Top 10 Investment ScamsIndian financial industry has always been successfully able to trace every prospect offered by the India's

fiscal policy both in terms of alteration and expansion. In spite of all the endeavors implemented to develop

the financial market, it still remains fatally faulted due to lack of three major key elements namely inadequate

management, stringent accountability, and proper punishment.

As a result, the capital market of India has remained one-dimensional and has staggered from one

investment scandal to another. A straightforward listing of the top 10 investment scams narrates the account

of why Indian investors were left annoyed by the scamsters.

A brief about Top 10 Investment Scams in India

1. The Securities Scam

The capital market witnessed its foremost investment scandal in the form of securities scandal in

the year 1992. It revealed the utter anarchy and lack of administration in the prevailing fiscal

market. The money market at that time permitted funds to be relocated with impunity from financial

institution and corporates into equity and consequently witnessed crores of bank's capital to

transfer into brokers' account. This illegal market practice was later asserted as "legal and

acknowledged". 

In an attempt to punish the tricksters, a special court was initiated and scrutinized around 70 cases

registered by CBI. Surprisingly, not even a single trickster was found guilty by the dreadfully

sluggish judicial system. As a matter of fact, the scamsters made frequent attempts to re-enter the

market with same set of traps and resulted in losses to investors.

2. The IPO scam Soon after the entry of international organizational investors, the Control over

Capital Issues was banned as the market saw heavy bull trend resulting in the revitalization of the

secondary market from the previous scandals. The ban of Control over Capital Issues unlocked the

prospects of massive scandal in Initial Public Offerings (IPO). The scam was executed in two parts;

the first part was carried out by the firms that increased their market costs to incur profits in order to

sponsor lucrative projects. The second part saw the unison of small time merchants, CAs,

investment bankers and traders to hoist new firms and heave public capitals. 

The IPO scam prevailed for three long years from 1993-1996 and finally saw its downfall when the

costs of the registered firm started deteriorating.

3. Favored share scam

The scandal was an outcome of the extensive cost fixing on the derivative market. Besides

increasing fresh capital, advocates of Indian firms promptly coordinated general body

authorizations to transfer shares to themselves on a privileged basis and at a considerable

reduction to the market, thinking that the share prices would never see the ground. Conglomerates

started this trend and accrued profits of nearly 55o crores until Securities and Exchange Board of

India (SEBI) formulated strict guidelines to abandon the market practice.

4. CRB's cardboard scam

The Rs 1000 crore finacial multinational named as Chain Roop Bhansali (CRB) was the only

biggest firm and most impudent of all to benefit and disappear in the loosened market ambiance of

mid-1990s. The services offered by his firm entailed FC collection, mutual fund, banking, etc. The

clearances obtained by the firm for the trading of these services required sufficient inspection by

SEBI and the RBI and the fact that they managed to qualify shows the supervisory weariness of the

regulators. Facilitated by the clearances and profitable credit ranking, CRB accrued greater profits

based on high value financing. The CRB collapse not only affected the investors but also the other

finance firms.

5. Plantation firms' scam

Since few firms in mid-90s were subject to no guidelines, the plantation companies during that time

also got away with profit protrusions. The plantation firms projected themselves as a part of IPO

and assured massive returns. The investors were lured and the companies accrued profits from

fake campaigns of around Rs 8000 crores plus.

6. Mutual Funds scam

After several mutual fund scams, the UTI bailout reflected the lack of proper guidelines in the Indian

capital market. Since UTI was initiated under its own regulations, it was the tax payers who

suffered the loss of Rs 4800 crore in the process. After three years, the company was back

purchasing Ketan Parekh's controlled scrips and incurring massive losses in the process. The

evidence of the private mutual funds performance has also been inconsistent after hitting the

downfall in 1999 and 2000. It took a considerable amount of time for capital market to win back the

trust of mutual fund investors.

7. The 1998 scam

The scamster of 1992 scam, Harshad Mehta came back with a bag of tricks again in 1998. This

time he lured investors through a website by trading stock tips. His unremitting manipulation of

several shares resulted in the much expected collapse of Bombay Stock Exchange. 

8. Home Trade scam

Initiated in 2000, Home trade invested rs 24 crore in promotional campaigns to attract investors.

The scam affected 8 co-operative banks that lost Rs.82 Crore in EPF scheme. The Chief Executive

of Hometrade, Mr. Sanjay Aggarwal was convicted by Nagpur Police later.

9. DSQ Software Scam

In the year 2000 and 2001, the Managing Director of DSQ Software, Mr. Dinesh Dalmia, was held

responsible for ambiguous mergers and prejudiced allocation of the amount of upto Rs.595 Crores.

He was later convicted in the year 2006.

10. Satyam Scam

After manipulating the firm's documents for several financial years, the former Chairman and Chief

Executive of Satyam Computers, Mr.Ramalinga Raju, was arrested for committing scam, following

unethical practice and forgery. He showed greater profits and committed fraud of Rs 700 crores.

2 Ketan Parekh stock market scam

The case gives a detailed insight into the 2000-01 Indian stock market scam. 

The case traces the events that led to the scam and also tries to study the role of the regulatory authorities in the scam. 

The case also analyses the steps taken by SEBI after the scam.

The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government of India, the stock markets and the investors alike.

More so, as the Union budget tabled a day earlier had been acclaimed for its growth initiatives and had prompted a 177-point increase in the Sensex.

This sudden crash in the stock markets prompted the Securities Exchange Board of India (SEBI) to launch immediate investigations into the volatility of stock markets. 

SEBI also decided to inspect the books of several brokers who were suspected of triggering the crash. Meanwhile, the Reserve Bank of India (RBI) ordered some banks to furnish data related to their capital market exposure.

This was after media reports appeared regarding a private sector bank3 having exceeded its prudential norms of capital exposure, thereby contributing to the stock market volatility.

The panic run on the bourses continued and the Bombay Stock Exchange (BSE) President Anand Rathi's (Rathi) resignation added to the downfall. Rathi had to resign following allegations that he had used some privileged information, which contributed to the crash. The scam shook the investor's confidence in the overall functioning of the stock markets. By the end of March 2001, at least eight people were reported to have committed suicide and hundreds of investors were driven to the brink of bankruptcy. The scam opened up the debate over banks funding capital market operations and lending funds against collateral security. It also raised questions about the validity of dual control of co-operative banks4...

KP was a chartered accountant by profession and used to manage a family business, NH Securities started by his father.

Known for maintaining a low profile, KP's only dubious claim to fame was in 1992, when he was accused in the stock exchange scam.5 

He was known as the 'Bombay Bull' and had connections with movie stars, politicians and even leading international entrepreneurs like Australian media tycoon Kerry Packer, who partnered KP in KPV Ventures, a $250 million venture capital fund that invested mainly in new economy companies. 

Over the years, KP built a network of companies, mainly in Mumbai, involved in stock market operations.

The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in early 1999 led to a rise of the Indian stock markets as well.

The dotcom boom6 contributed to the Bull Run7led by an upward trend in the NASDAQ.8 The companies in which KP held stakes included Amitabh Bachchan Corporation Limited (ABCL), Mukta Arts, Tips and Pritish Nandy Communications. 

He also had stakes in HFCL, Global Telesystems (Global), Zee Telefilms, Crest Communications, and PentaMedia Graphics KP selected these companies for investment with help from his research team, which listed high growth companies with a small capital base. According to media reports, KP took advantage of low liquidity in these stocks, which eventually came to be known as the 'K-10' stocks...

According to market sources, though KP was a successful broker, he did not have the money to buy large stakes.

