Friday, 21 March 2014

CID arrests two directors of RMP on money circulation charge

Hyderabad: Crime Investigation Department (CID) officials arrested two directors 
of RMP Infotec Private Limited on charge of organising money circulation scheme in 
the guise of multi-level marketing of some products.
A laptop, hard disks and documents were seized from the company’s head office in
Chennai and customer care centre in Hyderabad, the CID Additional DGP, T Krishna 
Prasad, said. While Rajesh J. Chandhan and Dileep J. Chandhan were arrested, two 
other directors -Praveen J. Chandhan and Dhawal J. Chandhan- were absconding.
The quartet started the company headquartered at Chennai claiming that they were
distributors for some products. They enrolled persons purchasing products from 
them as distributors and offered money as incentive.
They claimed that RMP meant “Resource Money Power” and lured people to enrol with 
the company offering weekly payments ranging from Rs. 1,000 to Rs. 1.3 lakh based 
on the number of members the buyers manage to get inducted in the company.
The company was indulging in money circulation scheme by luring the public, Mr. 
Prasad said. Eight cases were registered against the company following complaints 
from Guntur and Prakasam districts. The CID Additional DGP cautioned the public 
against trusting such companies.

Wednesday, 19 March 2014

Delhi resident lodges police complaint against Amway India

Direct marketing firm Amway India has been facing some tough times of late; and 
its troubles don't seem to be ending any time soon.
In the past year, the company and some of its key officials have been charged with 
financial irregularities. In May last year, its chairman and CEO William S 
Pinckney and two directors were arrested by Crime Branch officers for violating 
various provisions of the Prize Chits and Money Circulation Schemes (Banning) Act, 
And now, a Delhi resident has lodged a police complaint accusing Amway India of 
being involved in a scam allegedly worth over Rs.2000 crores.
According to the complainant, Kiran Pal, key officials of Amway India, including 
Pinckney and Chief Marketing Officer Sundeep Shah, allegedly adopted restrictive 
trade practices that resulted in misrepresentation, and the sale of inferior 
quality health, beauty and nutritional products.
In documents provided by Mr. Pal, he has claimed in his complaint that an Amway 
Enterprises Limited distributor lured him with the prospect of becoming an 
Independent Business Owner (IBO) and achieving complete financial independence.
According to the documents provided to the authorities, Pal has said his wife used 
one of Amway's eyeliner products, and thereafter, had to undergo costly medical 
treatment for burnt eye lids.
Based on Pal's complaint, the Civil Lines police station has issued a notice to 
the Amway India's offices in Sector 32, Gurgaon, seeking clarifications on the 
method of its operations, and details of agencies, if any, that verify Amway's 
Amway India has not given a response or a statement with regard to this complaint, 
despite repeated attempts to contact them.

