Top 10 Investment Scams

Indian financial industry has always been successfully able to trace every prospect offered by the India's
fiscal policy both in terms of alteration and expansion. In spite of all the endeavors implemented to develop
the financial market, it still remains fatally faulted due to lack of three major key elements namely inadequate
management, stringent accountability, and proper punishment.

As a result, the capital market of India has remained one-dimensional and has staggered from one
investment scandal to another. A straightforward listing of the top 10 investment scams narrates the account
of why Indian investors were left annoyed by the scamsters.

A brief about Top 10 Investment Scams in India

1. The Securities Scam

The capital market witnessed its foremost investment scandal in the form of securities scandal in
the year 1992. It revealed the utter anarchy and lack of administration in the prevailing fiscal
market. The money market at that time permitted funds to be relocated with impunity from financial
institution and corporates into equity and consequently witnessed crores of bank's capital to
transfer into brokers' account. This illegal market practice was later asserted as "legal and
acknowledged".

In an attempt to punish the tricksters, a special court was initiated and scrutinized around 70 cases
registered by CBI. Surprisingly, not even a single trickster was found guilty by the dreadfully
sluggish judicial system. As a matter of fact, the scamsters made frequent attempts to re-enter the
market with same set of traps and resulted in losses to investors.

2. The IPO scam Soon after the entry of international organizational investors, the Control over
Capital Issues was banned as the market saw heavy bull trend resulting in the revitalization of the
secondary market from the previous scandals. The ban of Control over Capital Issues unlocked the
prospects of massive scandal in Initial Public Offerings (IPO). The scam was executed in two parts;
the first part was carried out by the firms that increased their market costs to incur profits in order to
sponsor lucrative projects. The second part saw the unison of small time merchants, CAs,
investment bankers and traders to hoist new firms and heave public capitals.

The IPO scam prevailed for three long years from 1993-1996 and finally saw its downfall when the
costs of the registered firm started deteriorating.

3. Favored share scam

The scandal was an outcome of the extensive cost fixing on the derivative market. Besides
increasing fresh capital, advocates of Indian firms promptly coordinated general body
authorizations to transfer shares to themselves on a privileged basis and at a considerable
reduction to the market, thinking that the share prices would never see the ground. Conglomerates
started this trend and accrued profits of nearly 55o crores until Securities and Exchange Board of
India (SEBI) formulated strict guidelines to abandon the market practice.

4. CRB's cardboard scam

The Rs 1000 crore finacial multinational named as Chain Roop Bhansali (CRB) was the only
 biggest firm and most impudent of all to benefit and disappear in the loosened market ambiance of
mid-1990s. The services offered by his firm entailed FC collection, mutual fund, banking, etc. The
clearances obtained by the firm for the trading of these services required sufficient inspection by
SEBI and the RBI and the fact that they managed to qualify shows the supervisory weariness of the
regulators. Facilitated by the clearances and profitable credit ranking, CRB accrued greater profits
based on high value financing. The CRB collapse not only affected the investors but also the other
finance firms.

5. Plantation firms' scam

Since few firms in mid-90s were subject to no guidelines, the plantation companies during that time
also got away with profit protrusions. The plantation firms projected themselves as a part of IPO
and assured massive returns. The investors were lured and the companies accrued profits from
fake campaigns of around Rs 8000 crores plus.

6. Mutual Funds scam

After several mutual fund scams, the UTI bailout reflected the lack of proper guidelines in the Indian
capital market. Since UTI was initiated under its own regulations, it was the tax payers who
suffered the loss of Rs 4800 crore in the process. After three years, the company was back
purchasing Ketan Parekh's controlled scrips and incurring massive losses in the process. The
evidence of the private mutual funds performance has also been inconsistent after hitting the
downfall in 1999 and 2000. It took a considerable amount of time for capital market to win back the
trust of mutual fund investors.

7. The 1998 scam

The scamster of 1992 scam, Harshad Mehta came back with a bag of tricks again in 1998. This
time he lured investors through a website by trading stock tips. His unremitting manipulation of
several shares resulted in the much expected collapse of Bombay Stock Exchange.

8. Home Trade scam

Initiated in 2000, Home trade invested rs 24 crore in promotional campaigns to attract investors.
The scam affected 8 co-operative banks that lost Rs.82 Crore in EPF scheme. The Chief Executive
of Hometrade, Mr. Sanjay Aggarwal was convicted by Nagpur Police later.

9. DSQ Software Scam

In the year 2000 and 2001, the Managing Director of DSQ Software, Mr. Dinesh Dalmia, was held
responsible for ambiguous mergers and prejudiced allocation of the amount of upto Rs.595 Crores.
He was later convicted in the year 2006.

10. Satyam Scam

After manipulating the firm's documents for several financial years, the former Chairman and Chief
Executive of Satyam Computers, Mr.Ramalinga Raju, was arrested for committing scam, following
unethical practice and forgery. He showed greater profits and committed fraud of Rs 700 crores.
2 Ketan Parekh stock market scam

The case gives a detailed insight into the 2000-01 Indian stock market scam.

The case traces the events that led to the scam and also tries to study the role of the
regulatory authorities in the scam.

The case also analyses the steps taken by SEBI after the scam.

The 176-point1 Sensex2 crash on March 1, 2001 came as a major shock for the Government of
India, the stock markets and the investors alike.

More so, as the Union budget tabled a day

earlier had been acclaimed for its growth
initiatives and had prompted a 177-point
increase in the Sensex.

This sudden crash in the stock markets

prompted the Securities Exchange Board of
India (SEBI) to launch immediate
investigations into the volatility of stock
markets.

SEBI also decided to inspect the books of

several brokers who were suspected of
triggering the crash. Meanwhile, the Reserve
Bank of India (RBI) ordered some banks to
furnish data related to their capital market
exposure.

This was after media reports appeared regarding a private sector bank3 having exceeded its
prudential norms of capital exposure, thereby contributing to the stock market volatility.

The panic run on the bourses continued and

the Bombay Stock Exchange (BSE) President
Anand Rathi's (Rathi) resignation added to the
downfall. Rathi had to resign following
allegations that he had used some privileged
information, which contributed to the crash.
The scam shook the investor's confidence in
the overall functioning of the stock markets.
By the end of March 2001, at least eight
people were reported to have committed
suicide and hundreds of investors were driven
to the brink of bankruptcy. The scam opened
up the debate over banks funding capital
market operations and lending funds against
collateral security. It also raised questions
 about the validity of dual control of co-
operative banks4...

KP was a chartered accountant by profession and used to manage a family business, NH

Securities started by his father.

Known for maintaining a low profile, KP's

only dubious claim to fame was in 1992, when
he was accused in the stock exchange scam.5

He was known as the 'Bombay Bull' and had

connections with movie stars, politicians and
even leading international entrepreneurs like
Australian media tycoon Kerry Packer, who
partnered KP in KPV Ventures, a $250
million venture capital fund that invested
mainly in new economy companies.

Over the years, KP built a network of

companies, mainly in Mumbai, involved in
stock market operations.

The rise of ICE (Information, Communications, and Entertainment) stocks all over the world in
early 1999 led to a rise of the Indian stock markets as well.

The dotcom boom6 contributed to the Bull

Run7led by an upward trend in the
NASDAQ.8 The companies in which KP held
stakes included Amitabh Bachchan
Corporation Limited (ABCL), Mukta Arts,
Tips and Pritish Nandy Communications.

He also had stakes in HFCL, Global

Telesystems (Global), Zee Telefilms, Crest
Communications, and PentaMedia Graphics
KP selected these companies for investment
with help from his research team, which listed
high growth companies with a small capital
base. According to media reports, KP took
advantage of low liquidity in these stocks,
which eventually came to be known as the 'K-
10' stocks...

