Sucheta Dalal :Corporate Scams: Getting Away Easily
Sucheta Dalal

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Corporate Scams: Getting Away Easily  

November 15, 2011

Investigation into financial scandals never leads to logical punitive action

Sucheta Dalal

On 9th November, CNN-IBN carried a newsbreak about how Pentamedia Graphics, which was part of the notorious K-10 stocks that were manipulated to stratospheric highs by Ketan Parekh, had left investors high-and-dry and was sitting on prime land that may be worth over Rs2,500 crore (CNN-IBN’s estimate) today. Pentamedia’s share price, which had touched a high of Rs2,275 (on 22 February 2000, as per the joint parliamentary committee report), is now traded at Rs1.75 after a series of mergers & acquisitions and capital reduction. While investors and lenders have lost heavily, the company is sitting on huge assets and doing business as usual. A fact that makes you ask whether the low share price is also carefully controlled.

The Pentamedia issue raised several questions: Is Pentamedia another Satyam Computers? What happened to the promoters of the K-10 companies and Ketan Parekh? And, what have regulators been doing about these scandals?
The answer to the first question is ‘No’. Pentamedia is not another Satyam, simply because its promoters have not admitted to any wrongdoing. In fact, the big mystery about Satyam Computers is regarding Ramalinga Raju’s self-destructive confession. Mr Raju had bought himself enormous credibility through a star-studded and acquiescent board. A slew of top corporate governance awards and an NGO headed by a former President of India burnished his reputation. And the land banks acquired in Satyam’s infrastructure entity had substantial value. If the Hyderabad grapevine is to be believed, Mr Raju confessed because he was under tremendous pressure from rapacious Andhra Pradesh politicians.

The Pentamedia exposé by CNN-IBN shows that Mr Raju’s shock confession did not lead to any systemic clean-up because dozens of companies in IT, telecom and education sectors continue to hoodwink investors with impunity.

For starters, all the K-10 companies got away with almost no penalty, despite their involvement in dubious trading, manipulation and illegal transactions with Ketan Parekh, who now spends most of his time in London. Intelligence Bureau reports (seen by Moneylife) and the media have repeatedly pointed out that he continues to be active in ramping stock prices, but the regulator under the past three chairmen of the Securities and Exchange Board of India (SEBI) proved incapable of nailing his mischief. This, despite the crores of rupees splurged on buying ‘cutting edge technology’ ostensibly to detect market manipulation and dubious trading patterns.

The joint parliamentary committee (JPC) set up after the Ketan Parekh scam mentioned all the K-10 companies with a brief description of their dubious activities and instructed SEBI to initiate action after conducting a detailed investigation. Instead, every SEBI chairman has worked at letting them off with a small rap on the knuckles—sometimes not even that.

Days after CB Bhave took over as SEBI chairman, the entire Zee group was let off with only a warning. Himachal Futuristic Communications Ltd (HFCL) got away by paying Rs10 crore. These two, along with Global Telesystems (now GTL Ltd and GTL Infrastructure), were the closest allies of Ketan Parekh. GTL seems to have escaped punishment altogether. In 2002, at the height of the investigation, the Confederation of Indian Industry (CII) awarded its promoter, Manoj Tirodkar a ‘young entrepreneur’ trophy.

Sometime in 2010, he returned after a stint in Singapore to a headline welcome by The Economic Times. On 27 August 2011, he figured in a coffee table book on 25 Global Indians produced by the Times of India, along with APJ Abdul Kalam, Sachin Tendulkar and Amitabh Bachchan for his contribution to ‘network services’. The book was released by the President of India at Rashtrapati Bhavan and supported by companies which were part of the K-10 group. Earlier, in June 2011, a consortium of banks had acquired a 29.3% stake in the ‘troubled tower company GTL’ by taking over 28.5 million shares pledged by the promoters. This was part of a corporate debt restructuring by banks after Manoj Tirodkar’s reckless borrowing, acquisitions and expansion brought him to a standstill all over again. Moneylife has reported this extensively.

In fact, Dinesh Dalmia of DSQ Software and Ramalinga Raju of Satyam are the only corporate chiefs who have done jail time (nearly four years each) pending the framing of charges. Mr Dalmia’s arrest also happened only after a series of shady actions including a 50% increase in DSQ Software’s capital without informing investors or stock exchanges and the sale of every one of its lucrative international software contracts to a consortium that formed Scandent Technologies and included Ramesh Vangal (former Pepsi chief in India) and Rajat Gupta (once McKinsey’s global chief). If that were not enough, Mr Dalmia ran away to the US, started new businesses, ran up losses in excess of $100 million and had to escape back to India. It was only then that he was arrested. I had written extensively on Mr Dalmia’s escapades between 2001 and 2006.

Then there is the case of Global Trust Bank’s (GTB) that collapsed under the weight of stock price manipulation, collusion with Ketan Parekh in the scam and dubious loans. A decade later, the only action against promoter Ramesh Gelli, his former CEO and several family members was that they were barred from the capital market for two years that ended in 2004. Similarly, the investigation into Unit Trust of India’s (UTI) collapse and bailout by the government has been quietly buried. In fact, as soon as then chairman PS Subramanyam’s lawyer indicated to the media that he was likely to spill the beans on politically powerful people, it was clear that there would be no follow-up after he was released on bail. So much so that M Damodaran, who took over as UTI chairman and later headed SEBI, did not even act on the report submitted by the SS Tarapore Committee on the most dubious investments by the mammoth mutual fund.

In Pentamedia’s case, CNN-IBN said that it borrowed from Dubai-based Dallah Albaraka by showing fraudulent, non-existent contracts, which are not even reflected in its balance sheet. Many listed companies including Prithvi Information Solutions, face similar allegations that have never been seriously examined. Helios and Matheson has had serious charges levelled against it by Rajeev Sawhney whose company vMoksha it claimed to have acquired. Almost every regulator and investigation agency in the country has looked into these charges and tried to pass the responsibility to others.

The buck really stops at SEBI which was specifically asked by the JPC to investigate companies that colluded with Ketan Parekh. But the regulator has repeatedly used the Consent Order system to selectively let off promoters, brokers and market intermediaries involved in rampant market manipulation and cheating of investors. Often, senior investigation officials will blame their predecessors for shoddy investigation. It is the same with the ministry of corporate affairs (MCA) which even has a Serious Frauds Office under it. MCA’s track record of punishing companies or auditors for accounting fraud, misreporting and falsification is even more dismal. It is well known in corporate circles that MCA only orders an investigation when the ruling political establishment wants to harass a company or its promoter, or if it is pressured into making a show of action after a media exposé. In both cases, the investigation is fixed or buried, once the heat is off.

Unfortunately for India, there is very little public interest in ensuring that investigation into financial scandals leads to logical punitive action. So much so that even the copycat attempt to Occupy Dalal Street by emulating the Occupy Wall Street movement fizzled out with a whimper in less than a day.

Sucheta Dalal is the managing editor of Moneylife. Subscribers get free help in resolving their problems with select providers of financial services. She can be reached at
[email protected]


-- Sucheta Dalal


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