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2g SCAM WHAT S IT ALL ABOUT

The 2G scandal has become one of the largest financialcorruption cases in history of India. Telecommunications and ITMinistry A.Raja is considered to be responsible for the entirescam. According to the investigation performed by the CBI thescam worth 200,000,000,000.

In this scam, the telecom bandwidth tender was undervalued and

offered to a preferred few on a dubious 'First-Come-First-Served' basis instead of a transparent auction system, advised byhigher offices (PMO). A.Raja was forced to resign on14th ofNovember. Currently, A.Raja has been arrested and underscrutiny of the Comptroller and Auditor General (CAG) and theCentral Bureau of Investigation (CBI).

Apart from A.Raja , several bureaucrats are found to

involved at the time of the 2G allocation including SiddharthaBehura (former telecom secretary), P. J. Thomas (Secretary ofthe Department of Telecommunications ), Pradip Baijal (abureaucrat ) , and R K Chandolia (private secretary of Raja ).Inthis scam , several well-known media persons liaised ascorporate lobbyist including Nira Radia (a former airlineentrepreneur turned corporate lobbyist accused in Nira Radiatapes controversy), Barkha Dutt (an NDTV journalist ) , and VirSanghvi ( a Hindustan Times editor ).

The telecommunication companies involved in the 2G spectrumlicensing scam are Reliance Communications, Uninor( UnitechGroup) , Loop Mobile , Videocon Telecommunications Limited


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, S Tel , Sistema Shyam Mobile (MTS) , Vodafone Essar ,Dishnet Wireless and Allianz Infra. The 2 G scam has highlyimpacted the stock prices of the companies accused. Anil

Ambani's Reliance ADAG stocks have fallen by 20%.Several activist lawyers, journalists, ex-vigilance commissionersand politicians have taken initiative in writing letters to thePrime Minister and bringing the issue into the public limelight.Subramaniam Swamy, Paranjoy Guha Thakurta, PrashantBhushan and Anil Kumar write on the irregularities in theawarding of 2G spectrum allocation by the Telecom Ministry

and petitioned in the suits filed by civil society groups.

2G scam: ED to file charges against A Raja, Kanimozhi

TheEnforcement Directorateis set to tighten its noose in the 2G

spectrum allocations case as the agency will soon file its charge

sheet against two of the main accused - former Telecom

MinisterA RajaandDMK leaderKanimozhi.

Both Raja and Kanimozhihave been questioned by the ED quite

a number of times and the agency is probing allegedmoney

launderingand forexviolations on the part of individuals, in the

government and private, in the second generation spectrum

awards case.

The agency is probing Kanimozhi and others on the basis of FIR

filed by the CBI in connection with the alleged channelling of

Rs 200 crore to DMK family-run Kalaignar TV through a

circuitous route.
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The ED had summoned her and others for questioning about the

alleged transfer of Rs 200 crore to the TV channel, in which she

and Kalaignar TV MD Sharad Kumarhold 20 per cent stakeeach.

Some other transactions are also under ED's scanner in the2G

scam.

The ED, according to the sources, had earlier scrutiniseddocuments related to the DMK MP's income, properties and

personalinvestmentsand plans to take the probe forward, they

said.

The ED had earlier initiated attachment proceedings under the

Prevention of Money Laundering Act (PMLA) against other

individuals and certain telecom firms involved in the case.

Besides the cases of Raja and Kanimozhi, similar probe is

underway under the provisions of the anti-money laundering Act

againstSwan Telecompromoter Shahid Usman Balwa's

cousin Asif Balwa, Director of Kusegaon Fruits and Vegetables

Pvt LtdRajeev Agarwaland Karim Muraniof CineyugFilms(Pvt) Ltd.