According to a report , 12 lakh shares of Global in July 1999 would have cost KP around Rs 200 million. The stake in Aftek

Infosys would have cost him Rs 50 million, while the Zee and HFCL stakes would have cost Rs 250 million each. 

Analysts claimed that KP borrowed from various companies and banks for this purpose. His financing methods were fairly simple. He bought shares when they were trading at low prices and saw the prices go up in the bull market while continuously trading. When the price was high enough, he pledged the shares with banks as collateral for funds. He also borrowed from companies like HFCL...

The System that Bred These Factors

The small investors who lost their life's savings felt that all parties in the functioning of the market were responsible for the scams.

They opined that the broker-banker-promoter nexus, which was deemed to have the acceptance of the SEBI itself, was the main reason for the scams in the Indian stock markets. 

SEBI's measures were widely criticized as being reactive rather than proactive. The market regulator was blamed for being lax in handling the issue of unusual price movement and tremendous volatility in certain shares over an 18-month period prior to February 2001. 

Analysts also opined that SEBI's market intelligence was very poor...

KP was released on bail in May 2001. The duped investors could do nothing knowing that the legal proceedings would drag on, perhaps for years.

Observers opined that in spite of the corrective measures that were implemented, the KP scam had set back the Indian economy by at least a year. Reacting to the scam, all KP had to say was, "I made mistakes." 

It was widely believed that more than a fraud, KP was an example of the rot that was within the Indian financial and regulatory systems. 

Analysts commented that if the regulatory authorities had been alert, the huge erosion in values could have been avoided or at least controlled...

The Satyam ScandalSudhakar V. Balachandran, 01.07.09, 05:00 PM EST

Corporate governance goes kaput--again.

Satyam Systems, a global IT company based in India, has just been added to a notorious list

of companies involved in fraudulent financial activities, one that includes such names as

Enron, WorldCom, Societe General, Parmalat, Ahold, Allied Irish, Bearings and Kidder

Peabody. Satyam's CEO, Ramalingam Raju, took responsibility for broad accounting

improprieties that overstated the company's revenues and profits and reported a cash

holding of approximately $1.04 billion that simply did not exist.

This leads one to ask a simple question: How does this keep happening?

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At the Columbia Business School, we teach a course called Performance Measurement in

which we study some of the dynamics that lead to this type of accounting scandal. In our

course, we study the fraud committed at WorldCom and Kidder Peabody in detail. In our

studies, a distinct pattern emerges.

It starts small. Typically, executives do not wake up one morning and say, "I feel like adding

5 billion rupees to our revenue today." They usually start by fudging the number a little--and

then it grows.

It is usually a response to competitive pressures. Companies have targets that they need to

reach every month, quarter and year. These targets can come from their internal budgets or

from the expectations of their shareholders and stock market analysts.

The fiddle is easy to rationalize at first. Managers typically have confidence in their skills and

believe that their company is fundamentally sound. Given that, it's easy to rationalize that

while we're just a little short on the numbers now, we will make it up in the future, and

nobody will know.

It gets out of control. When the company is unable to make up the gap, a larger distortion is

needed to cover it up. This in turn creates pressure to deliver even better results--which

leads to bigger cover-ups, and so on.

Comment On This Story

In his letter to his board, Satyam's Raju shows the markers of this pathology. He states that,

"What started as a marginal gap between actual operating profits and ones reflected in the

books of accounts continued to grow over the years. It has attained unmanageable

proportions. ..." Later, he describes the process as "like riding a tiger, not knowing how to get

off without being eaten."

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Can anything be done?

Unfortunately, it appears that several of the mechanisms we rely upon today have not gone

far enough. When management has the wrong incentives, we need other mechanisms to

hold those incentives in check.

Typically, we rely on corporate governance, audit and legal consequences.

Historically, several characteristics have been considered important ingredients of excellent

corporate governance. These include outsider representation on the board, boards that

aren't too large, boards that meet often, etc. Unfortunately, these characteristics don't seem

sufficient. Satyam, for example, had a reputation of excellent corporate governance. In fact,

the World Council for Corporate Governance awarded Satyam its Golden Peacock Award for

Corporate Governance in 2008. This suggests that we need to fundamentally rethink the

criteria that we require in order for boards to provide effective governance.

When an accounting fraud involves reporting cash that is not there, it is typically the result of

adding fraudulent transactions, such as cash sales, to customers that never happened.

These types of transactions should have been audited to assure their legitimacy. In the case

of Satyam, the auditors signed off on the financial reports, raising concerns that even the

increased auditing standards imposed by Sarbanes-Oxley may not be sufficient.

Finally, we also need stiffer penalties. Simply put, "white collar" crime cannot be viewed as

less of an evil than any other form of crime.

The fact that white collar crime continues to occur, and seemingly at an increasing rate,

suggests that the expected costs do not outweigh the expected benefits from cheating.

Stronger penalties are needed.

Despite my calls for improvements in governance, audit and legal penalties, I'm left with the

nagging concern that whatever we do may be insufficient. At the end of the day, the actions

at Satyam were perpetrated by one or two individuals who simply may not have realized that

the small distortions they created in the past would lead to massive problems today.

Hopefully, creating an awareness of the large consequences of small lies may help some to

avoid this trap.

Actions such as those of Satyam are being observed all over the world, and their effects are

not simply localized to their executives, employees or even their countries. Whether it is

accounting fraud, excessive trading risks, a Ponzi scheme or making loans to those who

can't pay, many are hurt by corporate improprieties. These types of actions affect the global

economy. In other words, they affect us all. If there isn't sufficient belief in the notion that

business will act in good faith, then the capitalist system is itself at risk.

Professor Sudhakar (Sid) V. Balachandran teaches accounting at the Columbia Business

School, where he is the faculty director of the executive programs "Finance & Accounting for

Non-Financial Executives" and "Essentials of Financial Management."

On the morning of Jan. 7,Ramalingam Raju, the chairman of troubled Indian IT

outsourcingcompany Satyam Computer Services (SAY), sent a startling letter to his board

and the Securities & Exchange Board of India. Raju acknowledged his culpability in hiding

news that he had inflated the amount of cash on the balance sheet of India's fourth-largest IT

company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him

personally, and overstated Satyam's September 2008 quarterly revenues by 76% and profits

by 97%. After submitting his resignation, Raju ended his letter by apologizing for his inability

to close what began as a "marginal gap between operating profits and the one reflected in

the books of accounts" but grew unmanageable. "I am now prepared to subject myself to the

laws of the land and face the consequences thereof," he wrote.

The letter shocked and angered corporate India, which has looked to IT executives as role

models for a new breed of Indian entrepreneur. The benchmark Sensex stock index dropped

7.3% and Satyam shares fell nearly 78% on the day as investors fled in droves. Goldman

Sachs (GS) suspended its recommendations on Satyam "because there is not currently a

sufficient basis for determining an investment rating or price target for this company,"

Goldman analysts Julio Quinteros Jr. and Vincent Lin told investors. Earnings per share,

warned JPMorgan (JPM) analysts in a report, "may be 70%-80% lower than reported

numbers and consensus estimates for '09-'10." Satyam had become "India's Enron,"

said CLSA India analyst Bhavtosh Vajpayee, calling the case "an accounting fraud beyond

imagination [and] an embarrassing and shocking episode in Indian corporate governance."