According to market sources, though KP was a successful broker, he did not have the money to
buy large stakes.

According to a report , 12 lakh shares of

Global in July 1999 would have cost KP
around Rs 200 million. The stake in Aftek
Infosys would have cost him Rs 50 million,
while the Zee and HFCL stakes would have
cost Rs 250 million each.

Analysts claimed that KP borrowed from

various companies and banks for this purpose.
His financing methods were fairly simple. He
bought shares when they were trading at low
prices and saw the prices go up in the bull
market while continuously trading. When the
price was high enough, he pledged the shares
with banks as collateral for funds. He also
borrowed from companies like HFCL...

The System that Bred These Factors

The small investors who lost their life's savings felt that all parties in the functioning of the
market were responsible for the scams.

They opined that the broker-banker-promoter

nexus, which was deemed to have the
acceptance of the SEBI itself, was the main
reason for the scams in the Indian stock
markets.

SEBI's measures were widely criticized as

being reactive rather than proactive. The
market regulator was blamed for being lax in
handling the issue of unusual price movement
and tremendous volatility in certain shares
over an 18-month period prior to February
2001.

Analysts also opined that SEBI's market

intelligence was very poor...

KP was released on bail in May 2001. The duped investors could do nothing knowing that the
legal proceedings would drag on, perhaps for years.

Observers opined that in spite of the corrective measures that were implemented, the KP
scam had set back the Indian economy by at least a year. Reacting to the scam, all KP had
to say was, "I made mistakes."

It was widely believed that more than a fraud, KP was an example of the rot that was
within the Indian financial and regulatory systems.
Analysts commented that if the regulatory authorities had been alert, the huge erosion in
values could have been avoided or at least controlled...

The Satyam Scandal

Sudhakar V. Balachandran, 01.07.09, 05:00 PM EST
Corporate governance goes kaput--again.

Satyam Systems, a global IT company based in India, has just been added to a notorious list
of companies involved in fraudulent financial activities, one that includes such names as
Enron, WorldCom, Societe General, Parmalat, Ahold, Allied Irish, Bearings and Kidder
Peabody. Satyam's CEO, Ramalingam Raju, took responsibility for broad accounting
improprieties that overstated the company's revenues and profits and reported a cash
holding of approximately $1.04 billion that simply did not exist.

This leads one to ask a simple question: How does this keep happening?
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At the Columbia Business School, we teach a course called Performance Measurement in

which we study some of the dynamics that lead to this type of accounting scandal. In our
course, we study the fraud committed at WorldCom and Kidder Peabody in detail. In our
studies, a distinct pattern emerges.

It starts small. Typically, executives do not wake up one morning and say, "I feel like adding
5 billion rupees to our revenue today." They usually start by fudging the number a little--and
then it grows.

It is usually a response to competitive pressures. Companies have targets that they need to
reach every month, quarter and year. These targets can come from their internal budgets or
from the expectations of their shareholders and stock market analysts.

The fiddle is easy to rationalize at first. Managers typically have confidence in their skills and
believe that their company is fundamentally sound. Given that, it's easy to rationalize that
while we're just a little short on the numbers now, we will make it up in the future, and
nobody will know.

It gets out of control. When the company is unable to make up the gap, a larger distortion is
needed to cover it up. This in turn creates pressure to deliver even better results--which
leads to bigger cover-ups, and so on.
Comment On This Story

In his letter to his board, Satyam's Raju shows the markers of this pathology. He states that,
"What started as a marginal gap between actual operating profits and ones reflected in the
books of accounts continued to grow over the years. It has attained unmanageable
proportions. ..." Later, he describes the process as "like riding a tiger, not knowing how to get
off without being eaten."
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Can anything be done?

Unfortunately, it appears that several of the mechanisms we rely upon today have not gone
far enough. When management has the wrong incentives, we need other mechanisms to
hold those incentives in check.

Typically, we rely on corporate governance, audit and legal consequences.

Historically, several characteristics have been considered important ingredients of excellent

corporate governance. These include outsider representation on the board, boards that
aren't too large, boards that meet often, etc. Unfortunately, these characteristics don't seem
sufficient. Satyam, for example, had a reputation of excellent corporate governance. In fact,
the World Council for Corporate Governance awarded Satyam its Golden Peacock Award for
Corporate Governance in 2008. This suggests that we need to fundamentally rethink the
criteria that we require in order for boards to provide effective governance.

When an accounting fraud involves reporting cash that is not there, it is typically the result of
adding fraudulent transactions, such as cash sales, to customers that never happened.
These types of transactions should have been audited to assure their legitimacy. In the case
of Satyam, the auditors signed off on the financial reports, raising concerns that even the
increased auditing standards imposed by Sarbanes-Oxley may not be sufficient.

Finally, we also need stiffer penalties. Simply put, "white collar" crime cannot be viewed as
less of an evil than any other form of crime.

The fact that white collar crime continues to occur, and seemingly at an increasing rate,
suggests that the expected costs do not outweigh the expected benefits from cheating.
Stronger penalties are needed.

Despite my calls for improvements in governance, audit and legal penalties, I'm left with the
nagging concern that whatever we do may be insufficient. At the end of the day, the actions
at Satyam were perpetrated by one or two individuals who simply may not have realized that
the small distortions they created in the past would lead to massive problems today.
Hopefully, creating an awareness of the large consequences of small lies may help some to
avoid this trap.

Actions such as those of Satyam are being observed all over the world, and their effects are
not simply localized to their executives, employees or even their countries. Whether it is
accounting fraud, excessive trading risks, a Ponzi scheme or making loans to those who
can't pay, many are hurt by corporate improprieties. These types of actions affect the global
economy. In other words, they affect us all. If there isn't sufficient belief in the notion that
business will act in good faith, then the capitalist system is itself at risk.

Professor Sudhakar (Sid) V. Balachandran teaches accounting at the Columbia Business

School, where he is the faculty director of the executive programs "Finance & Accounting for
Non-Financial Executives" and "Essentials of Financial Management."