Wednesday, 5 March 2014

Who is Subrata Roy? 10-point cheat-sheet

Subrata Roy, the chief of the Sahara conglomerate, will remain in police custody till the next hearing in a case related to refunding investors, the Supreme Court ruled on Tuesday. Roy was arrested on Friday after failing to appear at a Supreme Court hearing, which he says he missed to attend to his ailing mother.
10 things to know about Sahara chief Subrata Roy:
  1. 1. Subrata Roy, the chairman and self-described "managing worker" of the unlisted Sahara conglomerate, started with capital of Rs. 2,000 in the late 1970s and eventually built his company into a giant that, according to its website, has assets currently of more than $11 billion or Rs. 68,000 crore.
  2. 2. The company's full name is Sahara India Pariwar. Roy, 65, refers to himself as the guardian of the world's largest family, and espouses a philosophy of "collective materialism".
  3. 3. The company says it helps small investors outside the banking system and that it has never defaulted on them.
  4. 4. At the Sahara headquarters in Lucknow, staff greet visitors by putting their right hand to their chest and saying "Sahara Pranam."
  5. 5. Roy, often photographed wearing a black necktie and vest over a white shirt, is based nearby at the showpiece Sahara Shaher, a sprawling gated complex of low white buildings and lawns where he lives and where the group holds an annual mass wedding for 101 couples who could otherwise not afford it.
  6. 6. Roy is often described as a billionaire but he is not on the Forbes list of rich Indians. Sahara's website says no dividend has been paid for 34 years and no profit has been taken out of the company.
  7. 7. Roy is not typically bracketed with a corporate elite led by families such as the Tatas, Birlas and Ambanis. "If you look at the orthodox business community, they have kept him at arm's length," said Ashok Prasad, a physician, lawyer and academic who taught overseas before returning to Gorakhpur, the city where Roy started out.
  8. 8. Instead, Roy is associated with Bollywood celebrities and, like many tycoons, is seen as having good political connections.
  9. 9. Sahara owns New York's landmark Plaza Hotel and London's iconic Grosvenor House hotel. The group sponsors the Indian hockey team and owns 42 per cent stake in the Formula One racing team, Force India. It became a household name in the country through its lead sponsorship of the national cricket team, which ended in December 2013.
  10. 10. Critics, including activist groups, say Sahara's investment products are designed to evade oversight by financial regulators and that it lacks transparency on the source and use of its funds, selling products to investors who do not understand the risks and ploughing the proceeds into real estate projects.
Story first published on: March 04, 2014 12:04 (IST) Courtesy ND TV

Tuesday, 4 March 2014

Meet the man who showed Subrata Roy the way to jail – KM Abraham, upright IAS officer

If Subrata Roy, the recalcitrant head of the Sahara Group, today finds himself in police custody in Lucknow after the Supreme Court issued a non-bailable warrant in his name on 26 February, it is simply because he has tried to be too clever by half.
However, there was one bright and diligent officer in Sebi, the markets watchdog, who was cleverer than him. And it is due largely to the efforts of this one man, an upright man called KM Abraham, that Roy is now getting his comeuppance.
It is interesting that Abraham, a wholetime director of Sebi till July 2011, was not given an extension at Sebi, allegedly due to political pressure, but he exposed the Sahara Group’s two shadowy companies so thoroughly that neither the Securities Appellate Tribunal, nor the Supreme Court, could have found fault with it. Abraham is now a Additional Chief Secretary with the Kerala government in Thiruvananthapuram.
He is the man most responsible for bringing the Sahara boss to justice.
It was Abraham’s order against the Sahara India Real Estate Corporation (SIREC) and Sahara Housing Investment Corporation (SHIC), dated 23 June 2011, that finally brought Roy to heel.
As we noted before, Abraham stumbled on the hanky-panky of these two companies almost by accident. It happened when the Group filed a Draft Red Herring Prospectus (DRHP) to raise equity for real estate company Sahara Prime City Ltd through an initial public offering (IPO). The DRHP disclosed details of two associate group companies that were raising huge amounts of money from the public through optionally fully convertible debentures without so much as a Sebi by-your-leave.
Sebi fired its first shot and asked the two companies to stop raising money through an order dated 24 November 2010, but, Sahara did it usual jig: use the courts to stymie the regulator. Sahara rushed to the Lucknow bench of the Allahabad High Court, which stayed Sebi's order but not its investigation. Sebi moved the Supreme Court, but the apex court too was not of much help. It merely directed the high court to expedite the case. The high court vacated its stay only on 7 April 2011, when it found that the Sahara group was not cooperating with Sebi as it had directed. Clearly, the group was merely into using courts for its own convenience, and not for actually accompanying with its orders – a pattern it has exhibited right to the end, when Roy did not turn up in the Supreme Court on 26 February despite being explicitly ordered to do so.
The Saharas and Roy clearly had nothing but indirect contempt for the law.
But back to Abraham. His monumental research on the Sahara group started bearing fruit from 29 April 2011, when the Allahabad High Court lost patience with Sahara and dismissed the group’s petition against Sebi with these caustic remarks: “A person, who comes to the court, is supposed to come with clean hands and bona fide intentions, and has to abide by the orders passed by the court, more so in a case where the parties' counsel agree for certain actions to be undertaken. If some assurance is given by any person to the court, as has been done in the present case, and the said assurance/understanding is not honoured, the court would not come to his rescue. The application is, therefore, rejected."