As executives at other Indian outsourcing companies nervously assess what impact the

scandal will have on them, many industry observers now argue that the Satyam case will

damage India's reputation as a reliable provider of IT services. Because of the Satyam

scandal, they say, Indian rivals will come under greater scrutiny by regulators, investors, and

customers. "The bubble is going to burst in terms of trust," says a fund manager in Hong

Kong who has followed Satyam closely. Doubts about the reliability of Indian outsourcers are

especially important, since customers often allow the Indian companies access to sensitive

systems. "This industry doesn't just make widgets," the manager explains. "It's an intimate

relationship." Certainly, says Gartner (IT) analyst Diptarup Chakraborti, "there will be caution

in the short term, skepticism, and questioning." After all, "no one wants to do business with a

known fraudster."

INVESTORS WANT ANSWERS

Industry executives are desperately trying to contain the fallout. "The decline in governance

and institutions represents a serious challenge to India," says Rajeev Chandrashekhar,

president of the Federation of Indian Chambers of Commerce and Industry. Wipro

Technologies (WIT) Chief Financial Officer Suresh Senapaty, went on TV to say that

Satyam's actions should not infect the entire Indian IT industry. And Mohandas Pai, head of

human resources at Infosys (INFY) and the company's former chief financial officer, argued

Satyam's behavior is atypical. "We wish the regulators will investigate and punish the guilty,"

he says. "But this is not representative of our industry." John McCarthy, vice-president of

Forrester Research, allays some fears. "I look at Satyam as an isolated case, and don't think

the developments would have any impact upon India's No. 1 position as an offshore

location."

Still, investors and clients are going to want answers. For instance, they're demanding to

know how Satyam's auditor, PricewaterhouseCoopers, endorsed the company's accounts.

"Auditors' complicity in what seems to be a multiyear misstatement of financials will also be

explored," said CLSA's Vajpayee in his Jan. 7 report. Already, India's Registrar of

Companies had begun a probe into a failed acquisition last month by Satyam of companies

run by Raju's two sons. Now the country's securities regulator will add its weight by

investigating the PwC audit. PwC issued a statement saying it was examining the issue.

Raju's confession is the latest in a rocky ride for Satyam, its shareholders, and its

stakeholders over the past year. The company's clients include multinationals such

as Nestlé, General Motors (GM), and General Electric (GE). But in September, the World

Bank banned Satyam from doing any of its work after it found Satyam employees had

hacked into its system and gained access to sensitive information. It also did not renew their

five-year contract. Satyam denied any wrongdoing. Then came a fresh blow on Dec. 16,

when Raju announced the company would spend $1.6 billion to buy two infrastructure

companies run by this sons, only to reverse the decision a few hours later under shareholder

pressure. Satyam ADRs lost 50% of their value overnight. December also brought news of

pending litigation by a former client, online mobile-payments service Upaid Systems, which

filed a case of intellectual fraud and forgery against Satyam in 2007; a Texas court is

scheduled to conduct a hearing on the case 

CRB SCAM

MUMBAI: C R Bhansali’s web of deceit was elaborate. He had floated 133 companies to pull in funds and suck them out. Money came easy; he was inspiring with his grandiose plans, high interest rates and entry into mutual fund and banking. CRB’s meteoric rise in the early 90s

coincided with the boom in the Non-Banking Finance Company (NBFC) sector. His fall in 1996 was equally fast.

Forget investors, even credit-rating agencies didn’t see it coming. CARE, a leading agency, gave ‘AAA’ rating at a time when the company was going down.

How to become chairman of top 3 finance companies

Born in Rajasthan, raised in Kolkata, Bhansali became a dada in the financial capital — Mumbai — before he turned 40.

First came the finance company (CRB Capital Markets), after which the mutual fund (CRB Mutual Fund) and CRB Share Custodial Services followed. Then he planned to get into banking, and he almost made it.

He had a dream run from 1992 to 1996 collecting money from the public through fixed deposits, bonds and debentures. He floated around 133 subsidiaries and unlisted companies. Most of the money was transferred to these dummy companies.

The flagship company, CRB Capital Markets, went public in 1992 and raised a record Rs 176 crore in three years. In 1994 CRB Mutual Funds, through its Arihant Mangal Growth Scheme, raised Rs 230 crore. Another Rs 180 crore came through fixed deposits.

CRB Corporation Ltd raised Rs 84 core through three public issues between May 1993 and December 1995. CRB Share Custodial Services raised a further Rs 100 crore in January 1995 to set up operations.

Between 1992 and 1995, when the market was in the post-Harshad Mehta bear phase, Bhansali managed to raise close to Rs 900 crore.

Post-1995, he got a beating on the stock markets. His investments in the property market did not pay off because of the slump.

Caught in a financial trap, Bhansali tried borrowing more money from the market. ‘‘To repay the interest rate on amounts he borrowed later, Bhansali was forced to borrow once again. This went on and on, and he got stuck in a financial quicksand,’’ says a former employee, refusing to be named.

Going down, he even tried to invest in Bollywood

Bhansali made a determined effort to get out of the trap by investing in some high-risk ventures. He is believed to have even made a Hindi commercial film. Again, the gamble failed.

In the end, Bhansali was borrowing funds from banks through questionable means. All was well till December 1996. Then the Reserve Bank of India (RBI) refused banking status to CRB and contemplated action for various irregularities.

Pradip Bhavnani, President of National Association of Small Investors, says: ‘‘There was a lot of confusion about how to act against CRB, considering its NBFC status. When he started defaulting, public sector banks like the State Bank of India were the first to be hit. Had the SEBI and RBI acted fast, investors wouldn’t have lost money.’’

Bhansali spent three months in jail in 1997. He is out now but nobody knows where he lives and if they do, they are not snitching.

Sebi active after CRB scam

GEORGE MATHEW

MUMBAI, AUG 10: The capital market regulator seems to have turned aggressive after the CRB Capital Markets scam. Securities and Exchange Board of India (SEBI) has started taking various rapid-fire actions against various market intermediaries - mutual funds, merchant bankers and corporates - to prove the point that it is a ``vigilant'' regulator.

The list of action taken by the SEBI in the last three months is impressive:

* Over 120 merchant bankers were issued show-cause notices for various lapses including failure in meeting underwriting commitments this year.

* Over half-a-dozen mutual funds were prevented from floating mutual fund schemes. The SEBI directive was that they should make their accounts clean before coming out with new schemes.

* It has sought explanation from Hindustan Lever as to why the company purchased some eight lakh shares of Brooke Bond barely a month before the decision to merge the two companies was taken.

* Morgan Stanley Mutual Fund was slapped a fine of Rs one lakh for various irregularities.

* It has come out with a compendium of proposals for the primary market.

The SEBI notice to Hindustan Lever about insider trading has now overshadowed the CRB scam and put the spotlight on SEBI initiatives in the capital market. This comes close on the heels of flak that it received over the CRB scam.

In fact, history seems to be repeating itself. SEBI was caught napping in at least three cases when market buccaneers took investors for a ride and the regulator stepped in after the investors lost heavily.

When hundreds of shady companies floated public issues in the 1994-96 period, SEBI initially failed to check the flood of such issues.

However, when it tightened the primary guidelines, the number of companies floating the issues came down. A total of 1428 public issues were made in 1995-96.

If the revised guidelines (which include dividend trackrecord and project appraisal norms) are applied to these issues, only 399 issues would have qualified to enter the market. This indicates that if SEBI had tightened the issue guidelines earlier, many of the dud issues which are now quoting much below the face value could have been avoided.

Again, after raising money from the public the question of monitoring end-use of funds raised through public issues is yet to be tackled the same promoters, in collusion with brokers, rigged up the share prices two years ago.

