Housing loan scam

CBI investigations[edit]

CBI alleged that the officers of various public sector banks and financial institutions received bribes

from the private financial services company Money Matters, which acted as a mediator for corporate

loans and other facilities from financial institutions. The bank officials sanctioned large-scale corporate

loans to realty developers, overriding mandatory conditions for such approvals along with other

irregularities.[1]

The Central Bureau of investigation arrested number of high official from the several financial

institutes in India in connection with the housing scam in November 24, 2010. Smith (2010) stated that

findings are shocking where the head officers of several banks and financial institutes are involved in

corporate corruption. Precisely, the banks and financial officials were from the public sectors including

LIC, Bank of India, Central Bank of India and Punjab National Bank. However, ) stated that since the

matter was related to the erosion of funds from the LIC housing and Finance Limited, event was

named as the LIC housing and Finance Scandal. Lamont (2010) cited that the officers from the high

rank including the secretary of LIC Investment, general managers, directors and deputy managers of

banks were involved in taking out the funds from LIC in appropriate and unethical way. Smith (2010)

said that these officials were acting as the middleman to provide the funds to the main parties and in

return they were having hefty amount of funds from the real investors, insurers and other consumers.

Smith (2010) regarded this as the distortion of the corporate governance system where the business

ethics were neglected to sustain the core business activities of the public sector banking firm.

Meanwhile, Economic Times stated that the officials were charged with the exploiting of funds, looting,

corrupting corporate loan process and manipulating and overriding with the regulations of the LIC

Housing and Finance Limited in regard to the approvals and other rules and regulations. Nonetheless,

The loans provided through this manner were estimated to be worth of 85 Billion Dollars, comes as

the biggest scandal in the Housing Finance in Asia However, the stock price took a sharp dip soon

after the event. Apparently, LICHF had a good run till September 2010 when it reached Rs.299 and

the growth rate undoubtedly, received the appreciation by the investors and other shareholders. The

stock recorded no significant changes thereafter but the appearance of corporate scandal shook the

stock price chart and the price dip to Rupees 150 by the end of year 2010. At present the stock price

is stands at around rupees 190 and gaining its momentum over a period of time but however, Lamont

(2010) felt that the combination of factors that happened in the last quarter of FY10 were accountable

for the sharp decline in the LIC Housing and Finance Share price. Reuters stated that LIC Housing

and Finance is looking forward to raise the capital to the tune of Rupees 25000 Crores in 2011-12

through debt. Eventually, the technical experts believed that company is developing its core

competencies and capabilities and undoubtedly, investors would revive the stock price and current

Market changes and company’s development will be seen through the price momentum. However,

experts believed that the Housing and Finance Scandals by the top officials in LIC and other banking

institutes will always stand to harm the future potential of such companies but however, the future and

the endless opportunities lies in the hand of ultimate investors. Eventually, Online newspaper, Rediff

quoted as saying that most of the brokers are taking up the stock of LICHF after the scam as related

to the current project being performed by the company. Namely, IIFL, Aditya Birla, IL&FS are

impressed by the current progress by the company and building up the stock ay higher rate. However,

Reuters stated that the Financial Budget introduced by the Indian Planning Commission had slightly

adverse effects on the stock of banking, insurance, mortgages and other related sector in the

industries. However, the company has been quoted as saying that they would include the margin

between 2.8 to 3% in relation to the rising interest rates and their effects on the share price. However,

In response the scam, the Reserve Bank of India and other regulatory and financial bodies attempted

to reform the housing finance sector by making several supervision and security measures in this

regard. Eventually, the corporate scam destroyed the interest and confidence of investors and thus,

the monetary and regulatory authorities must execute their task in relation to safeguarding the

interests of investors. Apparently, Smith (2010) stated that the Central Bureau of

Investigation exposed the stock price dip to 18% of the prevailing market rate after the scam and

other banks who were involved saw a decline between 5 to 15% during the time. Hence, it was

anticipated that investors believed in the core values and company’s relation with the investors and

the stock changes occur in the short span of time however, the stock is futuristic for the long term.

CBI's Economic Offences Wing (EOW) raided offices of the public sector banks and LIC Housing

Finance in six cities (Mumbai, Delhi, Chennai, Jaipur, Kolkata and Jalandhar), to recover incriminating

documents.[1]

Rs.5,600 NSEL Scam: Top brokers knew about irregularities within NSEL claims IT Dept, broker deniesVirendrasingh Ghunawat  Mumbai, September 11, 2013 | UPDATED 22:07 IST

 

National Spot Exchange Ltd - was not seriously involved into spot trading, but was using trading platform for merely borrowing and lending finance. More shocking, the top brokers in commodity market who have been making big hue n cry since day one, were quite aware of inside activities and irregularities within NSEL, before Rs.5,600 payout crisis got erupted. Moreover, out of 24 defaulters - claimed by NSEL, excluding few of them many are genuine companies.