The matter then went back to the Supreme Court which asked Sebi to conduct its inquiry after giving company officials a fair hearing. The final Sebi order, which incorporates the details of those hearings, is a telling indictment of how close to the wind the group has been sailing. This is what Sebi found.
The Sahara Group primarily challenged Sebi's intrusion into the affairs of SIREC and SHIC saying that OFCDs were not under Sebi's jurisdiction since they were hybrid instruments -  neither shares nor debentures. Sebi demolished this argument easily since they were debentures that could be converted into shares. This contention was later upheld by the Securities Appellate Tribunal and the Supreme Court in 2012.
But while Sahara was arguing with Sebi, it claimed that the OFCDs were being privately placed with the Sahara Parivar and not the general public. When no public offer was involved, how could Sebi intervene?
Sebi kayoed this argument simply: when Sahara offices and agents were busy hawking these OFCDs, and when the two companies had garnered over six million investors, many of whom had no connection with the Sahara group, the offers were effectively not a private placement.
Sahara's clout in the corridors of power was visible when it produced opinions from the Law Ministry supporting its case. But the ministry had its own discordant views. While one Additional Solicitor General (ASG), Mohan Parasaran, leaned towards the Sahara Group's claim that the OFCDs were not a public issue, another ASG, Parag Tripathi, held otherwise. Section 67(3) of the Companies Act clearly says that where the number of investors exceeds 50, it cannot be termed a private placement. This contention was later upheld by the Supreme Court bench comprising KS Radhakrishnan and JS Khehar.
However, so far it was all about interpreting the law on hybrid instruments and private placement of shares. But Abraham’s real discovery was not just technical violations of the law, but real indicators of stark illegalities. These are his main findings.
Abraham showed how the Group, in contravention of Schedule II of the Companies Act, tried to deliberately exclude Sebi from vetting the DRHPs of the two companies. The Schedule specifies that while filing the DHRP, company directors have to file a declaration saying that they have complied with all provisions of the Companies Act and the Sebi guidelines, among other things. But the directors of the two Sahara companies excluded all references to Sebi while signing their declarations.
Said Abraham: “I also suspect that there has been a reprehensible attempt to conceal this applicability of the provisions of laws and the jurisdiction of Sebi on the issue itself, by making changes in the form and structure of the statutory declaration filed by the directors of the two companies."
Sebi's second major charge against Sahara was that it tried to bypass its strict laws on investor protection. In this context, it points out that SHIC's privately placed issue of OFCDs opened in 2008 and SIREC’s (the name of this company was changed later) had no closing date at all!