What is the Indian 2G spectrum scam?
http://economictimes.indiatimes.com/topic/2G-scamhttp://economictimes.indiatimes.com/topic/2G-scamhttp://economictimes.indiatimes.com/topic/2G-scamhttp://economictimes.indiatimes.com/topic/2G-scamhttp://economictimes.indiatimes.com/topic/investmentshttp://economictimes.indiatimes.com/topic/investmentshttp://economictimes.indiatimes.com/topic/investmentshttp://economictimes.indiatimes.com/topic/Swan-Telecomhttp://economictimes.indiatimes.com/topic/Swan-Telecomhttp://economictimes.indiatimes.com/topic/Swan-Telecomhttp://economictimes.indiatimes.com/topic/Rajeev-Agarwalhttp://economictimes.indiatimes.com/topic/Rajeev-Agarwalhttp://economictimes.indiatimes.com/topic/Rajeev-Agarwalhttp://economictimes.indiatimes.com/topic/Rajeev-Agarwalhttp://economictimes.indiatimes.com/topic/Swan-Telecomhttp://economictimes.indiatimes.com/topic/investmentshttp://economictimes.indiatimes.com/topic/2G-scamhttp://economictimes.indiatimes.com/topic/2G-scam


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. The scam involved officials in the government

ofIndiaillegally underchargingmobiletelephony companies for

frequency allocation licenses, which they would use to create 2G

subscriptions for cell phones. The shortfall between the money

collected and the money which the law mandated to be collected

is estimated to be Rs.1,76,645 crore (US$39 billion) as valued

by the Comptroller and Auditor General (CAG) of India based

on 3G and BWA spectrum auction prices which held in 2010.

The issuing of licenses occurred in 2008, but the scam came to

public notice when the Indian Income Tax Department wasinvestigating political lobbyist Nira Radia.

charges on former telecom minister A. Raja?

The licenses were auctioned at cheap telecom prices. The

licenses auctioned in 2008 were based on the statistics of 2001.

The mobile subscriber base had shot up to 350 million in 2008

from 4 million in 2001. Hence, the loss is estimated in such

figures of crores which could have been compensated with

current prices. No proper procedures were followed and the

licenses were issued on first-come-first-served basis. No proper

bids were invited and the auctioning process was not based on

Market Price. Moreover, the recommendations of TelecomRegulatory Authority of India (TRAI) were ignored.

. Is it solely a single persons mistake or fraud?
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. No, this is not only a single headed show. The governmental

influence with many departments handling telecom ministry and

the interwoven relationships with Department of Telecom

(DoT), TRAI, law ministry, finance ministry and other

departments make the process complex. The then Finance

Minister P. Chidambaram was involved in the scam as well due

to sheer negligence in the case. However, the Supreme Court

gave him green flag in the case as the involvement of a

ministerial post cannot be justified with the corruption under his

staff.

What are the other charges in the scam?

There was an extreme example of favoritism shown in the

auctioning process. Unitech, Swan Telecom got licenses without

prior experience in the industry. Swan Telecom didnt even meeteligibility criteria, and as soon as they won the stake, they sold

the 45% of the stake to Etisalat at a huge profit of Rs.2,700 crore

on this. On the other hand, Unitech Wireless sold their 60%

stake at a profit of Rs.4,600 crore approximately. The nine

companies involved paid DoT a sum of Rs.10,772 crore which

was much less than the actual market price.

Kanimozhis role in the scam?


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A Swan Telecom sent A. Raja a sum of Rs.214 crore via

kickback (i.e., a chain of companies selling stakes in such a way,

that the source-sink company rests in the hand of the auctioneer,

and he is the one who gains). The source was from Kalaignar

TV channel in Chennai, whose stake of 80% rests with

Kanimozhi itself. Hence, the conspiracy maze rests within the

ministry itself.

CURRENT STATUS OF THE SCAM?

A. The case is still in hearing process at the Supreme Court. The

court cancelled 122 licenses sold during Rajas ministerial

period. The companies will have to pay a fine with certain

values of monetary to compensate the market value loss for

spectrums. Subramaniam Swamys plea about the same is still in

the process and the court will give the verdict based on CAGs

report of the 2G spectrum scam.