Gullible investors who were taken for a ride lost heavily in the price rigging exercise in around a dozen companies like Kamakshi Housing, Jyothi Resins and Ardeshir Cotton. However, SEBI action like impounding the auction proceeds came a bit late - like bolting the stable doors after the horses had fled.

Then came the CRB scandal. Even though SEBI chairman has gone on record saying that he has taken action against CRB Mutual Fund, the findings of the Chitale report and SEBI's own investigation before the CRB scam broke out had levelled several serious charges against CRB Mutual Fund.

When the CRB Capital Markets which violated all the rules in the book was given a banking licence, SEBI kept quiet. After the scam broke out, SEBI asked half-a-dozen mutual funds not to launch schemes till they clean up their accounts. It also fined Morgan Stanley for violating MF guidelines.

As a former senior SEBI official pointed out, so much time and efforts were taken to frame guidelines for various intermediaries like registrars, mutual funds and brokers and bring them under the SEBI purview.

On top of this, the watchdog got enough teeth only recently and it was harmstrung by lack of adequate manpower added the official.

With the CRB affair showing chinks in the armour of the Reserve Bank of India and the SEBI, a demand to regulate various regulatory bodies has already been made.

S A Dave, former chairman of the Unit Trust of India (UTI) had recently gone on record saying the need for a senior regulatory body which can overlook the regulatory bodies directly monitoring market intermediaries.

The argument is that a senior regulatory body could help ensure that the markets do not suffer due to the lack of coordination among regulators.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.

UTI Scam

UTI Scam : Robbery Through other Means

—Suman

 The line between ‘legitimate’ business and the mafia is getting increasingly

diffused. The greater the liberalisation/globalisation of the economy, the more rampant is the loot. Phoolan Devi as a dacoit in the ravines of Madhya Pradesh could not even dream of the type of wealth made as a Member of Parliament. Her wealth at the time of her death was estimated at a minimum of Rs. 10 crores. But this is small fry compared to the Harshad Mehtas, Bharat Shahs, Ketan Parekhs, Subramanyams etc and the top politicians/bureaucrats/corporate houses with whom they are linked. Phoolan Devi appears as a petty thief compared to these gangsters. The amount robbed through the UTI scam intails thousands of crores — the bulk of which belongs to small investors who have put their life-savings into this scheme.

What is the UTI ?

The Unit Trust of India is the largest mutual fund in the country created in 1964 through an act of parliament. Mutual Funds are financal institutions that invest people’s money in various schemes, giving a ‘gauranteed’ return to the investor. The UTI (of which the US-64 scheme is the largest) was set-up specifically to channel small savings of citizens into investments giving relatively large returns/interest. The US-64 scheme has 2 crore investors, the bulk of whom are small savers, retired people, widows and pensioners. Besides the US-64 the UTI runs 87other schemes giving inverstors various options. But the US-64 has been most popular, giving returns as high as 18% in 1993 and 94.

Genisis of the Scam

Liberalisation of the economy immediately led to the liberalisation of the UTI, throwing it to the mercy of the stock market. In 1992, itself the US-64 scheme was changed from a debt-based fund to one linked to equity. In 1992 only 28% of its funds was in equity; today it is over 70%. Further liberalisation was pushed by Chidambram, as the finance minister of the U F government, who, in 1997, removed all government nominees from the board of the UTI. Besides, the US-64 does not come under SEBI regulations, its investment delails are kept secret (ever depositors cannot know where their funds are being parked) and the chairman has arbitrary powers to personally decide an investment upto a huge Rs 40 crores. Such ‘liberalisation’ is tailor-made for frauds. Not surprisingly, within one year of Chidambram’s liberalisation, in 1998, the UTI crashed, and the new BJP-led government organised a large Rs. 3,500 crore bail-out to prevent default.

It was during this crisis that the new chairman, P.S. Subramanyam, was appointed. Subramanyam was a direct appointee of thug Jayalalitha, who had made his selection a condition for her continuing the support of the then NDA government. Later, though Jayalalitha withdrew from the government, Subramanyam developed close links with the Prime Minister’s Office, and corporative big-wigs. Small investor’s funds were used to promote big business houses, shower favours to politicians, and invest huge amounts in junk bonds....all for a fat commission. Subramanyam functioned like a fascist, arbitrarily transferring hundreds of senior staff, in order to cover his tracks. He was a key player in the Ketan Parekh scam.

Huge amount of UTI funds were channelled into the infamous K-10 list of Keten Parekh stock, such as Himachal Futuristic, Zee Telefilims, Global Tele, DSQ, etc. The UTI continued to buy these shares even when their market value began to crash in mid-2000, in order to prop up the share values of these stocks. The Trust saw its Rs. 30,000 portfolio (value of stocks) lose half its value within a year since Feb. 2000.

To take just one example on how the UTI operated : In August 2000, much after the software stocks had begun to crash, the UTI bought Rs. 34 crores worth of shares in Cyberspace Infosys Ltd at the huge price of Rs 930 per share. Today the shares have no value and its Lacknow based promoters, the Johari Group, are in jail. But, what is astounding is that it was none other than India’s prime minister, Vajpayee, who, as late as Jan. 31, 2001, laid the foundation stone for the Software Tectnology Park (STP) in Luknow, promoted by this group. (Incidentally the UP government had a 26% share in this STP). Coincidentally, in the four days when the UTI reversed its earlier decision and subscribed to 3.45 lakh shares of Cyberspace, Subramanyam had rung up N.K. Singh (then secretary in the PMO) at least 4 times. It does not take much imagination to link UTI purchases in Cyberspace with Vajpayee. Similar were the investments in DSQ Software, HFCL, Sriram Multitech. and others.

Besides, the UTI also invested in junk bonds like Pritish Nandy communications

(Rs. 1.5 crores), Jain Studios(Rs.5 crores), Sanjay Khan’s Numero Uno International (Rs. 7.5 crores), Malavika Spindles(Rs. 188 crores) etc. This amounted to nothing but handing over people’s money (investments) to the rich and powerful. Thereby thousands of crores were siphoned off to big business and prominent individuals, with the UTI chairman, bureaucrats and politicians taking their cuts.

But this was not all. The fraud continues even further. With knowledge that the UTI was in a state of collapse, the Chairman organised a high profile propaganda campaign promoting UTI (spending crores of rupees on the top advertising company, Rediffusion), while at the same time leaking information to the big corporates to withdraw their funds. The Chairman thereby duped the lakhs of small investors through false propaganda, while allowing windfall profits to the handfull of big corporates who had invesed in UTI.

So, in the two month prior to the freezing of dealings in UTI shares, a gigantic sum of Rs. 4,141 crores was redeemed. Of this Rs.4,000 crores (97%) were corporate investments. What is more,they were re-purched at the price of Rs. 14.20 per share (face value Rs.10) when in fact its actual value (NAV — net asset value) was not more than Rs. 8. As a result UTI’s small investors lost a further Rs. 1,300 crores to the big corporates.

In fact these huge withdrawals further precipated the crisis. On July 4, 2001 the board of UTI took the unprecedented step of freezing the purchase and sale of all US-64 UTI shares for six months. Simultaneously it declared a pathetic dividend of 7% (10% on face-value), which is even lower than the interests of the banks and post office saving schemes. Such freezing of legally held shares is unheard of — and is like overnight declaring Rs. 100 notes as invalid for some time. In other words the 2 crore shareholders could not re-invest their money elsewhere — and would have to passively see their share price erode from Rs. 14 (at which they would have purchased it) to Rs 8 — and get interest at a mere 7% on their initial investments. Fearing a back-lash, the government/UTI later announced the ability to repurchase UTI shares at Rs. 10 — i.e. at 30 % below the purchase price.