These are some crucial findings of Mumbai income tax department (investigation wing) that would be tabled before finance ministry on 12th September in NSEL matter.

Talking exclusively to Headlines Today/Aajtak, senior income tax official detailed some of the crucial findings that would get reported to finance ministry on 12th September in the case of Rs.5,600 NSEL Scam.

Making one point clear that if 16 commodity brokers like Motilal Oswal, Anand Rathi and IIFL has been saying that they had no information about what was cooking up within NSEL before payout crisis ofRs.5,600 erupted, than it is half truth. Senior IT official said, 

"it is quite not possible that these brokers had no information about the inside activities and irregularities taking place within NSEL before this payout crisis came to light. They had all these information before scam came out in open."

IT official confirmed that income tax department have gathered complete details from these top brokers on borrowers and investors, both. Questioning with these brokers are still going on.

Out of these 16 brokers, top 10 brokers account for around Rs.3,500 crore investment via 800-100 High Networth Individuals (HNIs). Anand Rathi has an exposure of around Rs.629 crore, IIFL around Rs.326 crore and Motilal Oswal around Rs.263 crore.

If, IT department is believed for these findings than it raises serious questions on brokers role and involvement in this payout crisis.

Second explosive finding that came out in IT investigation is that - National Spot Exchange Ltd was never into Spot Contract trading. IT official said, "NSEL was not in spot contract trading, but was using spot trading platform for borrowing and lending finance."

If one recalls - NSEL suspended trading of one-day forward contracts with settlement cycle beyond the 11-day period for spot contract on July 31. Through these contracts, the 24 borrowers (now defaulters) raised money from 13,000 investors against stocks supposedly lying in exchange accredited warehouses. However, after investigation, it has emerged that stocks were never present in most warehouses. The tax department's investigation revealed the warehouse receipts issued and kept with exchange were bogus - not backed by commodities.

After collecting all the details of investors who traded with the borrowers from brokers, now, IT department is trying to ascertain how much money has been invested by brokers through its proprietary accounts and how much was investor money. "IT department is investigating on what is the amount of money that has been accounted for and if there has been some account of unaccounted money which has been siphoned off. Our major focus to check the money trail," IT official said.

Are all 24 companies or borrowers real defaulters? IT department claims not all of them. IT official says, "Most of the companies are genuine, but some of them are shady and defaulters."

Those who are under real scanner has utilised money for investment in real estate, 

business activities and personal usage. "As of now, we are investigating whether these money has been used only in businesss and personal activities by defaulting companies, or some part has gone in somebody's pocket as well."

Few days back, IT department found that one of the persons associated with the bank account through which the transaction took place has denied any association with either the bank account of the transactions. He appeared to be a dummy person. When asked whether these defaulting companies are operating in multilayer format or some of them are shell companies of big players, on that IT official said, "as of now it does not look multilayer, but as investigation is on, we might not ignore it."

But brokers says its incorrect. Motilal Oswal, chairman and managing director of Motitlal Oswal Securities Ltd (MOSL), a leading broker with exposure of Rs.263 crore in NSEL - replied to our queries, saying, "It is absolutely untrue. There were no signals that there is any possibility of any irregularities or fraud. We were shown audit certificate about the stocks. There were no warnings by any of the authorities. In fact, exchange was under the supervision of ministry of consumer affairs and they never cautioned anybody. We invested our own personal money apart from our clients money in good faith."

On the query - was NSEL into borrowing and lending finance business and not in spot contracts trading, Mr Oswal said, "We knew that it acts like a financing mechanism, but all the trades were structured into arbitrage with exchange acting as guarantor for all the trades. And unlike a structured financing, the rates were never fixed and the returns change from day to day and vary from one commodity to other and all the trades were VAT paid with proper invoices being generated. The only problem was that the exchange allowed the millers to take the money without delivery the commodity, which came as surprise to everyone including us. The exchange did not follow any risk management measures and it is a complete systematic failure which seems to be done to defraud the investors and intermediaries."

Since last one month, Mumbai IT department has been communicating all the investigation details and findings to senior CBDT officials and finance ministry. With the payment crisis deepening at NSEL, the government had set up a panel under economic affairs secretary Arvind Mayaram some days back - with representatives from all the concerned departments, regulators and investigating agencies, to look into the violations. A special report from all these agencies would get tabled before Arvind Mayaram on 12th September - so that further plan of actions on defaulters and violators could be decided.