Harshad Mehta & Ketan Parekh Scam

Harshad Mehta: the high-profile stockbrokerHarshad Shantilal Mehta (1954-2002) was an Indian stockbrokerwho grabbed headlines for the notorious BSE security scam of1992. Born in a lower middle-class Gujarati Jain family, Mehtaspent his early childhood in Mumbai where his father was asmall-time businessman. The family relocated to Raipur inChhattisgarh after doctors advised Mehtas father to shift to a

drier place on account of his health.


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Transition from an ordinary broker to Big BullMehta studied in Holy Cross Higher Secondary School, Byron

Bazar, Raipur. He quit his job at The New India AssuranceCompany in 1980 and sought a new one with BSE-affiliatedstockbroker P. Ambalal before going on to become a jobber onthe BSE for stockbroker P.D. Shukla. In 1981, Mehta became asub-broker for stockbrokers J.L. Shah and Nandalal Sheth.Having gained considerable experience as a sub-broker, heteamed up with his brother Sudhir to float a new venture calledGrow More Research and Asset Management Company

Limited. When the BSE auctioned a brokers card, the Mehtaduos company bid for it with the financial support of J.L. Shah

and Nandalal Sheth. Another name that is rumored to have acrucial hand in the scam was Nimesh Shah. However, Shahcould keep a safe distance from the accusations and is currentlyknown to be a heavy player in the Indian stock market.By year 1990, Mehta became a prominent name in the Indian

stock market. He started buying shares heavily. The shares ofIndia's foremost cement manufacturer Associated CementCompany (ACC) attracted him the most and the scamster isknown to have taken the price of the cement company from 200to 9000 (approx.) in the stock marketimplying a 4400% rise inits price. It is believed that It was later revealed that Mehta usedthe replacement cost theory to explain the reason for the high-level bidding. The replacement cost theory basically states thatolder companies should be valued on the basis of the amount ofmoney that would be needed to create another similar company.By the latter half of 1991, Mehta had come to be called the Big

Bull as people credited him with having initiated the Bull Run.

The making of the 1992 security scam


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Mehta, along with his associates, was accused of manipulatingthe rise in the Bombay Stock Exchange (BSE) in 1992. Theytook advantage of the many loopholes in the banking system and

drained off funds from inter-bank transactions. Subsequently,they bought huge amounts of shares at a premium across manyindustry verticals causing the Sensex to rise dramatically.However, this was not to continue. The exposure of Mehta'smodus operandi led banks to start demanding their money back,causing the Sensex to plunge almost dramatically as it had risen.Mehta was later charged with 72 criminal offences while over600 civil action suits were filed against him. Significantly, the

Harshad Mehta security scandal also became the flavor ofBollywood with Sameer Hanchate's film Gafla.

The 1992 security scam and its exposureMehta's illicit methods of manipulating the stock market wereexposed on April 23, 1992, when veteran columnist SuchetaDalal wrote an article in India's national daily The Times ofIndia. Dalals column read: The crucial mechanism through

which the scam was effected was the ready forward (RF) deal.The RF is in essence a secured short-term (typically 15-day)loan from one bank to another. Crudely put, the bank lendsagainst government securities just as a pawnbroker lends againstjewelers. The borrowing bank actually sells the securities to thelending bank and buys them back at the end of the period of theloan, typically at a slightly higher price. In a ready-forwarddeal, a broker usually brings together two banks for which he ispaid a commission. Although the broker does not handle thecash or the securities, this was not the case in the prelude to theMehta scam. Mehta and his associates used this RF deal withgreat success to channel money through banks.