On the morning of Jan. 7,Ramalingam Raju, the chairman of troubled Indian IT

outsourcingcompany Satyam Computer Services (SAY), sent a startling letter to his board
and the Securities & Exchange Board of India. Raju acknowledged his culpability in hiding
news that he had inflated the amount of cash on the balance sheet of India's fourth-largest IT
company by nearly $1 billion, incurred a liability of $253 million on funds arranged by him
personally, and overstated Satyam's September 2008 quarterly revenues by 76% and profits
by 97%. After submitting his resignation, Raju ended his letter by apologizing for his inability
to close what began as a "marginal gap between operating profits and the one reflected in
the books of accounts" but grew unmanageable. "I am now prepared to subject myself to the
laws of the land and face the consequences thereof," he wrote.
The letter shocked and angered corporate India, which has looked to IT executives as role
models for a new breed of Indian entrepreneur. The benchmark Sensex stock index dropped
7.3% and Satyam shares fell nearly 78% on the day as investors fled in droves. Goldman
Sachs (GS) suspended its recommendations on Satyam "because there is not currently a
sufficient basis for determining an investment rating or price target for this company,"
Goldman analysts Julio Quinteros Jr. and Vincent Lin told investors. Earnings per share,
warned JPMorgan (JPM) analysts in a report, "may be 70%-80% lower than reported
numbers and consensus estimates for '09-'10." Satyam had become "India's Enron,"
said CLSA India analyst Bhavtosh Vajpayee, calling the case "an accounting fraud beyond
imagination [and] an embarrassing and shocking episode in Indian corporate governance."
As executives at other Indian outsourcing companies nervously assess what impact the
scandal will have on them, many industry observers now argue that the Satyam case will
damage India's reputation as a reliable provider of IT services. Because of the Satyam
scandal, they say, Indian rivals will come under greater scrutiny by regulators, investors, and
customers. "The bubble is going to burst in terms of trust," says a fund manager in Hong
Kong who has followed Satyam closely. Doubts about the reliability of Indian outsourcers are
especially important, since customers often allow the Indian companies access to sensitive
systems. "This industry doesn't just make widgets," the manager explains. "It's an intimate
relationship." Certainly, says Gartner (IT) analyst Diptarup Chakraborti, "there will be caution
in the short term, skepticism, and questioning." After all, "no one wants to do business with a
known fraudster."
INVESTORS WANT ANSWERS
Industry executives are desperately trying to contain the fallout. "The decline in governance
and institutions represents a serious challenge to India," says Rajeev Chandrashekhar,
president of the Federation of Indian Chambers of Commerce and Industry. Wipro
Technologies (WIT) Chief Financial Officer Suresh Senapaty, went on TV to say that
Satyam's actions should not infect the entire Indian IT industry. And Mohandas Pai, head of
human resources at Infosys (INFY) and the company's former chief financial officer, argued
Satyam's behavior is atypical. "We wish the regulators will investigate and punish the guilty,"
he says. "But this is not representative of our industry." John McCarthy, vice-president of
Forrester Research, allays some fears. "I look at Satyam as an isolated case, and don't think
the developments would have any impact upon India's No. 1 position as an offshore
location."
Still, investors and clients are going to want answers. For instance, they're demanding to
know how Satyam's auditor, PricewaterhouseCoopers, endorsed the company's accounts.
"Auditors' complicity in what seems to be a multiyear misstatement of financials will also be
explored," said CLSA's Vajpayee in his Jan. 7 report. Already, India's Registrar of
Companies had begun a probe into a failed acquisition last month by Satyam of companies
run by Raju's two sons. Now the country's securities regulator will add its weight by
investigating the PwC audit. PwC issued a statement saying it was examining the issue.
Raju's confession is the latest in a rocky ride for Satyam, its shareholders, and its
stakeholders over the past year. The company's clients include multinationals such
as Nestlé, General Motors (GM), and General Electric (GE). But in September, the World
Bank banned Satyam from doing any of its work after it found Satyam employees had
hacked into its system and gained access to sensitive information. It also did not renew their
five-year contract. Satyam denied any wrongdoing. Then came a fresh blow on Dec. 16,
when Raju announced the company would spend $1.6 billion to buy two infrastructure
companies run by this sons, only to reverse the decision a few hours later under shareholder
pressure. Satyam ADRs lost 50% of their value overnight. December also brought news of
pending litigation by a former client, online mobile-payments service Upaid Systems, which
filed a case of intellectual fraud and forgery against Satyam in 2007; a Texas court is
scheduled to conduct a hearing on the case

CRB SCAM

MUMBAI: C R Bhansali’s web of deceit was elaborate. He had floated 133 companies to pull in
funds and suck them out. Money came easy; he was inspiring with his grandiose plans, high
interest rates and entry into mutual fund and banking. CRB’s meteoric rise in the early 90s
coincided with the boom in the Non-Banking Finance Company (NBFC) sector. His fall in 1996
was equally fast.

Forget investors, even credit-rating agencies didn’t see it coming. CARE, a leading agency, gave
‘AAA’ rating at a time when the company was going down.
How to become chairman of top 3 finance companies

Born in Rajasthan, raised in Kolkata, Bhansali became a dada in the financial capital — Mumbai
— before he turned 40.

First came the finance company (CRB Capital Markets), after which the mutual fund (CRB Mutual
Fund) and CRB Share Custodial Services followed. Then he planned to get into banking, and he
almost made it.

He had a dream run from 1992 to 1996 collecting money from the public through fixed deposits,
bonds and debentures. He floated around 133 subsidiaries and unlisted companies. Most of the
money was transferred to these dummy companies.

The flagship company, CRB Capital Markets, went public in 1992 and raised a record Rs 176
crore in three years. In 1994 CRB Mutual Funds, through its Arihant Mangal Growth Scheme,
raised Rs 230 crore. Another Rs 180 crore came through fixed deposits.

CRB Corporation Ltd raised Rs 84 core through three public issues between May 1993 and
December 1995. CRB Share Custodial Services raised a further Rs 100 crore in January 1995 to
set up operations.

Between 1992 and 1995, when the market was in the post-Harshad Mehta bear phase, Bhansali
managed to raise close to Rs 900 crore.

Post-1995, he got a beating on the stock markets. His investments in the property market did not
pay off because of the slump.

Caught in a financial trap, Bhansali tried borrowing more money from the market. ‘‘To repay the
interest rate on amounts he borrowed later, Bhansali was forced to borrow once again. This went
on and on, and he got stuck in a financial quicksand,’’ says a former employee, refusing to be
named.

Going down, he even tried to invest in Bollywood

Bhansali made a determined effort to get out of the trap by investing in some high-risk ventures.
He is believed to have even made a Hindi commercial film. Again, the gamble failed.

In the end, Bhansali was borrowing funds from banks through questionable means. All was well
till December 1996. Then the Reserve Bank of India (RBI) refused banking status to CRB and
contemplated action for various irregularities.

Pradip Bhavnani, President of National Association of Small Investors, says: ‘‘There was a lot of
confusion about how to act against CRB, considering its NBFC status. When he started
defaulting, public sector banks like the State Bank of India were the first to be hit. Had the SEBI
and RBI acted fast, investors wouldn’t have lost money.’’

Bhansali spent three months in jail in 1997. He is out now but nobody knows where he lives and if
they do, they are not snitching.
 Sebi active after CRB scam
GEORGE MATHEW

MUMBAI, AUG 10: The capital market regulator seems to have turned
aggressive after the CRB Capital Markets scam. Securities and Exchange
Board of India (SEBI) has started taking various rapid-fire actions against
various market intermediaries - mutual funds, merchant bankers and corporates
- to prove the point that it is a ``vigilant'' regulator.

The list of action taken by the SEBI in the last three months is impressive:

* Over 120 merchant bankers were issued show-cause notices for various
lapses including failure in meeting underwriting commitments this year.

* Over half-a-dozen mutual funds were prevented from floating mutual fund
schemes. The SEBI directive was that they should make their accounts clean
before coming out with new schemes.

* It has sought explanation from Hindustan Lever as to why the company

purchased some eight lakh shares of Brooke Bond barely a month before the
decision to merge the two companies was taken.

* Morgan Stanley Mutual Fund was slapped a fine of Rs one lakh for various
irregularities.

* It has come out with a compendium of proposals for the primary market.

The SEBI notice to Hindustan Lever about insider trading has now
overshadowed the CRB scam and put the spotlight on SEBI initiatives in the
capital market. This comes close on the heels of flak that it received over the
CRB scam.

In fact, history seems to be repeating itself. SEBI was caught napping in at least
three cases when market buccaneers took investors for a ride and the regulator
stepped in after the investors lost heavily.

When hundreds of shady companies floated public issues in the 1994-96

period, SEBI initially failed to check the flood of such issues.
However, when it tightened the primary guidelines, the number of companies
floating the issues came down. A total of 1428 public issues were made in
1995-96.

If the revised guidelines (which include dividend trackrecord and project

appraisal norms) are applied to these issues, only 399 issues would have
qualified to enter the market. This indicates that if SEBI had tightened the issue
guidelines earlier, many of the dud issues which are now quoting much below
the face value could have been avoided.

Again, after raising money from the public the question of monitoring end-use
of funds raised through public issues is yet to be tackled the same promoters, in
collusion with brokers, rigged up the share prices two years ago.

Gullible investors who were taken for a ride lost heavily in the price rigging
exercise in around a dozen companies like Kamakshi Housing, Jyothi Resins
and Ardeshir Cotton. However, SEBI action like impounding the auction
proceeds came a bit late - like bolting the stable doors after the horses had fled.