Sources says, a special multi-agencies task force for further investigation might be expected.

Read more at: http://indiatoday.intoday.in/story/rs-5600-nsel-scam-top-brokers-knew-about-irregularities-within-nsel-claims-it-dept-broker-denies/1/309256.html

Hasan Ali KhanFrom Wikipedia, the free encyclopedia

Hasan Ali Khan (born c. 1954) is an Indian businessman.[1] In 2007, Indian authorities began investigating

Khan for suspicion of money laundering.[2][3] He reportedly had a Swiss bank accountwith $8 billion in

deposits.[4] He allegedly stashed away billions into Swiss bank accounts with the help of Kolkata based

businessman, Kashinath Tapuria using hawala.[5]

In January 2011, the then Finance Minister of India, Pranab Mukherjee announced that both Swiss bank

accounts of Hasan Ali Khan were emptied.[6][7][8] In December 2012, Finance Ministry told the Standing

Committee on Finance that recovery of Hasan Ali's tax arrears (of approximately Rs 91,000 crore) is not

possible.[9]

As of October 2013,[10] Hasan Ali is in jail since his bail petitions have been rejected several times by

various courts[11] including the Bombay High Court [12]  and the Supreme Court of India.[11]

Hasan Ali has denied all the allegations and said he had no Swiss bank accounts and some of his rivals

could be behind the charges.[13]

Legal cases[edit]

In March 2007, Hasan Ali's properties were raided by India's Enforcement Directorate (ED) and Income

Tax officials based on allegations of hawala transactions. Hasan Ali's lawyer denied all the allegations and

said he had no Swiss bank accounts and some of his rivals could be behind the charges.[13][14]

The Supreme Court of India intervened and asked why Khan and others were not interrogated despite

sufficient evidence against them. After this criticism, Khan was arrested by ED in March 2011.[15] In May

2011, ED formally chargesheeted Khan and his associate Kashinath Tapuria under the Prevention of

Money Laundering Act, 2002.[16] ED lawyers said Khan had laundered money for international arms

dealer Adnan Khashoggi on several occasions.[16] Khan claimed that he was framed.[17]

Khan was charged with serving as a front for Khashoggi. Allegedly, in 2003, Khan helped launder US$300

million of money Khashoggi made through arms sales through the Zurich branch of Swiss bank UBS.[18]

[19] Khashoggi reportedly had to use Khan as a front as UBS had blackballed him due to his notoriety.

Introduced to UBS by Khashoggi in 1982, Khan enabled the arms dealer to launder funds held in American

accounts through UBS Geneva.[20] One of Khan's accounts eventually was blocked when it was determined

that the source of the funds came from Khashnoggi's arms sales.

India Today magazine claimed that it had verified a letter confirming that $8 billion in black money was in a

Swiss bank UBS account and the Government of India too has verified this with UBS.[21] However, the

Swiss bank UBS denied Indian media reports alleging that it maintained a business relationship with or had

any assets or accounts for Hasan Ali Khan accused in the $8 billion black money case. Upon formal

request by Indian and Swiss government authorities, the bank announced that the documentation

supposedly corroborating such allegations were forged and numerous media reports claiming $8 billion in

stashed black money were false.[22][23]

India Today, in a later article, wrote, "Hasan Ali Khan stands accused of massive tax evasion and stashing

money in secret bank accounts abroad. But the problem is that the law enforcement agencies have

precious little evidence to back their claims. For one, UBS Zurich has already denied having any dealings

with Khan."[24] Indian government has asked the Indian mission in Berneto get in touch with banking

authorities of Switzerland for obtaining details about Hasan Ali Khan's Swiss bank accounts.[25]

The UTI scam: Rs 32 crore

Former UTI chairman P S Subramanyam and two executive directors

— M M Kapur and S K Basu — and a stockbroker Rakesh G Mehta,

were arrested in connection with the ‘UTI scam’.

UTI had purchased 40,000 shares of Cyberspace between September

25, 2000, and September 25, 2000 for about Rs 3.33 crore (Rs 33.3

million) from Rakesh Mehta when there were no buyers for the scrip.

The market price was around Rs 830.

The CBI said it was the conspiracy of these four people which resulted

in the loss of Rs 32 crore (Rs 320 million). Subramanyam, Kapur and

Basu had changed their stance on an investment advice of the equities

research cell of UTI.

The promoter of Cyberspace Infosys, Arvind Johari was arrested in

connection with the case. The officals were paid Rs 50 lakh (Rs 5

million) by Cyberspace to promote its shares.

He also received Rs 1.18 crore (Rs 11.8 million) from the company

through a circuitous route for possible rigging the Cyberspace

counter.