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The securities and payments were delivered through the brokerin the settlement process. The broker functioned as anintermediary who received the securities from the seller and

handed them over to the buyer; and he received the check fromthe buyer and subsequently made the payment to the seller. Sucha settlement process meant that both the buyer and the sellermay not even know the identity of the other as only the brokerknew both of them. The brokers could manage this methodexpertly as they had already become market makers by then andhad started trading on their account. They pretended to beundertaking the transactions on behalf of a bank to maintain a

faade of legality.Mehta and his associates used another instrument called thebank receipt (BR). Securities were not traded in reality in aready forward deal but the seller gave the buyer a BR which is aconfirmation of the sale of securities. A BR is a receipt for themoney received by the selling bank and pledges to deliver thesecurities to the buyer. In the meantime, the securities are held

in the sellers trust by the buyer.Complicit lendersArmed with these schemes, all Mehta needed now were bankswhich would readily issue fake BRs, or ones without theguarantee of any government securities. His search ended whenhe found that the Bank of Karad (BOK), Mumbai and theMetropolitan Co-operative Bank (MCB) two small and littleknown lenders, were willing to comply. The two banks agreed toissue BRs as and when required. Once they issued the fake BRs,Mehta passed them on to other banks who in turn lent himmoney, under the false assumption that they were lendingagainst government securities. Mehta used the money thussecured to enhance share prices in the stock market. The shares


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were then sold for significant profits and the BR retired when itwas time to return the money to the bank.

Outcome

Mehta continued with his manipulative tactics, triggering amassive rise in the prices of stock and thereby creating a feel-good market trajectory. However, upon the exposure of thescam, several banks found they were holding BRs of no value atall. Mehta had by then swindled the banks of a staggering Rs4,000 crore. The scam came under scathing criticism in theIndian Parliament, leading to Mehta's eventual imprisonment.The scams exposure led to the death of theChairman of the

Vijaya Bank who reportedly committed suicide over theexposure. He was guilty of having issued checks to Mehta andknew the backlash of accusations he would have to face fromthe public.A few years later, Mehta made a brief comeback as a stockmarket expert and started providing investment tips on hiswebsite and in a weekly newspaper column. He worked with the

owners of a few companies and recommended the shares ofthose companies only. When he died in 2002, Mehta had beenconvicted in only one of the 27 cases filed against him. Whatattracted the taxmans attention was Mehta's advance tax

payment of Rs 28-crore for the financial year 1991-92. Anothereye-catcher was his extravagant lifestyle.

I-T, PSBs recover dues nine years after Mehta's deathNine years after Harsad Mehta died, the I-T department andpublic sector banks (PSBs) have successfully recovered asignificant portion of their claims emerging out of the securitiesscam from his liquidated assets. The Supreme Court directed theCustodian of the attached properties and assets of the HarshadMehta Group (HMG) in March 2011 to make payments of


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Rs1,995.66-crore to the I-T department and Rs 199.25-crore tothe State Bank of India (SBI), making the two institutions two ofthe earliest claimants to recover their dues.

While the SBIs total principal amount claim of Rs 1,000-crorehave been largely settled, financial institutions have alsoreceived some money. However, Standard Chartered Bank,which had claimed Rs 500-crore, has yet to recover its dues itwas one of the late claimants. Although the total claim over theHMG is of more than Rs 20,000-crore, the apex court has saidthat for the present, it would only consider claims towards theprincipal amount.

Who is Ketan ParekhKetan Parekh is a former stockbroker based in Mumbai who wasconvicted in 2008 for being involved in engineering thetechnology stocks scam in Indias stock market in 1999-2001. Achartered accountant by training, Parekh comes from a family ofbrokers and is currently serving a period of disqualification fromtrading in the Indian bourses till 2017.

Ketan Parekh has been accorded with sobriquets such as thePentafour Bull and the One Man Army by the countrys national

business newspapers, while the market simply refers to him asKP or associates him with his firm NH Securities. Parekh is

known to have no reluctance in meeting the press. He is alsoknown to have razor-sharp forecasts on market developments.

