Yet another shooting star has landed in the dung heap. As usual, the government has moved to arrest the politically-connected Sunil Kedar of Nagpur Cooperative Bank. Sanjay Agarwal, the face behind the high profile Home Trade, which allegedly duped several cooperative banks has also been arrested in Kolkata.
But the Home Trade story ought to lead to some debate about how regulators can turn pro-active and learn to identify potential scams. Only then would they avoid being like the police in Bollywood movies who turn up only after the event.
A close look at Home Trade shows its collapse could have been anticipated if the regulators had access to the financial data and background that was provided to the major stock exchanges; or if the bourses themselves have performed their function as self-regulatory bodies. It’s important to also look at Home Trade’s equally dubious sister company called Ways India. Does anyone know for instance, that the National Stock Exchange had rejected the listing application of Ways India in September 2000 when it failed to answer several pertinent queries? Or that the BSE had rejected the listing application of Home Trade (then known as Euro Asian Securities) in 1999? At that time, Ways India was attempting to make a Rs 119 crore IPO at a huge premium.
Documents made available to me tell an interesting story. When Ways India had sought to get listed, J Rajagopal, the well-known consultant and former Managing Director of KPMG India was its Managing Director. But its application still did not pass muster; Rajagopal resigned soon afterwards and the IPO plan was dropped.
While Home Trade’s signature line is a harmless — because life means more — Ways India’s advertising used to make the preposterous claim that ‘Ways had changed the banking industry’ even without a single product being launched. It boasted a high-powered management team and claimed a tie up with Brokat Infosystems AG for its e-services platform but sold nothing. Ways India was originally incorporated as Euro Asia Software Technology Park Ltd.
The main promoter of Ways India was Euro Discover Technology Ventures Ltd. (EDTV) — the same Mauritius based offshore investment company, which has promoted Home Trade. Sanjay Agarwal, is the founder and whole time director of EDTV. This means that the dotcom and its venture capitalist are one and the same.
Since EDTV was perceived to be the source of Home Trade’s seemingly large source of funds, take a look at its finances at the end of December 1999. Its income then was $1.56 mn on which it earned a net profit of $ 1.51 mn. Even if one were to believe such wonder profits, they don’t cover its investment in Home Trade and Ways India. On the other hand, the Home Trade website claims that EDTV invested over $25 mn in various convergence-centric enterprises, including Ways India over the last few years. It makes you wonder whether RBI conducts even a modicum of scrutiny into Mauritius-registered companies, their promoters and source of funds.
EDTV, like all companies connected with the Ways India-Home Trade group, had also changed its name several times. It was S.N. Investments when it was incorporated in Mauritius in 1977, turned into Euro Off Shore Investments and became EDTV in 1999. EDTV’s promoters are two loss-making companies which, in turn, are promoted by Sanjay Agarwal’s NRI brother Dhananjay Agarwal.
We now come to Home Trade, whose initial listing application at the BSE was rejected in 1999. This application was made after Agarwal bought Lloyd’s Brokerage Ltd in December 1998 at a paltry Rs 1.5 per share. After changing its name to Euro Asian Securities, it tried to make an offer for sale at Rs 50. When the BSE rejected its application it got listed on the Pune Stock Exchange and promptly began to ramp up its stock price. Between January and June 2000 Home Trade shares traded between Rs 600 and Rs 890 at Pune without any financials to back the price. Ever since Home Trade has relentlessly worked at listing its shares on the BSE and the NSE. Insiders say that data submitted to the two bourses at various times was so blatantly wrong and misleading, that the bourse repeatedly tossed the document back to the promoters for further information.
The promoters and directors are themselves a confused mystery. Ketan Sheth, for instance, is a broker who runs KSC Securities and is the main promoter of at least a dozen others with the Giltedge name (see this column last Sunday); one of these was involved in the Nagpur Coop Bank case. Nandkishore Trivedi, another director at both Ways India and Home Trade, is also connected with all other companies of the Giltedge, Home Trade, EDTV clusters and then a few more.
Apart from these, the promoters of Home Trade seemed to have a bunch of dotcoms all registered and ready to take advantage of and the worldwide mania for such companies. These include Tellme.com (India) Ltd which was formerly Euroasia.com Ltd, Buyeverything.com India Ltd which was formerly Everything.com and was to be a shopping mall on the Net. The dozen or so Giltedge companies were listed as part of the Home Trade group. Buying Experience Ltd was incorporated in London to market computer software and Euro Allied Ltd was registered in Hong Kong as an Investment advisory company. Most of these companies had one thing in common — they had almost no turnover and negligible operating costs. Home Trade itself was a stock broking company but hardly had any trades. Its main business seemed to be selling shares of group companies to other group companies and showing inflated profits. Of its Rs 67 crore revenues in 2000-01, over 99 per cent is through such trades at inflated prices.
It is obvious that the system ought to find a way to ensure that false claims, exaggerations and manipulations detected by the bourses are made public. This would have exposed the curious manner in which two public representatives of the BSE had influenced the listing of Home Trade’s listing on April 19 this year despite the dogged dissent by an investors’ representative — but that is another story. If information were shared with the regulators, they would also have been alerted to the fact that Home Trade’s advertising hype was only a pre-issue effort to dupe investors into buying expensive shares. Unless information sharing leads to earlier detection of scamsters, companies will continue to find the ways and means to trade on investors credulity. -- Sucheta Dalal