financial scams
TRANSCRIPT
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TELGI SC MTHE STAMP PAPER SCAM
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THE SC M Abdul karim telgi was the mastermind behind the multi-million stamp
paper scam in india.
The journey from an ordinary room-boy of a guest house, to one of themulti-millionaires of the country, influencing over 9 states, Telgi's successbears a testimony to a typical rags-to-riches story, barring the unfairmeans used.
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Born in 1961, he learned to grow up on his own at a very early age after hisfather's death. He used to study and work to pay his school fees by selling
fruits and vegetables on trains.
He is a bachelor of commerce from belgaum college and went saudi arabia
for work and after seven years came back to india to work as a travel agent. From a room boy of a guest house, he set up a stamp peddling shop on the
footpath, fulfilling the shortage and demand for stamp papers and cashing
in good money. This clicked the idea to fake the stamps and make huge
profits from them. This is when the roots of biggest scam of india were
seeded at this stage.
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The way he gave wings to his criminal acts is definitely the work of a perfectionist.
Telgi's fake stamp scam is the biggest ever in the country, and it was possible
because of this simple, yet unshakeable Indian truth: everyone, or at least almost
everyone is corruptible. From the constable to the cabinet minister, everyone, or at
least almost everyone is on the take. Telgi's corruption network must be far, far
larger than what it appeared to be.
By the time Telgi came to need to grow his network, he had already learnt that the
right sum of money into the right pocket at the right time, ensures that an official
head will look the wrong way when wanted. That, in fact, was how his stamp paper
career started.
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As stamp and stamp papers are allowed to be purchased only from registered peddlers,
Telgi acquired a stamp vending licence in 1994.
Then, with his good contacts, he also acquired a printing press at the india security
press and started his scam on a larger scale from there.
He was able to bribe insiders to give him the production programmes of the heavily
guarded government security press in Nashik, so that he knew what denomination and
category of papers were being printed at any given time, so his own press could do the
same.
Telgi was able to buy special printing machines from the Nashik press which had
supposedly gone beyond their shelf life, and were meant to be destroyed and sold as
scrap.
Telgi did buy them as scrap (at an auction which was fixed in his favour), but he was able
to ensure that the presses were not destroyed as they were meant to be .
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After some time, he became so influential that he was the one who decided who will
get promotions in the security press.
He ran over 72 stamp peddling centres across 9 states. With the strength of 300
agents who dealt in selling the fake stamps to bulk purchasers like banks,
insurance companies, share-broking firms, his monthly profits were summing up
around ground shaking rs.202 crore.
Apart from developing his scam empire, he also developed contacts with the
politicians of all hues and used a safe method to hide his criminal acts. Telgi knew
exactly how to utilize the weakness of the corrupt system and susceptibility of the
people in power. He donated unstintingly for temples, churches, mosques and was
very bounteous in giving charity.
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AFTER EFFECTS
Telgi got arrested in 2002 for the biggest scam ever committed in Indian history.
Rs.23,000 crore was the estimated value of business transacted by Telgi and his
associates, and around 60 people were arrested from over nine states. 9 police
officers were arrested in Maharashtra around 32 cases were recorded against Telgi
and his associates in India, including murder and passport fraud
He, along with his crime associates, was sentenced to 10 years rigorous
imprisonment.
The Telgi case highlighted some dark faces behind police uniforms in Karnataka
and several other states, which made it a national issue.
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In a video tape released in September 2006 of Telgi, taking a narco-test,
revealed the names of some high rated politicians like Sharad Pawar and
Chaggan Bhujbal to share the crime. At that moment, his network was
disclosed, that reached to the very roots of the Indian political system.
On June 28, 2007, Telgi's imprisonment was revised and further extended to 13
years of rigorous imprisonment with a fine of sum of Rs. 202 crore. After some
time , he confessed all his crimes.
Judge Chitra Bhedi of a special court, condemned a quantum of punishments
under several sections of Indian penal code (IPC) and the Maharashtra control
of organized crimes act. However, he was quiet lenient eventually regarding
Telgi after he confessed for the scams and because of his health as Telgi is HIV
positive.
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BARINGS BANK SCAMTHE SECURITIES SCAM
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BARINGS BANK Barings bank was founded in London in 1763 which eventually become Britains
oldest merchant bank by late 20thcentury.
It provided traditional banking services to the public while performing investmentactivities in stocks, bonds, commodities and real estate.
Barings had established trading operations at most of the worlds exchanges.
Baring grew up steadily and over a period of time became the leading merchantbank in the world.
In February 1995, the bank collapsed because of a scheme, perpetrated by one of itstraders in Singapore-Nick Leeson.
He had wiped out the banks capital and destroyed the 220 year old institution.
Barings bank has shut operations and got liquidated by 2007.