In fact, said Abraham, another Sahara company, Sahara India Commercial Corporation, had kept an issue for an overall size of Rs 17,250 crore open for 10 years!
How did these massive irregularities happen? Abraham obviously does not venture to answer who facilitated this, but he pointed out the dangers: “Such an alternative conduit of capital mobilisation bypassing much of the regulatory framework applicable to issue of capital could potentially subject our country's financial market and its investors to inordinate risks. Needless to say, the risk that such softer paths could be misused for massive money laundering is also dangerously real. Any dilution of the regulatory regime for the issue of capital by companies in India clearly is antithetical to our own objectives of investor protection.”
What Abraham suspected was that Sahara money could be laundered money, something the Supreme Court too alluded too – though that was beyond the scope of the court’s final judgment dated 31 August 2012. Despite Sahara denials of benami transactions, Judge JS Khehar, one of the two judges on the bench, observed: “Despite restraint, one is compelled to record that the whole affair seems to be doubtful, dubious and questionable. Money transactions are not expected to be casual, certainly not in the manner expressed by the two companies.” (Read the full judgment here).
In his own order, Abraham raised the following issues: “Can an (OFCD) issuer file an Information Memorandum, open the issue and keep the same open indefinitely? In fact, does it mean that an issuer need not even close the issue and keep it open perpetually?"
Apparently, for Sahara everything's possible.
Abraham’s investigation clearly pointed to a lack of corporate governance at Sahara companies – to say the least. The two companies, SIREC and SHIC - which were expecting to raise Rs 40,000 crore between them - did not even have a proper list of investors.
Said Abraham in his order: “The two companies... are without doubt, clearly in gross violation of the provisions of the laws applicable to public companies making offers of securities to the public. (They) seem to be unable to furnish even basic data on the identity of its (sic) own investors..".
To find out the names of its own investors, SIREC apparently needed the help of professional accounting firms. Asked Abraham: “If the identity of the investors and addresses themselves are not readily available with the firm - and the compilation and authentication of the data across the thousands of service centres will have to, as admitted by SIREC, require the support of professional accounting firms at this stage, then I wonder what real safeguards can possibly be there in place for investor protection?”
Abraham went as far as he could to dub the OFCD schemes of the two Sahara companies as a threat to investor safety, if not actually a Ponzi scheme. Says Abraham: “The learned counsel (the Sahara lawyer), at one point in the submissions before me, mentioned the fact that there are no investor complaints at all, from any investor in the OFCDs raised by the two companies. Going by the history of scams in financial markets across the globe, the number of investor complaints has never been a good measure or indicator of the risk to which the investors are exposed.

“Most major 'Ponzi' schemes in the financial markets, which have finally blown up in the face of millions of unsuspecting investors, have historically never been accompanied by a gradual build-up of investor complaints. But when financial catastrophes have indeed finally erupted, they do so with little warning and lead to major collapses in the financial markets with disastrous consequences to investors.”
Abraham’s final order pointed out that the two companies had not complied with even the basic rules for investor protection designed by Sebi (which, in retrospect, is explained by the fact that the companies were all along try to evade Sebi's jurisdiction).
Worse, the companies were planning to raise Rs 40,000 crore without having the basic financial strengths to do so. Said Abraham: “SIREC did not have any distributable profit for the financial year ending March 31, 2008. SIREC had a negative net worth at the time of the offer and the net worth of SHIC was around Rs 11 lakh.
“The subscribed capital of the two companies is very small in comparison to the liabilities on their balance sheets. The OFCDs raised are of the order of at least a few thousand crores of rupees, with the requirements for funds indicated at Rs 40,000 crore. To compound these concerns, all the OFCDs are unsecured - there is no charge on either the assets of the companies or on the revenue streams from the various projects undertaken by the two companies."
Abraham discovered that the Sahara group apparently intended to rotate money between one group company and another without reference to OFCD investors. The DRHPs of both companies stated that “the money not required immediately by the company may be parked/invested inter alia by way of circulating capital with partnership firms or joint ventures or in the fixed deposits of various banks.”
Observed Abraham: “This means that such funds mobilised beyond the pale of law, could be potentially diverted into various activities of the group companies, without any significant accountability or reporting requirements.”
The Sebi order also pointed out that cheques from investors were sought in the name of Sahara India, Subrata Roy's partnership firm, but OFCD certificates were issued in the name of Sahara Housing Investment Corporation. Money apparently moved from one pocket of Sahara to another without investors really getting to know.
The Supreme Court agreed with almost all the contentions of Abraham in his final order against the two Sahara companies. His work was so meticulous and unimpeachable that nobody could challenge their authenticity.
The optimistic note we can conclude on is this: when an upright man does a good and through job of investigation, it is not possible for anyone to overturn the truth. Satyameva Jayate.
R Jagannathan