Then came the CRB scandal. Even though SEBI chairman has gone on record
saying that he has taken action against CRB Mutual Fund, the findings of the
Chitale report and SEBI's own investigation before the CRB scam broke out
had levelled several serious charges against CRB Mutual Fund.

When the CRB Capital Markets which violated all the rules in the book was
given a banking licence, SEBI kept quiet. After the scam broke out, SEBI asked
half-a-dozen mutual funds not to launch schemes till they clean up their
accounts. It also fined Morgan Stanley for violating MF guidelines.

As a former senior SEBI official pointed out, so much time and efforts were
taken to frame guidelines for various intermediaries like registrars, mutual
funds and brokers and bring them under the SEBI purview.

On top of this, the watchdog got enough teeth only recently and it was
harmstrung by lack of adequate manpower added the official.

With the CRB affair showing chinks in the armour of the Reserve Bank of
India and the SEBI, a demand to regulate various regulatory bodies has already
been made.
S A Dave, former chairman of the Unit Trust of India (UTI) had recently gone
on record saying the need for a senior regulatory body which can overlook the
regulatory bodies directly monitoring market intermediaries.

The argument is that a senior regulatory body could help ensure that the
markets do not suffer due to the lack of coordination among regulators.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.

UTI Scam

UTI Scam : Robbery Through other Means

—Suman

The line between ‘legitimate’ business and the mafia is getting increasingly
diffused. The greater the liberalisation/globalisation of the economy, the more
rampant is the loot. Phoolan Devi as a dacoit in the ravines of Madhya Pradesh could
not even dream of the type of wealth made as a Member of Parliament. Her wealth at
the time of her death was estimated at a minimum of Rs. 10 crores. But this is small
fry compared to the Harshad Mehtas, Bharat Shahs, Ketan Parekhs, Subramanyams
etc and the top politicians/bureaucrats/corporate houses with whom they are linked.
Phoolan Devi appears as a petty thief compared to these gangsters. The amount
robbed through the UTI scam intails thousands of crores — the bulk of which belongs
to small investors who have put their life-savings into this scheme.

What is the UTI ?

The Unit Trust of India is the largest mutual fund in the country created in 1964
through an act of parliament. Mutual Funds are financal institutions that invest
people’s money in various schemes, giving a ‘gauranteed’ return to the investor. The
UTI (of which the US-64 scheme is the largest) was set-up specifically to channel
small savings of citizens into investments giving relatively large returns/interest. The
US-64 scheme has 2 crore investors, the bulk of whom are small savers, retired
people, widows and pensioners. Besides the US-64 the UTI runs 87other schemes
giving inverstors various options. But the US-64 has been most popular, giving returns
as high as 18% in 1993 and 94.
 Genisis of the Scam

Liberalisation of the economy immediately led to the liberalisation of the UTI,

throwing it to the mercy of the stock market. In 1992, itself the US-64 scheme was
changed from a debt-based fund to one linked to equity. In 1992 only 28% of its funds
was in equity; today it is over 70%. Further liberalisation was pushed by Chidambram,
as the finance minister of the U F government, who, in 1997, removed all government
nominees from the board of the UTI. Besides, the US-64 does not come under SEBI
regulations, its investment delails are kept secret (ever depositors cannot know where
their funds are being parked) and the chairman has arbitrary powers to personally
decide an investment upto a huge Rs 40 crores. Such ‘liberalisation’ is tailor-made for
frauds. Not surprisingly, within one year of Chidambram’s liberalisation, in 1998, the
UTI crashed, and the new BJP-led government organised a large Rs. 3,500 crore bail-
out to prevent default.

It was during this crisis that the new chairman, P.S. Subramanyam, was appointed.
Subramanyam was a direct appointee of thug Jayalalitha, who had made his selection
a condition for her continuing the support of the then NDA government. Later, though
Jayalalitha withdrew from the government, Subramanyam developed close links with
the Prime Minister’s Office, and corporative big-wigs. Small investor’s funds were
used to promote big business houses, shower favours to politicians, and invest huge
amounts in junk bonds....all for a fat commission. Subramanyam functioned like a
fascist, arbitrarily transferring hundreds of senior staff, in order to cover his tracks. He
was a key player in the Ketan Parekh scam.

Huge amount of UTI funds were channelled into the infamous K-10 list of Keten
Parekh stock, such as Himachal Futuristic, Zee Telefilims, Global Tele, DSQ, etc. The
UTI continued to buy these shares even when their market value began to crash in
mid-2000, in order to prop up the share values of these stocks. The Trust saw its Rs.
30,000 portfolio (value of stocks) lose half its value within a year since Feb. 2000.

To take just one example on how the UTI operated : In August 2000, much after
the software stocks had begun to crash, the UTI bought Rs. 34 crores worth of shares
in Cyberspace Infosys Ltd at the huge price of Rs 930 per share. Today the shares
have no value and its Lacknow based promoters, the Johari Group, are in jail. But,
what is astounding is that it was none other than India’s prime minister, Vajpayee,
who, as late as Jan. 31, 2001, laid the foundation stone for the Software Tectnology
Park (STP) in Luknow, promoted by this group. (Incidentally the UP government had
a 26% share in this STP). Coincidentally, in the four days when the UTI reversed its
earlier decision and subscribed to 3.45 lakh shares of Cyberspace, Subramanyam had
rung up N.K. Singh (then secretary in the PMO) at least 4 times. It does not take much
imagination to link UTI purchases in Cyberspace with Vajpayee. Similar were the
investments in DSQ Software, HFCL, Sriram Multitech. and others.

Besides, the UTI also invested in junk bonds like Pritish Nandy communications
(Rs. 1.5 crores), Jain Studios(Rs.5 crores), Sanjay Khan’s Numero Uno International
(Rs. 7.5 crores), Malavika Spindles(Rs. 188 crores) etc. This amounted to nothing but
handing over people’s money (investments) to the rich and powerful. Thereby
thousands of crores were siphoned off to big business and prominent individuals, with
the UTI chairman, bureaucrats and politicians taking their cuts.

But this was not all. The fraud continues even further. With knowledge that the
UTI was in a state of collapse, the Chairman organised a high profile propaganda
campaign promoting UTI (spending crores of rupees on the top advertising company,
Rediffusion), while at the same time leaking information to the big corporates to
withdraw their funds. The Chairman thereby duped the lakhs of small investors
through false propaganda, while allowing windfall profits to the handfull of big
corporates who had invesed in UTI.

So, in the two month prior to the freezing of dealings in UTI shares, a gigantic sum
of Rs. 4,141 crores was redeemed. Of this Rs.4,000 crores (97%) were corporate
investments. What is more,they were re-purched at the price of Rs. 14.20 per share
(face value Rs.10) when in fact its actual value (NAV — net asset value) was not
more than Rs. 8. As a result UTI’s small investors lost a further Rs. 1,300 crores to the
big corporates.

In fact these huge withdrawals further precipated the crisis. On July 4, 2001 the
board of UTI took the unprecedented step of freezing the purchase and sale of all US-
64 UTI shares for six months. Simultaneously it declared a pathetic dividend of 7%
(10% on face-value), which is even lower than the interests of the banks and post
office saving schemes. Such freezing of legally held shares is unheard of — and is like
overnight declaring Rs. 100 notes as invalid for some time. In other words the 2 crore
shareholders could not re-invest their money elsewhere — and would have to
passively see their share price erode from Rs. 14 (at which they would have purchased
it) to Rs 8 — and get interest at a mere 7% on their initial investments. Fearing a back-
lash, the government/UTI later announced the ability to repurchase UTI shares at Rs.
10 — i.e. at 30 % below the purchase price.

