A senior IT professional says: "If you had listened to presentations by Arvind Johari and Bill Gates without knowing who they were, chances are that you'd pick Johari as the visionary and declare Gates a me-too." Meet Arvind Johari, the man who has run away (some say to Singapore, others to the US) after cheating thousands of investors of their hard-earned savings.
Johari was the promoter of Cyberspace Infosys, a company that was the darling of the stock markets until the information technology (IT) bubble burst and his operation emerged as one large, pre-meditated scam.
But Johari is a bit of an enigma. He is no run-of-the-mill fraudster; in fact, his employees say that he is suave, articulate and super-smooth. He is a qualified chartered accountant, holds a law degree and can bamboozle almost anybody in the land - even the Prime Minister himself.
Johari, played on his Lucknow connections, to get Atal Bihari Vajpayee to inaugurate Cybertron Technopolis, a 40,000 sq ft technology park in the PM's constituency in January this year. Ever since, the beleaguered PM has had his photograph flashed around by Johari and used to con people about his powerful connections. In fact, even when the Bombay Stock Exchange began to investigate Cyberspace's unusual price movements a couple of months ago, a divisional chief from the Securities and Exchange Board of India (Sebi) called the bourse and warned officials about Johari's 'connections'.
The Cyberspace story is a combination of low-level trickery and great sophistication.
In 1998, Johari was among the first to convert one of his companies -- Century Finance into Cyberspace Infosys, in order to cash in on the Information Technology (IT) boom - the name itself was a crude attempt to ride on the Infosys brand and also play on the cyber mania.
As Johari was setting himself up as a new age cyber-guru, he also continued to run a brokerage firm called Century Consultants through which he created a network of front companies that were used to ramp up his stock prices. The scrip zoomed to a whopping Rs1480 backed by a slew of carefully planted news reports across the media spectrum. They worked at reinforcing the impression of a fast track company going international.
It is only after stock prices crashed and Johari allegedly fled the country that the full implication of his market activity began to be understood and trailed by the stock exchanges. His scrip is now down to Rs 11 and falling.
Investigations reveal that Johari set up a series of front companies headed by his employees to put through circular deals, which pushed his stock price relentlessly upwards. After the crash, the losses on the bourses alone are in the region of Rs 350 million or more and the pay-out in the scrip has been held back until the investigation to flush out collusive deals is complete.
The media hype also helped his brokerage outfit - Century Consultants. According to investors he has allegedly collected nearly Rs 3 billion for conducting vyaj badla (funding carry forward transactions) financing from small investors who were assured that trade guarantees on the bourses made this a safe investment option. He also allegedly obtained a huge line of credit from the Lucknow-based City Union Co-operative Bank to the tune of Rs 1 billion.
Here are examples of how the image was created:
June 22, 2000: Cyberspace Infosys was to acquire a $40 million infotech firm in the US. KPMG was advisor. Financial institutions financed the takeover through a private placement of 1.5 million shares at Rs 929.30 each (10-12 per cent of the equity). SBI Capital Markets and Unit Trust of India were lead managers to the issue in June last year. Incidentally, SBI Caps' research report for that period expresses some slight uneasiness about the company. It is titled - 'Growth with concerns'.
The report says that Johari's own equity holding would drop from 43 to 28 per cent because he did not plan to bring in any fresh funds for the expansion.
June 22, 2000 (same report): Cyberspace announced alliances with two overseas firms - OCR Services Inc and Iciniti Corporation of the US to execute off shore projects and help customers including the federal government. They were to boost revenues by approximately Rs 350 million.
January 19, 2000: Cyberspace Infosys, in alliance with Gassoumaye Consult of France, had announced a new package called Jove to provide IT solutions for the power sector. It was meant for graphical design of electrical mines in the transmission and distribution of electricity.
Johari planned to set up another technology park jointly with Uptron called 'Cybertron Tajnet' with an area of 40,000 sq ft area near Delhi.
Cyberspace was to acquire a New York-based software company with an employee base of 350. It was also "at an advanced stage of discussion with two more companies for acquisition". The first was a company based in the Midwest in the US with core expertise in web and database systems, network engineering and workflow applications and the second was a London-based product development company specialising in Case Tools-based products.
Johari managed to rope in the international consulting firm PricewaterhouseCoopers for an E-learning company headed by the former chief of IBM India's software operations.
Jardine Fleming was also impressed enough to acquire a six per cent stake in the company at Rs 1200 each. Various banks advanced him guarantees and some of the most careful and respected brokers have lost approximately Rs 200 million each because by financing his speculative activities.
If that was not enough, look at the top-level professionals he managed to lure with his high pay and stock options package.
His team included the former country head of Lotus, former head of Lotus Professional Services, a senior UK-based executive from IBM Software and entire teams of professionals who walked in with healthy order books of ready business. Over 170 of these shell-shocked employees were summarily forced to resign at the end of March when the scandal broke out. Some of them are now being harassed by police complaints of investors who can neither find Johari, or his board of directors or even his family, in order to file criminal action against them.
All they have is BJP member of Parliament and president, Investors' Greivances Forum, Kirit Somiaya promising to get them their money back through the Investor Protection Fund. The pressure on the BJP to help investors recover their money is understandable, but the Investor Fund is not meant for papering over losses caused by crooks - unless the crooks are first brought back to the country and prosecuted.
Though investigations make it clear, that Johari's was a carefully planned and executed operation which blew up in the end - those who know him and his family background insist that he may seem the robber-baron today, but he would have eventually turned respectable. But would the means then justify the end?
A correction: Shankar Sharma of First Global Stockbroking called to say that he did not leave Citibank in 1992 as reported in my last column, but in 1989. This he says is significant because several newspapers have linked his exit to the Securities Scam investigations, with which he was no connected at all.