What distinguishes Ketan Parekh from the 'Big Bull' late

Harshad MehtaThe two have been compared by people to have operated theirscams using similar means and that their backgrounds weresimilar as well. But the differences are very conspicuous.At the outset, Mehta came from a lower middle-class andmodest background, while KPs family has been engaged as


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stockbrokers for a significant time. He is also related to manyprominent brokers. Secondly, when Mehta was operating, themarket was still a closed one and was just beginning to

liberalize. It was revealed later that Mehta operated using themoney of other people as his last recourse. Further, Mehta isknown to have resorted to aggressive publicity campaignswhereas KP operates almost clandestinely. The latter has alsobeen successful at creating stories and selling them aggressivelyto institutional investors.

The Midas touchParekh attracted the attention of market players and they kept

track of every move of Parekh as everything he was laying hishands on was virtually turning into gold. But the Pentafour Bullstill kept a low profile, except when he hosted a millenniumparty that was attended by politicians, business magnates andfilm stars. And by 1999-2000, as the technology industry beganembracing the entire world, Indias stock markets started

showing signs of hyper-activity as well and this was when KP

struck.Almost everyone, from investment firms which were mostlycontrolled by promoters of listed companies to foreign corporatebodies and cooperative banks were eager to entrust their moneywith Parekh, which, he in turn used to inflate stock prices bymaking his interest obvious. Almost immediately, stocks offirms such as Visual soft witnessed meteoric rises, from Rs 625to Rs 8,448 per unit, while those of Sonata Software were upfrom Rs 90 to Rs 2,150. However, this fraudulent scheme didnot end with price rigging. The rigged-up stocks neededdumping onto someone in the end and KP used financialinstitutions such as the UTI for this.


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When companies seek to raise money from the stock market,they take the help of brokers to back them in raising shareprices. KP formed a network of brokers from smaller bourses

such as the Allahabad Stock Exchange and the Calcutta StockExchange. He also used BENAMI or share purchase in thenames of poor people living in Mumbais shanties. KP also had

large borrowings from Global Trust Bank and he rigged up itsshares in order to profit significantly at the time of its mergerwith UTI Bank. While the actual amount that came into Parekh'skitty as loan from Global Trust Bank was reportedly Rs 250crore, its chairman Ramesh Gelli is known to have repeatedly

asserted that Parekh had received less than Rs 100 crore inkeeping with RBI norms.Parekh and his associates also secured Rs 1,000-crore as loanfrom the Madhavpura Mercantile Co-operative Bank despiteRBI regulations that the maximum amount a broker could get asa loan was Rs15-crore. Hence, it was clear that KPs mode ofoperation was to inflate shares of select companies in collusion

with their promoters.Lady luck disfavours Parekh!Notably, a day after the presentation of the Union Budget inFebruary 2001, Parekh appeared to have run out of luck. A teamof traders, Shankar Sharma, Anand Rathi and Nirmal Bang,known as the bear cartel, placed sell orders on KPs favorite

stocks, the so called K-10 stocks, and crushed their inflatedprices. Even the borrowings of KP put together could not rescuehis scrips. The Global Trust Bank and the MadhavpuraCooperative were driven to bankruptcy as the money they hadlent Parekh went into an abyss with his reportedly favourite K-10 stocks.

The exposure of the dupe


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As with the Harshad Mehta scam, Ketan Parekh's fraudulentpractices were first exposed by veteran columnist Sucheta Dalal.Sucheta's column read, It was yet another black Friday for the

capital market. The BSE sensitive index crashed another 147points and the Central Bureau of Investigation (CBI) finallyended Ketan Parekhs two-year dominance of the market byarresting him in connection with the Bank of India (BoI)complaint. Many people in the market are not surprised withParekhs downfall because his speculative operations were toolarge, he was keeping dubious company, and he was dealing intoo many shady scrips.

When the prices of select shares started constantly rising,innocent investors who had bought such shares believing thatthe market was genuine were about to stare at huge losses. Soonafter the scam was exposed, the prices of these stocks camedown to the fraction of the values at which they had beenbought. When the scam did actually burst, the rigged shares losttheir values so heavily that quite a few people lost their savings.