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NICK LEESON
Nicholas Nick" William Leeson got his first job in 1985 with a private
bank, Coutts. He then moved to Morgan Stanley in 1987 for two years, and
then to Barings in 1989.
In 1992, he was appointed general manager of a new operation in futures
markets on the Singapore international monetary exchange (SIMEX).
Barings had held a seat on SIMEX for some time, but did not activate it until
Leeson was sent over.
Leeson was selected to open, run and manage all aspects of trading on
SIMEX.
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NICK LEESON
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Nick Leeson still trades in stocks and futures but strictly with his own
money.
While he was in prison, in 1996, Leeson published an autobiography, rogue
trader, detailing his acts.
In June 2005, Leeson released a new book, back from the brink: coping with
stress. It picks up his story where rogue trader left off.
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WHAT WAS THE STRATEGY BEING IMPLEMENTED BY NICK LEESON
WHICH CAUSED BARINGS BANK TO FACE HUGE LOSSES?
Nick Leeson was given a lot of freedom by Barings bank in the derivative trading.
In the early state, Barings banks management had planned to operate on inter-
exchange arbitrate strategy. This strategy required Nick Leeson to buy and sell
Nikkei 225 futures contracts simultaneously on both SIMEX and OSE market in order
to gain the arbitrate profit from the different in price of the Nikkei 225 futures
contracts.
This strategy was considered as a risk-free investment and provided goodopportunity for profit in the high volatile market. However, due to the contracts
price were only slightly different, the profits earned were small. Because of this,
Nick Leeson decided to change the strategy.
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The strategy implemented by Nick Leesonwas named as straddle with the
objective of making a profit by short put and call options on the sameunderlying assetsNikkei 225 index.
Short straddle is when the investor holds a short position in both a call and
put with the same strike price and the same expiry date.
This strategy is useful when the underlying asset is not very volatile, butover here Nikkei 225 index had been a very fluctuating index since 1970s.
This was a wrong decision made by Nick Leeson.
Because of this the loss suffered by Nick Leeson kept on increasing. The
situation went worse when the Kobe earthquake happened in japan during
year 1995. The Nikkei 225 index dropped 1000 points approximately which
deteriorate the Barings banks loss.
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HOW WERE THE LOSSES COVERED UP? Leeson had opened an errors account in order to hide an error made by one of
his colleagues.
The account was numbered 888888 being a number considered to be very
lucky in Chinese numerology.
However, Leeson used this account to cover further bad trades. He insists that
he never used the account for his own gain, but in 1996 the New York
times quoted British press reports" as claiming that investigators had located
approximately $35 million in various bank accounts tied to him.
Management at Barings bank also allowed Leeson to remain chief trader while
also being responsible for settling his trades, jobs usually done by twodifferent people. This made it much simpler for him to hide his losses from his
superiors.
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IMPACTS
By the end of 1992, the account's losses exceeded 2 million, which ballooned
to 208 million by the end of 1994.
Leeson on 16 January 1995, placed a short straddle in Singapore and
Tokyo stock exchanges, essentially betting that the Japanese stock market
would not move significantly overnight. However, the Kobe earthquake hit earlyin the morning on 17 January, sending Asian markets, and Leeson's trading
positions, into a tailspin.
Leeson attempted to recoup his losses by making a series of increasingly risky
new trades (using a long-long future arbitrage), this time betting that the Nikkeistock average would make a rapid recovery. However, the recovery failed to
materialize.
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Leeson left a note reading "I'm sorry" and fled Singapore on 23 February.
Losses eventually reached 827 million (us$1.4 billion), twice the bank'savailable trading capital.
After a failed bailout attempt, Barings was declared insolvent on 26
February.
After fleeing to Malaysia, Thailand, and finally Germany, Leeson wasarrested in Frankfurt and extradited back to Singapore on 20 November
1995.
He was charged with fraud for deceiving his superiors about the riskiness
of his activities and the scale of his losses. Several observers have placedmuch of the blame on the bank's own deficient internal auditing and risk
management practices.
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The Singapore authorities' report on the collapse was scathingly critical of
Barings management, claiming that senior officials knew or should have
known about the "five eights" account.
Leeson pleaded guilty to two counts of "deceiving the bank's auditors and
of cheating the Singapore exchange", including forging documents.
He was sentenced for six and a half years in Shanghai prison in Singapore,
he was released from prison in 1999.
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EFFECTS ON BANKING INDUSTRY
The collapse of Barings bank may have not greatly impacted the regulators
and the banks to form a new regulation but it would be a great lesson for
the companies and banks all over the world to understand the importance
of proper supervision and control systems and pay more attention on the
issues of corporate governance and risk management.
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THANK YOU !!
ESHAN MUNDRA B014HARSHA TOLANI B015
MISHIKA SAWHNEY B026VAIBHAV GOEL B051VATSHAL JHAVERI B053