Imagine the plight of a retired person who would have put a large part of his/her
PF, gratuity etc. in the US-64 scheme, considering it the safest possible investment.
Not only has the person’s income (interest/dividend) halved overnight, he/she also
stands to lose a large part of the investment. So, a person who invested Rs. 1 lakh
would now only get back Rs 70,000.

Today, the entire middle class is being robbed of their savings — first it was by the
private mutual funds (NBFCs), now by the govt. sponsored mutual fund. Those who
gain are the robber barons who run the country’s economics, finance, politics.

The middle-classes, affected by these scame, will soon realise the facts and come
out of the euphoria of consumerism that has numbed their senses. They will see
 through the hoax of globalisation/liberalisation, and will turn their wrath on these so-
called pillars of society. It is important that this impending explosion be channeled in
a revolutionary direction, or else it will be diverted by the ruling elite into fatricidal
clashes. The middle-classes are most prone to fall prey to ruling-class propaganda. But
life itself is the best educator. Faced with unemployment, loot of their savings, price
rise of all essentials, etc. they will no doubt, join the working class and their peasant
brethrens in revolt.

One in 20 'hit by scams in 2010'

Scams hit one in 20 people in the UK last year, with most losing money by handing over
bank details or paying upfront fees.The Office of Fair Trading (OFT) said that 39% of those
who lost money were the victims of two particular scams.These trick people into giving
bank details or paying an upfront fee assuming they are entitled to an inheritance or donating
to charity.The OFT said that 39% of those...
Source : BBC | 15 Day(s) Ago
Category : Business
One in 20 'hit by scams in 2010'
Scams hit one in 20 people in the UK last year, with most losing money by handing over
bank details or paying upfront fees.The Office of Fair Trading (OFT) said that 39% of those
who lost money were the victims of two particular scams.These trick people into giving
bank details or paying an upfront fee assuming they are entitled to an inheritance or donating
to charity.Egyptians...
Source : Bignewsnetwork | 16 Day(s) Ago
Category : Business
UTI MF to start financial literacy drive; partners HDFC Bank
UTI Mutual Fund is starting its second round of pan- India .investor education and financial
inclusion initiative from February 2 to spread awareness about benefits of investing in
mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge
caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from
Thiruvananthapuram, to spread awareness about financial planning,...
Source : Bignewsnetwork | 18 Day(s) Ago
Category : Business | City : New Delhi
UTI Mutual Fund, HDFC launch investor education project
Mutual Funds Sector, UTI Mutual Fund HDFC Bank Tie-up, Swatantra in Kerala, Swatantra
in Karnataka, Swatantra in Tamil NaduUTI Mutual Fund today announced its tie-up with
HDFC Bank for an investor education initiative called 'Swatantra' in Kerala, Karnataka and
Tamil Nadu."We are happy to partner with India's oldest fund house UTI Mutual Fund in
this unique investor education initiative. HDFC Bank's...
Source : Headlinesindia | 14 Day(s) Ago
Category : Mutual Fund
UTI Banking Sector Fund declares tax-free dividend of 25 per cent
UTI Banking Sector Fund has declared tax-free dividend of 25 per cent or Rs 2.50 per unit
on face value of Rs 10.Pursuant to the payment of dividend, the NAV of the dividend option
of the fund will fall to the extent of payout and statutory levy if any. The record date for the
dividend is February 3.All unit holders registered under the dividend option of UTI Banking
Sector Fund as on February 3 will...
Source : Newkerala | 15 Day(s) Ago
Category : Sports | City : Mumbai
UTI MF to start financial literacy drive; partners HDFC Bank
UTI Mutual Fund is starting its second round of pan- India .investor education and financial
inclusion initiative from February 2 to spread awareness about benefits of investing in
mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge
caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from
Thiruvananthapuram, to spread awareness about financial planning,...
Source : The Economic Times | 17 Day(s) Ago
Category : Business | City : New Delhi
Sinha upbeat about new assignment at Sebi
While waiting to take over as the chairman of the market regulator Securities and Exchange
Board of India (Sebi) on February 18, UK Sinha on Saturday observed that his days in UTI
Mutual Fund have been challenging and he has been able to restore confidence among the
investors.Sinha, who has been running UTI Mutual Fund for more than four years, took
charge of the almost direction less asset management...
Source : Expressindia | 4 Day(s) Ago
Category : Mutual Fund
UTI MF to start financial literacy drive; partners HDFC Bank
Mutual Fund is starting its second round of pan- India .investor education and financial
inclusion initiative from February 2 to spread awareness about benefits of investing in
mutual funds .As part of the initiative, christened as Swatantra, two UTI knowledge
caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from
Thiruvananthapuram, to spread awareness about financial planning,...
Source : The Economic Times | 17 Day(s) Ago
Category : Mutual Fund | City : New Delhi
UTI MF to start financial literacy drive; partners HDFC Bank
NEW DELHI: UTI Mutual Fund is starting its second round of pan- India .investor
education and financial inclusion initiative from February 2 to spread awareness about
benefits of investing in mutual funds .As part of the initiative, christened as Swatantra, two
UTI knowledge caravans will travel across Kerala, Karnataka and Tamil Nadu, starting from
Thiruvananthapuram, to spread awareness about financial...
Source : Bignewsnetwork | 18 Day(s) Ago
Category : Business | City : New Delhi
UTI Banking Sector Fund declares dividend
Moneycontrol.comhas announced a dividend of 25% (Rs. 2.50 per unit on Face Value of
Rs.10), under the dividend option ofAll investors registered under the dividend option of
UTI Banking Sector Fund as on February 3, 2011 will receive this dividend. The NAV of
the scheme under the dividend option as on February 02, 2011 was Rs 23.740. (UTI
Banking Sector Fund is an open end equity oriented scheme. The...

UTI scam
The Joint Parliamentary Committee (JPC) investigating the UTI scam has
concluded that the scam took place due to the selfishness of a few individuals
and the negligence of the management. The JPC probe has also found SEBI
guilty of failing in its role as the market watchdog.
In such a situation, whom will an investor approach for grievance redressal,
especially when the regulator has itself been negligent? Whatever the reasons
may be, one thing is clear: a middle-class investor will think twice before
investing in the UTI, as it has repeatedly failed to deliver in the recent past.

The middle-class does not have much money to spare, and will not surely invest
in any fund whose returns are uncertain, even if it promises a higher rate of
interest. Further, mere probes will not do much to restore the confidence of
investors in the UTI. What is required is action against those responsible for the
scam.

There is also the feeling that some individuals have been allowed to go scot-free
because of their political connections. This must stop, and the `scamsters'
should be punished. The UTI needs management restructuring along with new
and effective schemes. The old and unreliable schemes should be discarded.

Former DSQ Software chief cited as accused in stocks scam

K.T. Sangameswaran

Custodial interrogation of Dinesh Dalmia in progress

CHENNAI: Besides Dinesh Dalmia, the then Managing Director of DSQ Software
Limited, three companies have been cited as accused in a charge sheet filed by the
Central Bureau of Investigation in a stocks scam, involving Rs.595 crore.

The companies are DSQ Holdings Ltd., Hulda Properties and Trades Ltd. and
Powerflow Holding and Trading Pvt Ltd., all under the control of Dinesh Dalmia, who
has been arrested and remanded to police custody.

Investigation is on to find out how the money was used and who the other
beneficiaries were. Custodial interrogation of Mr.Dinesh Dalmia is in progress.

The agency will file the report before the court, CBI sources toldThe Hindu . When
the agency sought police custody of Mr. Dalmia, defence counsel K.S. Dinakaran and
I. Subramanian objected to it, arguing that he would be harassed. The charge sheet
had been filed. Further, he was not willing to go to police custody and did not want
to make a statement, they said.