Imagine the plight of a retired person who would have put a large part of his/her PF, gratuity etc. in the US-64 scheme, considering it the safest possible investment. Not only has the person’s income (interest/dividend) halved overnight, he/she also stands to lose a large part of the investment. So, a person who invested Rs. 1 lakh would now only get back Rs 70,000.

Today, the entire middle class is being robbed of their savings — first it was by the private mutual funds (NBFCs), now by the govt. sponsored mutual fund. Those who gain are the robber barons who run the country’s economics, finance, politics.

The middle-classes, affected by these scame, will soon realise the facts and come out of the euphoria of consumerism that has numbed their senses. They will see

through the hoax of globalisation/liberalisation, and will turn their wrath on these so-called pillars of society. It is important that this impending explosion be channeled in a revolutionary direction, or else it will be diverted by the ruling elite into fatricidal clashes. The middle-classes are most prone to fall prey to ruling-class propaganda. But life itself is the best educator. Faced with unemployment, loot of their savings, price rise of all essentials, etc. they will no doubt, join the working class and their peasant brethrens in revolt.

One in 20 'hit by scams in 2010'Scams hit one in 20 people in the UK last year, with most losing money by handing over bank details or paying upfront fees.The Office of Fair Trading (OFT) said that 39% of those who lost money were the victims of two particular scams.These trick people into giving bank details or paying an upfront fee assuming they are entitled to an inheritance or donating to charity.The OFT said that 39% of those...

Source : BBC | 15 Day(s) AgoCategory : Business

One in 20 'hit by scams in 2010'Scams hit one in 20 people in the UK last year, with most losing money by handing over bank details or paying upfront fees.The Office of Fair Trading (OFT) said that 39% of those who lost money were the victims of two particular scams.These trick people into giving bank details or paying an upfront fee assuming they are entitled to an inheritance or donating to charity.Egyptians...

Source : Bignewsnetwork | 16 Day(s) AgoCategory : Business

UTI MF to start financial literacy drive; partners HDFC BankUTI Mutual Fund is starting its second round of pan- India .investor education and financial inclusion initiative from February 2 to spread awareness about benefits of investing in mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from Thiruvananthapuram, to spread awareness about financial planning,...

Source : Bignewsnetwork | 18 Day(s) AgoCategory : Business | City : New Delhi

UTI Mutual Fund, HDFC launch investor education projectMutual Funds Sector, UTI Mutual Fund HDFC Bank Tie-up, Swatantra in Kerala, Swatantra in Karnataka, Swatantra in Tamil NaduUTI Mutual Fund today announced its tie-up with HDFC Bank for an investor education initiative called 'Swatantra' in Kerala, Karnataka and Tamil Nadu."We are happy to partner with India's oldest fund house UTI Mutual Fund in this unique investor education initiative. HDFC Bank's...

Source : Headlinesindia | 14 Day(s) AgoCategory : Mutual Fund

UTI Banking Sector Fund declares tax-free dividend of 25 per centUTI Banking Sector Fund has declared tax-free dividend of 25 per cent or Rs 2.50 per unit on face value of Rs 10.Pursuant to the payment of dividend, the NAV of the dividend option of the fund will fall to the extent of payout and statutory levy if any. The record date for the

dividend is February 3.All unit holders registered under the dividend option of UTI Banking Sector Fund as on February 3 will...

Source : Newkerala | 15 Day(s) AgoCategory : Sports | City : Mumbai

UTI MF to start financial literacy drive; partners HDFC BankUTI Mutual Fund is starting its second round of pan- India .investor education and financial inclusion initiative from February 2 to spread awareness about benefits of investing in mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from Thiruvananthapuram, to spread awareness about financial planning,...

Source : The Economic Times | 17 Day(s) AgoCategory : Business | City : New Delhi

Sinha upbeat about new assignment at SebiWhile waiting to take over as the chairman of the market regulator Securities and Exchange Board of India (Sebi) on February 18, UK Sinha on Saturday observed that his days in UTI Mutual Fund have been challenging and he has been able to restore confidence among the investors.Sinha, who has been running UTI Mutual Fund for more than four years, took charge of the almost direction less asset management...

Source : Expressindia | 4 Day(s) AgoCategory : Mutual Fund

UTI MF to start financial literacy drive; partners HDFC BankMutual Fund is starting its second round of pan- India .investor education and financial inclusion initiative from February 2 to spread awareness about benefits of investing in mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from Thiruvananthapuram, to spread awareness about financial planning,...

Source : The Economic Times | 17 Day(s) AgoCategory : Mutual Fund | City : New Delhi

UTI MF to start financial literacy drive; partners HDFC BankNEW DELHI: UTI Mutual Fund is starting its second round of pan- India .investor education and financial inclusion initiative from February 2 to spread awareness about benefits of investing in mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from Thiruvananthapuram, to spread awareness about financial...

Source : Bignewsnetwork | 18 Day(s) AgoCategory : Business | City : New Delhi

UTI Banking Sector Fund declares dividendMoneycontrol.comhas announced a dividend of 25% (Rs. 2.50 per unit on Face Value of Rs.10), under the dividend option ofAll investors registered under the dividend option of UTI Banking Sector Fund as on February 3, 2011 will receive this dividend. The NAV of the scheme under the dividend option as on February 02, 2011 was Rs 23.740. (UTI Banking Sector Fund is an open end equity oriented scheme. The...

UTI scam

The Joint Parliamentary Committee (JPC) investigating the UTI scam has concluded that the scam took place due to the selfishness of a few individuals

and the negligence of the management. The JPC probe has also found SEBI guilty of failing in its role as the market watchdog.

In such a situation, whom will an investor approach for grievance redressal, especially when the regulator has itself been negligent? Whatever the reasons may be, one thing is clear: a middle-class investor will think twice before investing in the UTI, as it has repeatedly failed to deliver in the recent past.

The middle-class does not have much money to spare, and will not surely invest in any fund whose returns are uncertain, even if it promises a higher rate of interest. Further, mere probes will not do much to restore the confidence of investors in the UTI. What is required is action against those responsible for the scam.

There is also the feeling that some individuals have been allowed to go scot-free because of their political connections. This must stop, and the `scamsters' should be punished. The UTI needs management restructuring along with new and effective schemes. The old and unreliable schemes should be discarded.

Former DSQ Software chief cited as accused in stocks scam

K.T. Sangameswaran

Custodial interrogation of Dinesh Dalmia in progress

CHENNAI: Besides Dinesh Dalmia, the then Managing Director of DSQ Software Limited, three companies have been cited as accused in a charge sheet filed by the Central Bureau of Investigation in a stocks scam, involving Rs.595 crore.

The companies are DSQ Holdings Ltd., Hulda Properties and Trades Ltd. and Powerflow Holding and Trading Pvt Ltd., all under the control of Dinesh Dalmia, who has been arrested and remanded to police custody.

Investigation is on to find out how the money was used and who the other beneficiaries were. Custodial interrogation of Mr.Dinesh Dalmia is in progress.

The agency will file the report before the court, CBI sources toldThe Hindu . When the agency sought police custody of Mr. Dalmia, defence counsel K.S. Dinakaran and I. Subramanian objected to it, arguing that he would be harassed. The charge sheet had been filed. Further, he was not willing to go to police custody and did not want to make a statement, they said.

