A few hundred crores frozen and more shell companies discovered; despite an RBI warning, a number of banks opened up only to the I-T authorities on these Speak Asia accounts—and what was the Financial Intelligence Unit doing?
The Income-Tax (I-T) Department has stepped into the investigation into the Singapore-based money circulation scheme called Speak Asia, which has ensnared a massive 19 lakh gullible Indians into paying Rs11,000 each and become "panelists". Moneylife learns that the I-T investigation began in June and it has written to two banks-ICICI Bank and ING Vysya-for more information on the various front entities, registered in India, which helped Speak Asia collect money and remit it overseas.
More shockingly, sources in Delhi tell us that banks may not have been as careless about allowing Speak Asia's shady operations as it has appeared. We learn that some of the banks had filed multiple Suspicious Transaction Reports (STRs) to the Finance Ministry's Financial Intelligence Unit-India (FIU) as required under the Prevention of Money Laundering Act. These reports are supposed to alert the government to money laundering and terrorist funding. There is no indication of the FIU having acted on these reports although over Rs500 crore is understood to have flown out of India to Speak Asia's Singapore entity.
We also learn that the RBI (Reserve Bank of India) had issued a bland circular to all banks on 23 May 2011 about Speak Asia's modus operandi and warning them to be careful while opening account for such schemes since they fell under the purview of the Prize Chits and Money Circulation (Banning) Act of 1978 or face stringent action. Interestingly, while the banks have maintained that they have no accounts of Speak Asia, they have been a lot more forthcoming to the tax authorities and revealed many more names, which opened accounts for Speak Asia related entities.
Another significant discovery is that apart from Tulisyat Tek Pvt Ltd (which, as Moneylife reported earlier, is an account-holder with ICICI Bank), Speak Asia had at least two other core accounts which were used to remit funds abroad. These were Kritanj Management Services and Star Enterprises. These in turn received funds from at least 20 other entities in various banks. Our sources say that the core accounts received large fund transfers from a host of banks including Allahabad Bank, Citibank, Yes Bank, HDFC Bank, State Bank of India, Axis Bank and others. We learn that hundreds of crores of rupees were first pooled into the accounts of Tulisyat Tek and Kritanj Management Services and then transferred to Haren Ventures in Singapore.
On 16th May, Moneylife wrote that although Speak Asia is registered in Singapore (all its senior officials carry visiting cards with Singapore addresses only), it has other fronts in India such as Speak India Network Marketing P Ltd, (registered in Mumbai, with Indian Directors) and Speak India Online. We also wrote that these companies had accounts in ICICI Bank and ING Vysya and money collected in these accounts (from people who paid Rs 11,000 per identity in the hope of earning absurdly high returns and taking the chain forward) was transmitted to another Mumbai-based company called Tulsiatek (the correct name of this company, we now know, is Tulisyat Tek Pvt Ltd). This company in turn transferred the money to a Singapore-based entity called Haren Ventures Pte owned by its shadowy promoter Harender Kaur. The only time Ms Kaur, owner of Haren Ventures, has made a personal appearance in India is at its mega-bash at Goa. Haren Ventures claims it sells an e-magazine on survey at an exorbitant price.
To recap, Speak Asia originally claimed to pay panelists for filling out e-surveys for clients. However, at a press conference in Mumbai, when the company was unable to name its clients (and those it named, like ICICI Bank and Bata denied giving it any business) it suddenly claimed that the Rs11,000 collected from each panelist was subscription for the e-magazine.
As the investigation continues, various authorities are probing the people behind these many accounts. While the Ministry of Corporate Affairs pretended to conduct an investigation and gave it up claiming it did not have powers, the Finance Ministry has also been caught napping if the Financial Intelligence Unit failed to act on suspicious transaction reports sent by banks.
The FIU is a national agency that not only receives and analyses suspicious transactions-it also coordinates and strengthens "efforts of national and international intelligence and enforcement agencies in pursuing the global efforts against money laundering and related crimes".
The irony is that millions of Indians are being looted everyday by money circulation and Ponzi schemes at every strata of society but the government has no interest in strengthening legislation to enforce the ban on their operation as envisaged under the Prize Chits and Money Circulation (Banning) Act.
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There are volumes of information in a public issue prospectus. But retail investors do not have access to one crucial number, that is, expected profits, that determines the most crucial aspect of a public issue—valuation
The Indian public issue market has evolved significantly over the years. Gone are the days when a small fly-by-night operator could easily raise a few crores with the help of a skimpy prospectus, a shady investment banker and some persuasive articles in the media. That was in the '90s. The mis-selling and mis-pricing was so severe (in one week of February 1995, as many as 74 issues, mostly shady companies, opened for subscription), that we suffered a phenomenon of 'vanishing' companies. The new issues market went into a coma for the next 10 years. Things have changed. We now have a market for Initial Public Offerings (IPOs) that is more sophisticated. Smaller companies cannot make an issue easily.