According to the charge sheet, Mr. Dalmia obtained wrongful gain through partly
paid shares of DSQ Software Ltd., in the name of New Vision Investment Ltd, U.K.,
and unallotted shares in the name of Dinesh Dalmia Technology Trust and
Dr.Suryanil Ghosh-Trustee Softec Corporation. DSQ Holdings Ltd, Hulda Properties
and Trades Ltd and Powerflow Holding and Trading Pvt. Ltd. indulged in cheating.

The CBI submitted that investigation revealed that 1.30 crore shares of DSQ
Software Ltd had not been listed on any stock exchange.
 Also, except the 30 lakh shares allotted to New Vision Investment Ltd.,
none of the shares was actually allotted by DSQ Software. Even in the
transaction relating to the allotment of 30 lakh shares, the partly paid
equity shares were forfeited/cancelled in March 2001. But Mr. Dalmia
had fraudulently got these shares dematerialised as fully paid in May 2000.

Mr. Dinesh Dalmia is alleged to have made false representation to the National
Securities Depositories Ltd and fraudulently got the 1.30 crore shares
dematerialised, showing them as fully paid and allotted by the company.

Later, he sold the shares to the trading system and cheated the shareholders of the
software company and also the purchasers of these shares. The shares were sold by
brokers for Rs.594,88,37,999.

A total of Rs.572,61,51,225 was paid by brokers to Hulda Properties and Trades Ltd,
DSQ Holdings Ltd and Powerflow Holding and Trading Pvt. Ltd. None of the sale
proceeds of the shares was received by DSQ Software Ltd, the charge sheet said.

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Home Trade scam: still waiting for justice

June 10, 2009

The arrest of Nationalist Congress Party’s (NCP) Member of Parliament (MP) Padmasinh Patil has raised
more questions than answers. The main question is, why was Patil desperate to get rid of his cousin and
one time right-hand man Pawan Raje Nimbalkar, that too when Nimbalkar was already implicated in number
of cases by Patil and also jailed for six months?

One has to go back to the mostly forgotten Home Trade scam. Nimbalkar was one of the accused along with
NCP's Sunil Kedar, the then president of Nagpur District Central Co-operative Bank (NDCCB). What
happened to these politicians is well known, but the real question is what happened to the company itself or
where are the Home Trade promoters?

Navi Mumbai-based Home Trade Ltd was launched in 2000 accompanied by Rs240 million advertising
blitzkrieg with cricket icon Sachin Tendulkar and film stars Shah Rukh Khan and Hrithik Roshan to endorse
its portal.
Home Trade's modus operandi was very simple. It claimed to be a professional firm dealing in government
securities (Gilts) and would lure the general public, brokers, sub-brokers dealing in Gilts. But the government
securities never existed and were actually bought from some third party and the whole deal was meant just
a show on paper only.

Home Trade scam was unearthed after NDCCB lodged a complaint of non-delivery of Rs1.24 billion Gilts it
had bought through Home Trade. The then Union Finance Minister, Yashwant Sinha, made a statement that
the scam was worth Rs2.75 billion, but it later transpired that it could be much bigger. The investigation was
later handed over to the CBI.
Pawan Raje Nimbalkar, who was chairman of Osmanabad District Central Co-operative Bank in 2002,
invested about Rs300 million of the bank in Gilts offered by Home Trade. But following the scam exposure,
he turned absconder on behest of Padmasinh Patil which led to his defamation, said Omprakash Raje
Nimbalkar, son of Pawan Raje.

"When my father deposited Rs300 million in Home Trade for purchase of securities, the same was
transferred to NDCCB within 15 minutes by Home Trade, which shows the nexus between NDCCB's then
chairman Sunil Kedar and the company officials," Omprakash Raje alleged.
Patil later implicated Nimbalkar in a case wherein a Kolkata-based firm, Regal Impex, failed to submit export
proof for the sugar sold by Terna Co-opeartive Sugar Factory.
“The decision to sell sugar for export to Regal Impex was taken by the board of directors of Terna, but when
the time came, all other directors, except my father, who was chairman, got away and he was then jailed for
six months," Omprakash Raje said.

Sanjay Aggarwal, chief executive of Home Trade, was arrested in May 2002 along with his associates Ketan
Seth and Subodh Bhandari for duping investors of billions of rupees.

Ketan Seth was also involved in the Rs927.8 million Seamen’s Provident Fund scam case along with AK
Ghond, former commissioner of Seamen's Provident Fund Organisation.

Central Bureau of Investigation (CBI), was also looking for any possible violations of foreign exchange
regulations as Aggarwal allegedly remitted Rs580 million to Mauritius through HSBC Bank. But what is the
current status of the Home Trade investigation? Nobody is willing to speak. All our phone call to Bank
Security & Fraud (BS&F) cell of CBI in Mumbai went unanswered. – Yogesh Sapkale news@moneylife.in

MUMBAI: The Home Trade scam could involve the misappropriation of at least
Rs 500 crore, as irregularities have been traced in other parts of the country,
including a provident fund scheme in Kolkata, police sources said here.
"The scam would touch the Rs 500 crore figure and irregularities have been noticed
in several states including Gujarat and West Bengal," sources in Economic Offences
branch said.
In Kolkata, the group's involvement has been linked to the Rs 82 lakh forgery in a
central government undertaking employees provident fund scheme, sources said,
adding a two-member team of Anti-Corruption Branch, Kolkata, arrived here today
to pursue further investigations.
Six persons, including Home Trade chairman Sanjay Agarwal and Director
(Securities Trade) Ketan Seth, were arrested after the scam, involving at least Rs 300
crore, came to light.
While Agarwal, who was given bail in the Nagpur case, is held in Pune, Seth is in
Valsad jail in Gujarat, sources said adding four others including Chairman, Vice
Chairman and general manager of Raghuvanshi cooperative Bank and an employee
of the Home Trade were released on bail.
"More arrests, particularly of the directors, were likely," sources said.
Besides, Bengal, the irregularities have been detected in Surat, Valsad and other
parts of Gujarat, sources said, adding "in Gujarat, the scam of Rs 25 crore involved
various cooperative banks".

Read more: Home Trade scam may reach Rs 500 cr - The Times of
India http://timesofindia.indiatimes.com/business/india-business/Home-
Trade-scam-may-reach-Rs-500-
cr/articleshow/19780989.cms#ixzz1E7KEdzZ2

1998 Annual Report

Fraud & Forgery
The FBI's Uniform Crime Reporting System does not include fraud, false pretenses,
forgery, embezzlement, and confidence games among larceny. Yet in many cases,
fraud is a much more serious crime than theft. Victims of check forgery and "con"
games stand to lose thousands of dollars. Often added to this loss is the personal
humiliation that accompanies being "duped" by a "con man." The confidence game
crook, a particularly crafty breed of criminal who has no qualms with deceiving his
victims face-to-face, expects that his victim's embarrassment will deter him or her
from reporting the crime to the police.

In 1998, 321 incidents of fraud and forgery were reported to the Cambridge Police,
ranging from simple check forgery to elaborate confidence swindles:

Counterfeiting
(7 in 1997; 6 in 1998)

Counterfeiting is one of the more devious types of fraud. True counterfeiters invest
thousands of dollars for counterfeiting equipment to produce near copies of genuine
dollar bills. Because of the cost, counterfeited bills are usually of high denomination.
The six incidents this year in Cambridge involved $20, $50, and $100 bills. Very
likely, more counterfeit bills were passed that went undetected. The preferred tactic
of counterfeiters is to buy a low-value item, use the forged bill, and receive genuine
change. The crime of counterfeiting is a federal crime and generally falls under the
jurisdiction of the United States Secret Service, though the Cambridge Police
Department often takes the initial report.

Embezzlement
(25 in 1997; 30 in 1998)

The employee of a company takes advantage of his position for his own financial
gain, diverting company funds to himself. The means by which the offender
accomplishes the embezzlement varies, depending on the business, from store clerks
"skimming" the register to shady company accountants falsifying corporate records.