According to the charge sheet, Mr. Dalmia obtained wrongful gain through partly paid shares of DSQ Software Ltd., in the name of New Vision Investment Ltd, U.K., and unallotted shares in the name of Dinesh Dalmia Technology Trust and Dr.Suryanil Ghosh-Trustee Softec Corporation. DSQ Holdings Ltd, Hulda Properties and Trades Ltd and Powerflow Holding and Trading Pvt. Ltd. indulged in cheating.

The CBI submitted that investigation revealed that 1.30 crore shares of DSQ Software Ltd had not been listed on any stock exchange.

Also, except the 30 lakh shares allotted to New Vision Investment Ltd., none of the shares was actually allotted by DSQ Software. Even in the transaction relating to the allotment of 30 lakh shares, the partly paid equity shares were forfeited/cancelled in March 2001. But Mr. Dalmia

had fraudulently got these shares dematerialised as fully paid in May 2000.

Mr. Dinesh Dalmia is alleged to have made false representation to the National Securities Depositories Ltd and fraudulently got the 1.30 crore shares dematerialised, showing them as fully paid and allotted by the company.

Later, he sold the shares to the trading system and cheated the shareholders of the software company and also the purchasers of these shares. The shares were sold by brokers for Rs.594,88,37,999.

A total of Rs.572,61,51,225 was paid by brokers to Hulda Properties and Trades Ltd, DSQ Holdings Ltd and Powerflow Holding and Trading Pvt. Ltd. None of the sale proceeds of the shares was received by DSQ Software Ltd, the charge sheet said.

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Home Trade scam: still waiting for justice   June 10, 2009

The arrest of Nationalist Congress Party’s (NCP) Member of Parliament (MP) Padmasinh Patil has raised more questions than answers. The main question is, why was Patil desperate to get rid of his cousin and one time right-hand man Pawan Raje Nimbalkar, that too when Nimbalkar was already implicated in number of cases by Patil and also jailed for six months? One has to go back to the mostly forgotten Home Trade scam. Nimbalkar was one of the accused along with NCP's Sunil Kedar, the then president of Nagpur District Central Co-operative Bank (NDCCB). What happened to these politicians is well known, but the real question is what happened to the company itself or where are the Home Trade promoters? Navi Mumbai-based Home Trade Ltd was launched in 2000 accompanied by Rs240 million advertising blitzkrieg with cricket icon Sachin Tendulkar and film stars Shah Rukh Khan and Hrithik Roshan to endorse its portal.Home Trade's modus operandi was very simple. It claimed to be a professional firm dealing in government securities (Gilts) and would lure the general public, brokers, sub-brokers dealing in Gilts. But the government securities never existed and were actually bought from some third party and the whole deal was meant just a show on paper only. Home Trade scam was unearthed after NDCCB lodged a complaint of non-delivery of Rs1.24 billion Gilts it had bought through Home Trade. The then Union Finance Minister, Yashwant Sinha, made a statement that the scam was worth Rs2.75 billion, but it later transpired that it could be much bigger. The investigation was later handed over to the CBI.Pawan Raje Nimbalkar, who was chairman of Osmanabad District Central Co-operative Bank in 2002, invested about Rs300 million of the bank in Gilts offered by Home Trade. But following the scam exposure, he turned absconder on behest of Padmasinh Patil which led to his defamation, said Omprakash Raje Nimbalkar, son of Pawan Raje. 

"When my father deposited Rs300 million in Home Trade for purchase of securities, the same was transferred to NDCCB within 15 minutes by Home Trade, which shows the nexus between NDCCB's then chairman Sunil Kedar and the company officials," Omprakash Raje alleged. Patil later implicated Nimbalkar in a case wherein a Kolkata-based firm, Regal Impex, failed to submit export proof for the sugar sold by Terna Co-opeartive Sugar Factory.“The decision to sell sugar for export to Regal Impex was taken by the board of directors of Terna, but when the time came, all other directors, except my father, who was chairman, got away and he was then jailed for six months," Omprakash Raje said. Sanjay Aggarwal, chief executive of Home Trade, was arrested in May 2002 along with his associates Ketan Seth and Subodh Bhandari for duping investors of billions of rupees. Ketan Seth was also involved in the Rs927.8 million Seamen’s Provident Fund scam case along with AK Ghond, former commissioner of Seamen's Provident Fund Organisation. Central Bureau of Investigation (CBI), was also looking for any possible violations of foreign exchange regulations as Aggarwal allegedly remitted Rs580 million to Mauritius through HSBC Bank. But what is the current status of the Home Trade investigation? Nobody is willing to speak. All our phone call to Bank Security & Fraud (BS&F) cell of CBI in Mumbai went unanswered. – Yogesh Sapkale news@moneylife.in

MUMBAI: The Home Trade scam could involve the misappropriation of at least Rs 500 crore, as irregularities have been traced in other parts of the country, including a provident fund scheme in Kolkata, police sources said here. "The scam would touch the Rs 500 crore figure and irregularities have been noticed in several states including Gujarat and West Bengal," sources in Economic Offences branch said. In Kolkata, the group's involvement has been linked to the Rs 82 lakh forgery in a central government undertaking employees provident fund scheme, sources said, adding a two-member team of Anti-Corruption Branch, Kolkata, arrived here today to pursue further investigations. Six persons, including Home Trade chairman Sanjay Agarwal and Director (Securities Trade) Ketan Seth, were arrested after the scam, involving at least Rs 300 crore, came to light. While Agarwal, who was given bail in the Nagpur case, is held in Pune, Seth is in Valsad jail in Gujarat, sources said adding four others including Chairman, Vice Chairman and general manager of Raghuvanshi cooperative Bank and an employee of the Home Trade were released on bail. "More arrests, particularly of the directors, were likely," sources said. Besides, Bengal, the irregularities have been detected in Surat, Valsad and other parts of Gujarat, sources said, adding "in Gujarat, the scam of Rs 25 crore involved various cooperative banks".

Read more: Home Trade scam may reach Rs 500 cr - The Times of India http://timesofindia.indiatimes.com/business/india-business/Home-Trade-scam-may-reach-Rs-500-cr/articleshow/19780989.cms#ixzz1E7KEdzZ2

1998 Annual Report

Fraud & ForgeryThe FBI's Uniform Crime Reporting System does not include fraud, false pretenses, forgery, embezzlement, and confidence games among larceny. Yet in many cases, fraud is a much more serious crime than theft. Victims of check forgery and "con" games stand to lose thousands of dollars. Often added to this loss is the personal humiliation that accompanies being "duped" by a "con man." The confidence game crook, a particularly crafty breed of criminal who has no qualms with deceiving his victims face-to-face, expects that his victim's embarrassment will deter him or her from reporting the crime to the police.

In 1998, 321 incidents of fraud and forgery were reported to the Cambridge Police, ranging from simple check forgery to elaborate confidence swindles:

Counterfeiting

(7 in 1997; 6 in 1998)

Counterfeiting is one of the more devious types of fraud. True counterfeiters invest thousands of dollars for counterfeiting equipment to produce near copies of genuine dollar bills. Because of the cost, counterfeited bills are usually of high denomination. The six incidents this year in Cambridge involved $20, $50, and $100 bills. Very likely, more counterfeit bills were passed that went undetected. The preferred tactic of counterfeiters is to buy a low-value item, use the forged bill, and receive genuine change. The crime of counterfeiting is a federal crime and generally falls under the jurisdiction of the United States Secret Service, though the Cambridge Police Department often takes the initial report.

Embezzlement

(25 in 1997; 30 in 1998)

The employee of a company takes advantage of his position for his own financial gain, diverting company funds to himself. The means by which the offender

accomplishes the embezzlement varies, depending on the business, from store clerks "skimming" the register to shady company accountants falsifying corporate records.