But can a thoughtful retail investor know enough about an IPO? Well, despite the vast improvement in IPO rules and disclosure, retail investors have to decide whether an IPO is good or bad based on two things: the past data and the IPO ratings. Past data is not that relevant—except for very large companies—and IPO grading does not give any indication of the valuation based on future earnings.
To judge an IPO, one has to know about the fundamentals of the business and promoters. This is now available thanks to IPO ratings put out by rating companies. But the single biggest decision about an IPO is the price—and for that, one needs to know the future profits to check whether the IPO is overpriced or not.
What investors need is opinion from multiple sources as to what the company's earnings would be a year forward - which alone influences whether the current valuation is attractive. This valuation becomes the basis for investment for retail investors. The only source of information that is available to the retail investors is the company prospectus. The prospectus will have a long list of the company's past data. The current regulations bar a company from discussing future expected earnings. This rule was made to prevent too rosy a picture being presented as was happening in the '90s. But does it really help the retail investors?
Remember that nothing is really known about a company making an IPO. There is no trading history of the company. No reports, no filings with the exchanges. The financial past, which is available in a thick prospectus full of legalese, may not be very useful. After all, as long as a company is unlisted, the promoters are free to do what they feel is right. The promoters of unlisted companies do not have to disclose anything about operations to the public, nor are they answerable to anyone as long as they are within the law. Indeed, given how easy it is to get around Indian laws, there is a temptation to depress profits by paying low taxes when the firm is unlisted and to boost profits in a year before the IPO to show how well they are doing to the investors. In such a scenario, when a company plans to go for an IPO, the most important factor is the future prospects of the company. The past earnings mentioned in the prospectus have no relevance, as the governance levels before and after the issues would be very different.
All this makes it really difficult for the retail investor to take an investment decision. For institutional investors, it's not that difficult because the lead managers and their analysts are desperate for their subscription. They would bend backwards to supply institutional investors with all the information and research they want about future earnings. Unable to decide what the real valuation of the company is, nobody thinks he is buying a decent bargain when he subscribes to an IPO. He thinks of flipping it to the greater fool on the listing day. In the next part we will look at some examples of how expensively companies have been priced, their earnings and pathetic post-issue price crash—all because so little is available in the public domain about future earnings.
Finance minister Pranab Mukherjee said while inflation has implications with respect to sustaining the growth momentum, the drivers of economic expansion remain intact
New Delhi: Admitting that the Reserve Bank of India's (RBI) anti-inflation monetary measures may impact growth, finance minister Pranab Mukherjee today said the major challenge right now is to contain price rise, reports PTI.
“The monetary policy has been gradually tightened...
Monetary measures may end up moderating the growth if they have to be persisted for an extended period of time,” Mr Mukherjee said at an Assocham meet here.
However, he said in the short-term, moderating aggregate demand is critical to check inflation, which is ‘our major challenge’.
The RBI yesterday hiked key policy rates for the tenth time since March 2010, in a bid to tame inflation, which crossed the 9% mark in May.
Inflationary pressures persist both from higher global commodity prices and domestic structural demand-supply imbalances in several commodities.
Mr Mukherjee said while inflation has implications with respect to sustaining the growth momentum, the drivers of economic expansion remain intact.
“... The growth drivers of the economy remain broadly intact,” he said, adding, “I am so far hopeful that we should be able to repeat the growth performance of 2010-11 in 2011-12 as well,” he said.
In 2010-11, the country’s GDP is estimated to have grown at the rate of 8.5%.
Mr Mukherjee said as the government gears itself up for the task of preparing the 12th Five-Year Plan (2012-17), “We need to aim at a GDP growth of 9% to 9.5% for the Plan period.”
For this much expansion in GDP, the country's economy must grow at an average rate at least one percentage point higher than the 8.2% rate likely to be realised in the XII Plan.
On the financial inclusion required to promote the agenda of inclusive growth, Mr Mukherjee said it is a major challenge before the banking sector and financial system at large.
“Newer perspective and strategies toward financial inclusion are needed to reach the un-banked and the under-banked sections of our country,” he said.
While applauding the banking sector on its performance with respect to growth in deposits and net profits, Mr Mukherjee expressed concerns on its ‘asset quality’.
During 2010-11, non-performing assets (both gross and net) increased from the levels witnessed in the previous year.
“It is important for banks to constantly monitor and bring down non-performing assets (NPAs) to the previous level,” he said.
He also asked the banks to go for more innovation and come up with value-added offerings to meet the growing needs of customers.
He further said the government was in the process of deepening policy reforms in the financial sector and addressing gaps in overall economic regulatory architecture.
A Financial Sector Legislative Reforms Commission has been set up to re-write financial sector laws.
He also sought the support of all political parties for passage of the Direct Taxes Code (DTC) and Goods and Services Tax (GST) Act, considered to be the most important tax reforms in the country, in Parliament.