Bad Checks
(32 in 1997; 29 in 1998)

The writing of checks on insufficient funds or closed accounts. This number is low
because most "bounced" checks are not reported as criminal incidents, particularly if
it seems to be an innocent mistake.

Forged Checks
(76 in 1997; 60 in 1998)

The fraudulent use of a lost or stolen check, with the offender forging the victim's
signature. This crime is often committed by someone who knows the victim and thus
has access to his or her checks-a friend, a family member, a co-worker, or a
roommate. Other check forgery incidents occur following a burglary, a larceny from a
motor vehicle, or a larceny from a person.

Credit Card/ATM Card Fraud

(124 in 1997; 145 in 1998)

ATM and credit card fraud were once categorized separately, but with the
proliferation of "check cards," the line between them has become blurred. Credit card
fraud has become the most common type of fraud, and it is increasing every year.
Since "check cards" can deplete entire accounts within hours without the offender
having to know the victim's PIN, owners of these cards should keep a close watch on
them. Typically, the amount of money for which the victim is liable is higher on
"check cards" than on credit cards.

Scams and Confidence Games

The worst breed of fraud offender employs "flim flams" or "con games" which exploit
victims' good will, gullibility, ignorance, or greed and bilk them for thousands of
dollars. We are warned from childhood to beware of offers that are "too good to be
true," but our defenses are often overcome by the belief that an offer is "too good to
pass up." Scams used in Cambridge in 1998 are listed below. This list is a mixture of
classic "shuck and jive" confidence swindles and newer millennium-era stunts.

The Travel Scam

Ten reports were taken in 1998 for various travel & tourism related swindles,
including overpricing and non-delivery of airplane tickets. All reports have identified
one of two agencies, one in East Cambridge, one in Area 4.

The Big Carrot

So-called by the con men because they dangle a "carrot" (an expensive television or
laptop computer) in front of a "donkey" (the victim) who then "leaps for it" (hands
over large amounts of cash). This scam has been happening in Massachusetts for as
long as anyone can remember. In addition to the nine reports taken by the
Cambridge Police Department in 1998, we received intelligence from police
departments ranging from Danvers to Natick. Any town with a shopping mall is a
target.

It appears that one group, operating out of the Everett/Somerville/East Cambridge

area, is responsible for a majority or all of the scams. Here's how it works:

The victim receives a telephone call at his or her place of work, which has ranged
from southern Maine to Rhode Island. The caller identifies himself as "Jim," the
victim's UPS driver.

"Hey," says Jim, "My [brother/friend] works at [Lechmere/Sears/Best Buy] and they're
way overstocked on [laptop computers/big screen televisions/CD players]. He can get
you [30/50/75] percent off the regular price!"

"I'll take [one/two/five/twenty]!" the victim responds. "What do I have to do?"

"Meet my brother George [usually ‘George Collins'] at the [Lechmere/Sears/Best Buy]

in [Cambridge/Danvers/ Saugus/Natick/any other town with a shopping mall]
tomorrow evening. Make sure to bring [$1,000/$2,500/

$4,000/some other obscene amount] in cash!"

The victim meets the con man at the arranged location, usually outside the store.
The victim forks over the money. The suspect gives the victim a written receipt from
the store and says he'll get the merchandise. He instructs the victim to go wait for
him at the receiving area. The victim waits. The suspect never shows up.

It appears that con men use the same store time after time-Lechmere until it closed,
Sears for about a year, and most recently Best Buy-because they steal a receipt book
from that store and use it until it is exhausted.

Many, many arrests have been made for this scam, three of them by the Cambridge
Police Department. The arrestees are usually men in their 20s and 30s from
Cambridge, Somerville, Everett, or Malden. Yet the scams continue-indicating a large
conspiracy of individuals. The "Big Carrot" series took an interesting turn in
Cambridge in November 1998 when one of the suspects in the scam, apparently
afraid that another suspect was going to "snitch" on him, shot his accomplice in the
foot.

In January of 1999, Cambridge investigators arrested a Somerville man for the scam.
Hopefully, this recent arrest will curtail this activity in Cambridge for a time. When
this same man was arrested in February 1997, the scam disappeared from
Cambridge for a year and a half.

The Pigeon Drop

One of the classic swindles. A pair of swift-talking con men pretend to have found a
wallet or bag with cash in it. They stop a passer-by and claim ignorance about what
to do with the money. They offer to share it with the victim if he or she can help them
make it "legit" by contacting a bank or lawyer for advice. What happens next is
usually confusing, but the con artists manage to get the victim to give them "good
faith" money, or collateral, for his or her share, then they leave the victim with
worthless paper or nothing at all. These schemes tend to be very convoluted and
defy easy explanation. In the winter of 1998, a pair of female swindlers struck around
local universities, conning two foreign students out of thousands of dollars.

The Psychic Pswindle

In this scam, a troubled victim visits a psychic, who tells the victim that the source of
his or her trouble is "tainted money." The victim is told to bring the money-usually
several thousand dollars-to the psychic, who will perform a cleansing ritual on it to
remove the taint. The "cleansing ritual" then goes on indefinitely, and the money is
never returned to the victim. One such report was taken from the East Cambridge
neighborhood, and one in Harvard Square, in 1998.

The Cash Shuffle

Another classic scam, this type of con games requires a special art that is rarely
developed any more. Two were committed in Cambridge in 1998. A fast-talking
swindler enters a retail establishment and looks for a young or inexperienced cashier.
The swindler asks for change for, say, a $20 bill. Then the game starts. By distracting
the victim with talk, "changing his mind" about the denominations he wants, handing
bills back and forth, confusing the cashier about whose money is whose, and so on,
the con artist manages to walk out of the store with two to five times the amount he
went in with-leaving the slightly dumbfounded cashier thinking he has only "made
change." The poor cashier has a revelation that evening, however, when he tallies his
register for the day.

The Utility Impostor

This is an ongoing scam scenario in Cambridge, though only one was reported in
1998. Two or three middle aged men show up at the house of an elderly resident,
claiming to work for a utility such as the electric company or the water department.
Claiming to need access to the victim's house, one distracts the victim while the
other prowls the house looking for valuables.

The Charity Impostor

An unsophisticated type of scam, the charity impostor simply involves someone
posing as a charity worker, collecting cash which then simply goes into the con man's
pocket. The charity impostor may conduct his business door-to-door, or he may stand
in the street. Sometimes it is hard to distinguish imposing a charity worker from
panhandling (i.e., "Help the homeless!"). We had only one report for this scam in
1998, probably because the victims-believing they had given money to an actual
charity-did not report the incident as a crime.

Other Scams
Con artists are notoriously original, creating in 1998 a dozen scam scenarios that
could not be fit into any existing classification. Some examples:
A psychiatrist who told her patient that the expensive artwork he possessed was
causing his problems; at her suggestion, he brought the artwork to her office, and
she refused to return it when the "therapy" was concluded.

Around Christmas time, someone tried to take advantage of the good will of a church
by calling and claiming to be a parishioner, stranded with car trouble and without
cash in some other town.

In October, a Concord Avenue man took advantage of a national fad and sold
counterfeit "Beenie Babies."

In August, a guy was seen hanging around a Trowbridge Street apartment building.
He told all the residents he was taking care of the "squirrel problem." Later, he
delivered a pile of "invoices" to all the residents. This innovative but poorly-executed
scam did not pay off.

Identity Theft
This serious type of fraud has become a national concern, particularly with the
proliferation of personal information over the Internet. The Cambridge Police
Department received only two reports of this crime in 1998, but because they cross
state and sometimes national boundaries, it would be unusual for a municipal police
department to receive many.