Bad Checks

(32 in 1997; 29 in 1998)

The writing of checks on insufficient funds or closed accounts. This number is low because most "bounced" checks are not reported as criminal incidents, particularly if it seems to be an innocent mistake.

Forged Checks

(76 in 1997; 60 in 1998)

The fraudulent use of a lost or stolen check, with the offender forging the victim's signature. This crime is often committed by someone who knows the victim and thus has access to his or her checks-a friend, a family member, a co-worker, or a roommate. Other check forgery incidents occur following a burglary, a larceny from a motor vehicle, or a larceny from a person.

Credit Card/ATM Card Fraud

(124 in 1997; 145 in 1998)

ATM and credit card fraud were once categorized separately, but with the proliferation of "check cards," the line between them has become blurred. Credit card fraud has become the most common type of fraud, and it is increasing every year. Since "check cards" can deplete entire accounts within hours without the offender having to know the victim's PIN, owners of these cards should keep a close watch on them. Typically, the amount of money for which the victim is liable is higher on "check cards" than on credit cards.

Scams and Confidence GamesThe worst breed of fraud offender employs "flim flams" or "con games" which exploit victims' good will, gullibility, ignorance, or greed and bilk them for thousands of dollars. We are warned from childhood to beware of offers that are "too good to be true," but our defenses are often overcome by the belief that an offer is "too good to pass up." Scams used in Cambridge in 1998 are listed below. This list is a mixture of classic "shuck and jive" confidence swindles and newer millennium-era stunts.

The Travel Scam

Ten reports were taken in 1998 for various travel & tourism related swindles, including overpricing and non-delivery of airplane tickets. All reports have identified one of two agencies, one in East Cambridge, one in Area 4.

The Big Carrot

So-called by the con men because they dangle a "carrot" (an expensive television or laptop computer) in front of a "donkey" (the victim) who then "leaps for it" (hands over large amounts of cash). This scam has been happening in Massachusetts for as long as anyone can remember. In addition to the nine reports taken by the Cambridge Police Department in 1998, we received intelligence from police departments ranging from Danvers to Natick. Any town with a shopping mall is a target.

It appears that one group, operating out of the Everett/Somerville/East Cambridge area, is responsible for a majority or all of the scams. Here's how it works:

The victim receives a telephone call at his or her place of work, which has ranged from southern Maine to Rhode Island. The caller identifies himself as "Jim," the victim's UPS driver.

"Hey," says Jim, "My [brother/friend] works at [Lechmere/Sears/Best Buy] and they're way overstocked on [laptop computers/big screen televisions/CD players]. He can get you [30/50/75] percent off the regular price!"

"I'll take [one/two/five/twenty]!" the victim responds. "What do I have to do?"

"Meet my brother George [usually ‘George Collins'] at the [Lechmere/Sears/Best Buy] in [Cambridge/Danvers/ Saugus/Natick/any other town with a shopping mall] tomorrow evening. Make sure to bring [$1,000/$2,500/

$4,000/some other obscene amount] in cash!"

The victim meets the con man at the arranged location, usually outside the store. The victim forks over the money. The suspect gives the victim a written receipt from the store and says he'll get the merchandise. He instructs the victim to go wait for him at the receiving area. The victim waits. The suspect never shows up.

It appears that con men use the same store time after time-Lechmere until it closed, Sears for about a year, and most recently Best Buy-because they steal a receipt book from that store and use it until it is exhausted.

Many, many arrests have been made for this scam, three of them by the Cambridge Police Department. The arrestees are usually men in their 20s and 30s from Cambridge, Somerville, Everett, or Malden. Yet the scams continue-indicating a large conspiracy of individuals. The "Big Carrot" series took an interesting turn in Cambridge in November 1998 when one of the suspects in the scam, apparently afraid that another suspect was going to "snitch" on him, shot his accomplice in the foot.

In January of 1999, Cambridge investigators arrested a Somerville man for the scam. Hopefully, this recent arrest will curtail this activity in Cambridge for a time. When this same man was arrested in February 1997, the scam disappeared from Cambridge for a year and a half.

The Pigeon Drop

One of the classic swindles. A pair of swift-talking con men pretend to have found a wallet or bag with cash in it. They stop a passer-by and claim ignorance about what to do with the money. They offer to share it with the victim if he or she can help them make it "legit" by contacting a bank or lawyer for advice. What happens next is usually confusing, but the con artists manage to get the victim to give them "good faith" money, or collateral, for his or her share, then they leave the victim with worthless paper or nothing at all. These schemes tend to be very convoluted and defy easy explanation. In the winter of 1998, a pair of female swindlers struck around local universities, conning two foreign students out of thousands of dollars.

The Psychic Pswindle

In this scam, a troubled victim visits a psychic, who tells the victim that the source of his or her trouble is "tainted money." The victim is told to bring the money-usually several thousand dollars-to the psychic, who will perform a cleansing ritual on it to remove the taint. The "cleansing ritual" then goes on indefinitely, and the money is never returned to the victim. One such report was taken from the East Cambridge neighborhood, and one in Harvard Square, in 1998.

The Cash Shuffle

Another classic scam, this type of con games requires a special art that is rarely developed any more. Two were committed in Cambridge in 1998. A fast-talking swindler enters a retail establishment and looks for a young or inexperienced cashier. The swindler asks for change for, say, a $20 bill. Then the game starts. By distracting the victim with talk, "changing his mind" about the denominations he wants, handing bills back and forth, confusing the cashier about whose money is whose, and so on, the con artist manages to walk out of the store with two to five times the amount he went in with-leaving the slightly dumbfounded cashier thinking he has only "made change." The poor cashier has a revelation that evening, however, when he tallies his register for the day.

The Utility Impostor

This is an ongoing scam scenario in Cambridge, though only one was reported in 1998. Two or three middle aged men show up at the house of an elderly resident, claiming to work for a utility such as the electric company or the water department. Claiming to need access to the victim's house, one distracts the victim while the other prowls the house looking for valuables.

The Charity Impostor

An unsophisticated type of scam, the charity impostor simply involves someone posing as a charity worker, collecting cash which then simply goes into the con man's pocket. The charity impostor may conduct his business door-to-door, or he may stand in the street. Sometimes it is hard to distinguish imposing a charity worker from panhandling (i.e., "Help the homeless!"). We had only one report for this scam in 1998, probably because the victims-believing they had given money to an actual charity-did not report the incident as a crime.

Other Scams

Con artists are notoriously original, creating in 1998 a dozen scam scenarios that could not be fit into any existing classification. Some examples:

A psychiatrist who told her patient that the expensive artwork he possessed was causing his problems; at her suggestion, he brought the artwork to her office, and she refused to return it when the "therapy" was concluded.

Around Christmas time, someone tried to take advantage of the good will of a church by calling and claiming to be a parishioner, stranded with car trouble and without cash in some other town.

In October, a Concord Avenue man took advantage of a national fad and sold counterfeit "Beenie Babies."

In August, a guy was seen hanging around a Trowbridge Street apartment building. He told all the residents he was taking care of the "squirrel problem." Later, he delivered a pile of "invoices" to all the residents. This innovative but poorly-executed scam did not pay off.

Identity TheftThis serious type of fraud has become a national concern, particularly with the proliferation of personal information over the Internet. The Cambridge Police Department received only two reports of this crime in 1998, but because they cross state and sometimes national boundaries, it would be unusual for a municipal police department to receive many.

