Financial Scams

8/13/2019 Financial Scams

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TELGI SC MTHE STAMP PAPER SCAM


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THE SC M Abdul karim telgi was the mastermind behind the multi-million stamp

paper scam in india.

The journey from an ordinary room-boy of a guest house, to one of themulti-millionaires of the country, influencing over 9 states, Telgi's successbears a testimony to a typical rags-to-riches story, barring the unfairmeans used.


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Born in 1961, he learned to grow up on his own at a very early age after hisfather's death. He used to study and work to pay his school fees by selling

fruits and vegetables on trains.

He is a bachelor of commerce from belgaum college and went saudi arabia

for work and after seven years came back to india to work as a travel agent. From a room boy of a guest house, he set up a stamp peddling shop on the

footpath, fulfilling the shortage and demand for stamp papers and cashing

in good money. This clicked the idea to fake the stamps and make huge

profits from them. This is when the roots of biggest scam of india were

seeded at this stage.


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The way he gave wings to his criminal acts is definitely the work of a perfectionist.

Telgi's fake stamp scam is the biggest ever in the country, and it was possible

because of this simple, yet unshakeable Indian truth: everyone, or at least almost

everyone is corruptible. From the constable to the cabinet minister, everyone, or at

least almost everyone is on the take. Telgi's corruption network must be far, far

larger than what it appeared to be.

By the time Telgi came to need to grow his network, he had already learnt that the

right sum of money into the right pocket at the right time, ensures that an official

head will look the wrong way when wanted. That, in fact, was how his stamp paper

career started.


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As stamp and stamp papers are allowed to be purchased only from registered peddlers,

Telgi acquired a stamp vending licence in 1994.

Then, with his good contacts, he also acquired a printing press at the india security

press and started his scam on a larger scale from there.

He was able to bribe insiders to give him the production programmes of the heavily

guarded government security press in Nashik, so that he knew what denomination and

category of papers were being printed at any given time, so his own press could do the

same.

Telgi was able to buy special printing machines from the Nashik press which had

supposedly gone beyond their shelf life, and were meant to be destroyed and sold as

scrap.

Telgi did buy them as scrap (at an auction which was fixed in his favour), but he was able

to ensure that the presses were not destroyed as they were meant to be .


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After some time, he became so influential that he was the one who decided who will

get promotions in the security press.

He ran over 72 stamp peddling centres across 9 states. With the strength of 300

agents who dealt in selling the fake stamps to bulk purchasers like banks,

insurance companies, share-broking firms, his monthly profits were summing up

around ground shaking rs.202 crore.

Apart from developing his scam empire, he also developed contacts with the

politicians of all hues and used a safe method to hide his criminal acts. Telgi knew

exactly how to utilize the weakness of the corrupt system and susceptibility of the

people in power. He donated unstintingly for temples, churches, mosques and was

very bounteous in giving charity.


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AFTER EFFECTS

Telgi got arrested in 2002 for the biggest scam ever committed in Indian history.

Rs.23,000 crore was the estimated value of business transacted by Telgi and his

associates, and around 60 people were arrested from over nine states. 9 police

officers were arrested in Maharashtra around 32 cases were recorded against Telgi

and his associates in India, including murder and passport fraud

He, along with his crime associates, was sentenced to 10 years rigorous

imprisonment.

The Telgi case highlighted some dark faces behind police uniforms in Karnataka

and several other states, which made it a national issue.


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In a video tape released in September 2006 of Telgi, taking a narco-test,

revealed the names of some high rated politicians like Sharad Pawar and

Chaggan Bhujbal to share the crime. At that moment, his network was

disclosed, that reached to the very roots of the Indian political system.

On June 28, 2007, Telgi's imprisonment was revised and further extended to 13

years of rigorous imprisonment with a fine of sum of Rs. 202 crore. After some

time , he confessed all his crimes.

Judge Chitra Bhedi of a special court, condemned a quantum of punishments

under several sections of Indian penal code (IPC) and the Maharashtra control

of organized crimes act. However, he was quiet lenient eventually regarding

Telgi after he confessed for the scams and because of his health as Telgi is HIV

positive.


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BARINGS BANK SCAMTHE SECURITIES SCAM


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BARINGS BANK Barings bank was founded in London in 1763 which eventually become Britains

oldest merchant bank by late 20thcentury.

It provided traditional banking services to the public while performing investmentactivities in stocks, bonds, commodities and real estate.

Barings had established trading operations at most of the worlds exchanges.

Baring grew up steadily and over a period of time became the leading merchantbank in the world.

In February 1995, the bank collapsed because of a scheme, perpetrated by one of itstraders in Singapore-Nick Leeson.

He had wiped out the banks capital and destroyed the 220 year old institution.

Barings bank has shut operations and got liquidated by 2007.


