of Unit Trust of India and Sebi seem firmly ensconced in their posts and seem to have negotiated a safe completion of their terms. So much for accountability and responsibility.
Ketan Parekh, after a stint in custody, is going around threatening to file a Rs 50 billion defamation suit against Bank of India, which he could not pay Rs 1.3 billion. No, he still does not have the money to pay the bank or all those who fell in the unofficial market at Calcutta, but as, the punch line of a Hindi television show used to say -- Kehene me kya harz hai? (What's the harm in making tall claims?) Funnily, the Reserve Bank of India also pulled up Bank of India, probably to deflect attention from itself, for discounting pay-orders of the cooperative bank, whose bailout it has sanctioned.
Ramesh Gelli, former chief of Global Trust Bank, allowed Zee Telefilms to transfer a couple of billion rupees through two investment companies to Ketan Parekh in a single day. He told his annual general meeting that 'adverse press coverage affected and tarnished the reputation of the bank. Most of the reports are baseless and some were with a little base.'
If that were not enough, believe-it-or-not an Indian NRI Investors Association has sprung out up out of nowhere and is condemning politicians for tarnishing UTI's image. Astonishingly enough, NRI investors have always had the worst-ever deal in every stock market scam -- small and big. Also, UTI has drastically cut returns on most of its schemes. This means that the NRI association could only have been created at UTI's behest, its politician friends or the scamsters it bailed out.
Finally, there are blue chip companies such as Ranbaxy which allowed their investment subsidiaries (Vidyut Investments) to be used by Ketan Parekh to park shares that he was accumulating. They boldly go to press saying, 'once bitten twice shy.' After losing money in the stock market crash, the company plans to suspend all stock market investments and clean up its investment arm. But what about some accountability and punishment for lending its books to the scamster? The wonderful thing is that even shareholders in India are rarely agitated enough to ask.
Finally, there is this economist and portfolio manager who asks JPC to go home -- when there is no scam what is the JPC going to investigate? In 1992, it was the proprietor of a newspaper empire, with large market interests in the capital market, who had said something similar -- "the scam is a figment of journalists' imagination."
In short, the more things change, the more they remain the same