Some banks including Bank of India also lost significantamounts of money.Dalal goes on to state that Parekh's scheme was not visible to alayman given the positive deflection that media had made him ahero while some of the biggest national dailies had even quotedhim profusely on that years Union Budget. Dalal added that

KPs arrest and the uncanny similarity of his operations to the

Harshad Mehta securities scam of 1992 vindicated the miserableinadequacy of the countrys regulatory system. The Securities

Exchange Board of India (SEBI) and the Reserve Bank of India(RBI) had remained complacent when the stock bubble wascreated during the latter half of 1999 and through 2000 while it


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had not bothered to take any action through 2001 when it wasready to burst.

SEBIs damage control measures

SEBI investigations into Parekh's money laundering affairsrevealed that KP had used bank and promoter funds tomanipulate the markets. It then proceeded with plugging themany loopholes in the market. The trading cycle was cut shortfrom a week to a day. The carry-forward system in stock tradingcalled BADLA was banned and operators could trade using

this method. SEBI formally introduced forward trading in theform of exchange-traded derivatives to ensure a well-regulated

futures market. It also did away with broker control over stockexchanges. In KPs case, the SEBI found prima facie evidence

that he had rigged prices in the scrips of Global Trust Bank, ZeeTelefilms, HFCL, Lupin Laboratories, Aftek Infosys andPadmini Polymer.Furthermore, the information provided by the RBI to the JointParliamentary Committee (JPC) during the investigation

revealed that financial institutions such as IndustrialDevelopment Bank of India (IDBI Bank) and Industrial FinanceCorporation of India (IFCI) had given loans of Rs 1,400 crore tocompanies known to be close to Parekh.

Criticism of SEBISome of the regulatory actions SEBI undertook came underscathing criticism from some quarters who accused it of stillbeing clueless about its supervisory duties. Observers said theregulator still continued believing that its only priority was toprevent a fall in stock prices.It was rumored that SEBI banned short sales and increasedmargins creating a virtual cash market in the process andsqueezed turnover to a sixth of the normal level. It also fired all


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broker directors from the Bombay Stock Exchange and CalcuttaStock Exchange and declared the completion of threecontroversial settlements of the Kolkata bourse by retaining a

sizeable proportion of the payout of operators who had allegedlytied-up for collusive deals. Furthermore, SEBI rounded up thebear operators and launched an inquiry into their alleged shortsales.

Stringent regulatory measures follow Parekh episodeParekh's fraudulent operations motivated the authorities to takenecessary steps that have made made India's stock marketsrelatively safer in present times. He can also be credited for

having forced indolent policy-makers to bring about reforms inthe financial system.

An active traderAccording to an Intelligence Bureau report, though disbarredfrom trading in the countrys bourses until 2017, is still

operating in the markets through conduits, vindicating DalalStreets belief that he has never left the market. The report says

that as recently as December 2010, KP has been rallying behinddifferent stocks and placing some of them at rigged up prices tolarge institutions such as the LIC. He is operating through little-known investment firms, market operators and a following ofloyal brokers. KP, who was at the forefront during thetechnology shares-led bull run in 1999-2000, is apparently usingfront entities such as Orchid Chemicals , GMR Infrastructure,Cairn India, Deccan Chronicles Holdings, Reliance Industries,Punj Lloyd, Indiabulls Real Estate, Pipavav Shipyard, AmtekAuto, Hindustan Oil Exploration, UCO Bank, State Bank ofIndia, EIH and JSW Steel, among others, to trade in shares.The report further states that KP has been instrumental ininflating the share price of SKS Microfinance from Rs850 to


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Rs1,100 following its listing in August 2010. He has also riggedIPOs of little known companies by buying out 50% of the issuein collusion with his Kolkata-based associates. KP and his

associates have also acquired very large positions in petroleumcompanies such as ONGC and HPCL, according to the report.An IB official has further said that KP and his team haverevealed to their close associates that they have insiderinformation on the government's proposal to decontrol the saleof gas which is expected to raise profit margins of thesecompanies by about 20%.

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