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NICK LEESON

Nicholas Nick" William Leeson got his first job in 1985 with a private

bank, Coutts. He then moved to Morgan Stanley in 1987 for two years, and

then to Barings in 1989.

In 1992, he was appointed general manager of a new operation in futures

markets on the Singapore international monetary exchange (SIMEX).

Barings had held a seat on SIMEX for some time, but did not activate it until

Leeson was sent over.

Leeson was selected to open, run and manage all aspects of trading on

SIMEX.


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NICK LEESON


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Nick Leeson still trades in stocks and futures but strictly with his own

money.

While he was in prison, in 1996, Leeson published an autobiography, rogue

trader, detailing his acts.

In June 2005, Leeson released a new book, back from the brink: coping with

stress. It picks up his story where rogue trader left off.


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WHAT WAS THE STRATEGY BEING IMPLEMENTED BY NICK LEESON

WHICH CAUSED BARINGS BANK TO FACE HUGE LOSSES?

Nick Leeson was given a lot of freedom by Barings bank in the derivative trading.

In the early state, Barings banks management had planned to operate on inter-

exchange arbitrate strategy. This strategy required Nick Leeson to buy and sell

Nikkei 225 futures contracts simultaneously on both SIMEX and OSE market in order

to gain the arbitrate profit from the different in price of the Nikkei 225 futures

contracts.

This strategy was considered as a risk-free investment and provided goodopportunity for profit in the high volatile market. However, due to the contracts

price were only slightly different, the profits earned were small. Because of this,

Nick Leeson decided to change the strategy.


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The strategy implemented by Nick Leesonwas named as straddle with the

objective of making a profit by short put and call options on the sameunderlying assetsNikkei 225 index.

Short straddle is when the investor holds a short position in both a call and

put with the same strike price and the same expiry date.

This strategy is useful when the underlying asset is not very volatile, butover here Nikkei 225 index had been a very fluctuating index since 1970s.

This was a wrong decision made by Nick Leeson.

Because of this the loss suffered by Nick Leeson kept on increasing. The

situation went worse when the Kobe earthquake happened in japan during

year 1995. The Nikkei 225 index dropped 1000 points approximately which

deteriorate the Barings banks loss.


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HOW WERE THE LOSSES COVERED UP? Leeson had opened an errors account in order to hide an error made by one of

his colleagues.

The account was numbered 888888 being a number considered to be very

lucky in Chinese numerology.

However, Leeson used this account to cover further bad trades. He insists that

he never used the account for his own gain, but in 1996 the New York

times quoted British press reports" as claiming that investigators had located

approximately $35 million in various bank accounts tied to him.

Management at Barings bank also allowed Leeson to remain chief trader while

also being responsible for settling his trades, jobs usually done by twodifferent people. This made it much simpler for him to hide his losses from his

superiors.


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IMPACTS

By the end of 1992, the account's losses exceeded 2 million, which ballooned

to 208 million by the end of 1994.

Leeson on 16 January 1995, placed a short straddle in Singapore and

Tokyo stock exchanges, essentially betting that the Japanese stock market

would not move significantly overnight. However, the Kobe earthquake hit earlyin the morning on 17 January, sending Asian markets, and Leeson's trading

positions, into a tailspin.

Leeson attempted to recoup his losses by making a series of increasingly risky

new trades (using a long-long future arbitrage), this time betting that the Nikkeistock average would make a rapid recovery. However, the recovery failed to

materialize.


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Leeson left a note reading "I'm sorry" and fled Singapore on 23 February.

Losses eventually reached 827 million (us$1.4 billion), twice the bank'savailable trading capital.

After a failed bailout attempt, Barings was declared insolvent on 26

February.

After fleeing to Malaysia, Thailand, and finally Germany, Leeson wasarrested in Frankfurt and extradited back to Singapore on 20 November

1995.

He was charged with fraud for deceiving his superiors about the riskiness

of his activities and the scale of his losses. Several observers have placedmuch of the blame on the bank's own deficient internal auditing and risk

management practices.


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The Singapore authorities' report on the collapse was scathingly critical of

Barings management, claiming that senior officials knew or should have

known about the "five eights" account.

Leeson pleaded guilty to two counts of "deceiving the bank's auditors and

of cheating the Singapore exchange", including forging documents.

He was sentenced for six and a half years in Shanghai prison in Singapore,

he was released from prison in 1999.


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EFFECTS ON BANKING INDUSTRY

The collapse of Barings bank may have not greatly impacted the regulators

and the banks to form a new regulation but it would be a great lesson for

the companies and banks all over the world to understand the importance

of proper supervision and control systems and pay more attention on the

issues of corporate governance and risk management.


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THANK YOU !!

ESHAN MUNDRA B014HARSHA TOLANI B015

MISHIKA SAWHNEY B026VAIBHAV GOEL B051VATSHAL JHAVERI B053

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