In 1998, identity theft became a federal crime, subject to arrest and prosecution by
federal law enforcement agencies. The new law establishes the Federal Trade
Commission as a clearinghouse for information on identity fraud as well as a register
of people victimized by the crime. The FTC estimates that about 40,000 people have
their identities swiped each year.

How does someone steal your identity? Usually, all it takes is your name, date of
birth, and social security number, which an identity thief can glom from multiple
sources: your driver's license; your loan, credit card, or mortgage applications;
information you give over the Internet; even your garbage. Armed with this
information, the thief assumes your identity and applies for credit cards, loans, and
mortgages; orders products you can't pay for; steals from your checking or savings
account; obtains professional licenses, driver's licenses, and birth certificates in your
name; submits fake medical bills to private insurers; and otherwise makes a mess of
your life and finances. If he is an all-around criminal, he may use your identification in
his criminal enterprises. Eventually, a warrant may be issued with your name on it.

The damage can range from minor (you have to cancel some credit cards) to
moderate (your credit report is ruined and you spend months straightening out your
finances) to extremely serious (you get pulled over for speeding and suddenly find
yourself in jail on a warrant for dealing cocaine in Miami).

In any event, the Federal Trade Commission is now authorized to help you out. If you
would like more information, or if you are a victim of identity theft, you can call the
local FTC office at 617-424-5960 or visit their location at 101 Merrimac Street, Suite
810, Boston, MA 02114-4719.
Back to the 1998 Annual Report Index

The Mutual Fund Scam

written by John Chow on October 5, 2006

Many financial planners sing about the virtues of mutual funds. They will tell you mutual funds are great

long-term investments with high returns and very low risk. In reality, the only thing mutual funds are good for

is lining the pockets of people who sell and run them. Before you invest in a mutual fund, consider the

following.

There Are More Mutual Funds Than Stocks

At last count, there were over 17,000 mutual funds in the US. That’s more than all the stocks listed on the

US exchanges. Do you see anything wrong with this picture?

Crazy High Fees

Mutual funds carry very high fees compared to other investments. You have purchase fee, redemption fee,

exchange fee, account fee, management fee, fee for going to restroom, etc. Just buying a mutual fund puts

you in the red from the get-go. The SEC does not limit the size of sales load a fund may charge, but the

NASD does not permit mutual fund sales loads to exceed 8.5%. That is a crazy high commission. It means

your mutual fund needs to increase in value by 8.5% just so you can break even!
Ah, but what about the backend loaded funds? They can be even worst. Sure, all your money goes into the

fund but now you’re locked in for up to 10 years if you wish to avoid paying a load. If you need the cash

before then, you have to pay a commission on not only the amount you invested but also on the gain as

well! What about “no load” funds? There is no such thing. All funds have a load on it. The financial planner

will get his commission for selling you the fund. If you do not pay the commission, then the fund pays it.

Guess where the fund eventually takes the money from?

You Are Last In Line

Even before the fund makes one dollar, money comes off the top to pay the fund management company. It

doesn’t matter if the fund makes or loses money, the fund company gets a percentage of the fund’s net

asset value. Some funds have very high management fees – up to 2% of the fund value. That’s another 2%

you have to make up to get back to square one.

Then we have the fund manager. This hot shot is supposed to turn your life savings into a fortune. For the

work they do, mutual fund managers are among the most overpaid people in the world. Everyone on Wall

Street makes far too much for moving money around, but mutual fund managers are the most reprehensible.

Fund managers earn $500,000 to over $1 million a year including bonuses – but 70% of them can’t beat the

market. In other words, you are paying them for a 70% chance of losing money. Oh, they will spin any profit

as a gain but the question remains, if you cannot even match the market, are you making any real gains?

After the fund company and fund managers get their money, anything left over is yours. However, watch out

for the redemption fee. You pay going in, you keep paying while you are in and you pay coming out.

Someone is getting rich from mutual funds, and it’s not you.

It Is Possible To Make A Loss and Still Pay Capital Gains Tax

During a crash or market correction, the mutual fund value will drop. This drop can panic many investors,

who will then pull their cash out (fees and backend loads be damned). If the fund is fully invested, the fund

manager will have to sell some of the holdings in order to pay off the people redeeming fund units. While a

normal investor would sell their losers and keep the winners in a down market, the reverse happens in a

mutual fund. The fund manger will sell off the winners to pay off the people cashing in their fund so he can

look good at bonus time – fund managers don’t get big bonuses for selling holdings at a loss. While this is
good for the fund manager, it triggers a capital gain to you. So you are paying capital gains tax on a fund

that is declining in value! Talk about getting double screwed!

Still Want To Invest?

If you still want to invest in mutual funds then do yourself a favor and stick to the low cost index funds. Index

funds are like mutual funds except the fund manager doesn’t decide what to invest in, the index the fund

covers does. For example, an S&P 500 index fund would only hold shares in companies that make up the

S&P 500. If S&P drops a company from their index and adds a new one, the index fund must sell the

dropped shares and buy shares of the newly added company. This is one reason why Google had to do a

2nd $4 billion offering. They got included in the S&P 500 and the index funds needed to buy their shares in

order to maintain their proper holdings. The fees and expense ratio on an index fund are lower and their

fund manager isn’t paid as much as a mutual fund manager – any idiot can manage an index fund.

Another alternative is Exchange-Trade Fund (ETF). ETF is a security that tracks an index, a commodity or a

basket of assets like an index fund, but trades like a stock on an exchange, thus experiencing price changes

throughout the day as it is bought and sold. Because it trades like a stock whose price fluctuates daily, an

ETF does not have its net asset value calculated every day like a mutual fund does.

By owning an ETF, you get the diversification of an index fund as well as the ability to sell short, buy on

margin and purchase as little as one share. The expense ratios for most ETFs are lower than those of the

average mutual fund. One of the most widely known ETFs is called the SPDR (Spider), which tracks the

S&P 500 index and trades under the symbol SPY.

Like any investment, the key is research. There are some good funds out there – 30% do manage to beat

the market.

The Mutual Fund Store

 [send
Posted: 2008-11-12 by Ralfy McKeem
email]

Scam artists
Complaint Rating:
Company information:
The Mutual Fund Store
United States
mutualfundstore.com

Here is the scene. There are a group of financial planners sitting around a table and one says, 'I have an idea. Why don't
we stop charging commissions and just charge a small annual management fee.' This way we will make less money and
the client will make more'. The reality is the planner makes more although it sounds like a better deal for the client.

This is the easiest lie to sell in the financial services business. 'We do not charge a commission, we only charge a small
annual fee'. You hear this guy, Adam Bold on the radio every weekend telling you that you should avoid the 'greedy
brokers' that charge a commission. The actual fact is the 'greedy broker' charges a lot less than The Mutual Fund Store.

The Trojan Horse is that the 'greedy broker' charges a one time fee whereas the mutual fund store charges at least 1
1/2% fee every year, even if your account loses money. Let's look at what happens if you invested $100, 000 with the
greedy broker. Your sales charge is a one time fee of $3500. Assuming you are in the investment for ten years with the
mutual fund store your fees total a whopping 15% of your original investment which is $15000.

If your account makes no money nor loses no money for the ten years your balance at the end of ten years would be
less than $85000. If you do the math and assume that your account grows by 10% per year your fees to the mutual fund
store total over $24000.

This is why he hammers other brokers and annuity salesman. He talks about greedy brokers and annuity salesman like
they are lepers. He spends most of his show speaking ill of others in his industry. The fact is, in the recent economic
down turn, his investors have lost a lot of money, while those who invested in annuities have lost no money and paid no
fees and their accounts are actually up in value. Sadly, his investors have lost a lot of money and they will lose some
more when he deducts his fees from their accounts. To his credit, Adam Bold is a great marketer but don't expect him
to tell you the truth.