In 1998, identity theft became a federal crime, subject to arrest and prosecution by federal law enforcement agencies. The new law establishes the Federal Trade Commission as a clearinghouse for information on identity fraud as well as a register of people victimized by the crime. The FTC estimates that about 40,000 people have their identities swiped each year.

How does someone steal your identity? Usually, all it takes is your name, date of birth, and social security number, which an identity thief can glom from multiple sources: your driver's license; your loan, credit card, or mortgage applications; information you give over the Internet; even your garbage. Armed with this information, the thief assumes your identity and applies for credit cards, loans, and mortgages; orders products you can't pay for; steals from your checking or savings account; obtains professional licenses, driver's licenses, and birth certificates in your name; submits fake medical bills to private insurers; and otherwise makes a mess of your life and finances. If he is an all-around criminal, he may use your identification in his criminal enterprises. Eventually, a warrant may be issued with your name on it.

The damage can range from minor (you have to cancel some credit cards) to moderate (your credit report is ruined and you spend months straightening out your finances) to extremely serious (you get pulled over for speeding and suddenly find yourself in jail on a warrant for dealing cocaine in Miami).

In any event, the Federal Trade Commission is now authorized to help you out. If you would like more information, or if you are a victim of identity theft, you can call the

local FTC office at 617-424-5960 or visit their location at 101 Merrimac Street, Suite 810, Boston, MA 02114-4719.

 

Back to the 1998 Annual Report Index

The Mutual Fund Scam

written by John Chow on October 5, 2006

Many financial planners sing about the virtues of mutual funds. They will tell you mutual funds are great

long-term investments with high returns and very low risk. In reality, the only thing mutual funds are good for

is lining the pockets of people who sell and run them. Before you invest in a mutual fund, consider the

following.

There Are More Mutual Funds Than Stocks

At last count, there were over 17,000 mutual funds in the US. That’s more than all the stocks listed on the

US exchanges. Do you see anything wrong with this picture?

Crazy High Fees

Mutual funds carry very high fees compared to other investments. You have purchase fee, redemption fee,

exchange fee, account fee, management fee, fee for going to restroom, etc. Just buying a mutual fund puts

you in the red from the get-go. The SEC does not limit the size of sales load a fund may charge, but the

NASD does not permit mutual fund sales loads to exceed 8.5%. That is a crazy high commission. It means

your mutual fund needs to increase in value by 8.5% just so you can break even!

Ah, but what about the backend loaded funds? They can be even worst. Sure, all your money goes into the

fund but now you’re locked in for up to 10 years if you wish to avoid paying a load. If you need the cash

before then, you have to pay a commission on not only the amount you invested but also on the gain as

well! What about “no load” funds? There is no such thing. All funds have a load on it. The financial planner

will get his commission for selling you the fund. If you do not pay the commission, then the fund pays it.

Guess where the fund eventually takes the money from?

You Are Last In Line

Even before the fund makes one dollar, money comes off the top to pay the fund management company. It

doesn’t matter if the fund makes or loses money, the fund company gets a percentage of the fund’s net

asset value. Some funds have very high management fees – up to 2% of the fund value. That’s another 2%

you have to make up to get back to square one.

Then we have the fund manager. This hot shot is supposed to turn your life savings into a fortune. For the

work they do, mutual fund managers are among the most overpaid people in the world. Everyone on Wall

Street makes far too much for moving money around, but mutual fund managers are the most reprehensible.

Fund managers earn $500,000 to over $1 million a year including bonuses – but 70% of them can’t beat the

market. In other words, you are paying them for a 70% chance of losing money. Oh, they will spin any profit

as a gain but the question remains, if you cannot even match the market, are you making any real gains?

After the fund company and fund managers get their money, anything left over is yours. However, watch out

for the redemption fee. You pay going in, you keep paying while you are in and you pay coming out.

Someone is getting rich from mutual funds, and it’s not you.

It Is Possible To Make A Loss and Still Pay Capital Gains Tax

During a crash or market correction, the mutual fund value will drop. This drop can panic many investors,

who will then pull their cash out (fees and backend loads be damned). If the fund is fully invested, the fund

manager will have to sell some of the holdings in order to pay off the people redeeming fund units. While a

normal investor would sell their losers and keep the winners in a down market, the reverse happens in a

mutual fund. The fund manger will sell off the winners to pay off the people cashing in their fund so he can

look good at bonus time – fund managers don’t get big bonuses for selling holdings at a loss. While this is

good for the fund manager, it triggers a capital gain to you. So you are paying capital gains tax on a fund

that is declining in value! Talk about getting double screwed!

Still Want To Invest?

If you still want to invest in mutual funds then do yourself a favor and stick to the low cost index funds. Index

funds are like mutual funds except the fund manager doesn’t decide what to invest in, the index the fund

covers does. For example, an S&P 500 index fund would only hold shares in companies that make up the

S&P 500. If S&P drops a company from their index and adds a new one, the index fund must sell the

dropped shares and buy shares of the newly added company. This is one reason why Google had to do a

2nd $4 billion offering. They got included in the S&P 500 and the index funds needed to buy their shares in

order to maintain their proper holdings. The fees and expense ratio on an index fund are lower and their

fund manager isn’t paid as much as a mutual fund manager – any idiot can manage an index fund.

Another alternative is Exchange-Trade Fund (ETF). ETF is a security that tracks an index, a commodity or a

basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes

throughout the day as it is bought and sold. Because it trades like a stock whose price fluctuates daily, an

ETF does not have its net asset value calculated every day like a mutual fund does.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on

margin and purchase as little as one share. The expense ratios for most ETFs are lower than those of the

average mutual fund. One of the most widely known ETFs is called the SPDR (Spider), which tracks the

S&P 500 index and trades under the symbol SPY.

Like any investment, the key is research. There are some good funds out there – 30% do manage to beat

the market.

The Mutual Fund StorePosted: 2008-11-12 by Ralfy McKeem [send email]

Scam artists

Complaint Rating: 

Company information:

The Mutual Fund Store

United States

mutualfundstore.com

Here is the scene. There are a group of financial planners sitting around a table and one says, 'I have an idea. Why don't

we stop charging commissions and just charge a small annual management fee.' This way we will make less money and

the client will make more'. The reality is the planner makes more although it sounds like a better deal for the client.

This is the easiest lie to sell in the financial services business. 'We do not charge a commission, we only charge a small

annual fee'. You hear this guy, Adam Bold on the radio every weekend telling you that you should avoid the 'greedy

brokers' that charge a commission. The actual fact is the 'greedy broker' charges a lot less than The Mutual Fund Store.

The Trojan Horse is that the 'greedy broker' charges a one time fee whereas the mutual fund store charges at least 1

1/2% fee every year, even if your account loses money. Let's look at what happens if you invested $100, 000 with the

greedy broker. Your sales charge is a one time fee of $3500. Assuming you are in the investment for ten years with the

mutual fund store your fees total a whopping 15% of your original investment which is $15000.

If your account makes no money nor loses no money for the ten years your balance at the end of ten years would be

less than $85000. If you do the math and assume that your account grows by 10% per year your fees to the mutual fund

store total over $24000.

This is why he hammers other brokers and annuity salesman. He talks about greedy brokers and annuity salesman like

they are lepers. He spends most of his show speaking ill of others in his industry. The fact is, in the recent economic

down turn, his investors have lost a lot of money, while those who invested in annuities have lost no money and paid no

fees and their accounts are actually up in value. Sadly, his investors have lost a lot of money and they will lose some

more when he deducts his fees from their accounts. To his credit, Adam Bold is a great marketer but don't expect him

to tell you the truth.