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No beating about the bush.
Instead of going into the complaint of Wing Commander (retd) CR Mohan Raj, about a forged power of attorney, the finance ministry just forwarded a mindless reply it received from SEBI to Rajya Sabha MP Rajeev Chandrasekhar
About nine months back Moneylife wrote an article about the harrowing tale of a 78-year old veteran from the Air Force, whose life savings was wiped out at Motilal Oswal Securities by using a forged power of attorney (PoA).
Motilal Oswal, which preaches “highest ethical practices”, stuck to its stand of blaming its customer and keeping completely mum on the allegation that it had forged the PoA.
Rajeev Chandrasekhar, a member of Rajya Sabha, who is also a member of the Standing Committee on Finance, took up retired Wing Commander (Wg Cdr) Raj's complaint with the ministry of finance (MoF). The reaction from the government is a shocker. Mr Chandrashekar has received a letter from Namo Narain Meena, minister of state, MOF, asking Mr Raj “to follow the procedure laid down by SEBI for redressal of his grievances”!
In effect, both the regulator and the MoF are happy to wash their hands off this investor’s grievance and to push them into tedious and unfair arbitration (especially for an ill, senior citizen) without exceptions or application of mind. Is it any wonder that millions of investors have exited the capital market and prefer to invest in gold? But let’s return to this war that Wg Cdr Raj is fighting at the fag end of his life.
The Securities and Exchange Board of India (SEBI), to whom Wg Cdr Raj has sent innumerable letters and reminders, knows for a fact that he has a ruling from a District Consumer Redressal Forum against MOSL regarding the forged Power of Attorney (PoA). The Forum asked him to take up the issue of getting his money back at the appropriate capital market platform. It is this that Motilal Oswal Securities is holding on to, knowing fully well that the 78-year old man will find it difficult to go through another battle. Shockingly, the MoF has chosen to behave like a post office, even when an MP and standing committee member has raised this sordid issue. This disregard for elected representatives, especially those who are not a part of the ruling government, is a hallmark of the past nine years under the United Progressive Alliance (UPA) government. Moneylife has written in the past about how letters from retired Union Secretaries like EAS Sarma, specifically addressed to SEBI chairman UK Sinha, were dumped into the automated redressal system called SCORES leading to a similarly mindless response to him.
In this case too, SEBI, which is mandated by law to protect investors, made no attempt to contact Wg Cdr Raj again, but simply accepted the submissions made by Central Depository Services (CDSL) and Motilal Oswal Securities, without even looking at the correspondence exchanged between the 78-year old and the market regulator. The Air Force veteran had been sending numbered reminders to SEBI, such as “POA forged or not- matter pending with SEBI since 7th July 11-Reminder 18”.
The minister’s letter claims that Sushmita Sethi, assistant manager at the market intermediaries regulation and supervision department -IV at SEBI had responded to Wg Cdr Raj asking him to follow the procedure prescribed for redressal of grievances.
Wg Cdr Raj, who can barely speak because his larynx had to be removed due to cancer, terms this reply from SEBI as false. In an email, he said, “What is the advice she gave on forged PoAs, which is my grievance? I have been addressing her in repeated mails for nearly two years to redress my grievance about sale by forged PoAs. She is making no mention of forged PoAs and is avoiding this main issue to protect the broker. And yet she claims she advised me.”
As mentioned by Wg Cdr Raj in the Moneylife article earlier, despite having a court judgement stating the PoA was forged, SEBI chose to consider the reply of CDSL in which they were provided an entirely different PoA given to them by MOSL.
Neither CDSL nor SEBI found it odd and weird that anyone would sign two PoAs on the same day for the same purpose. Clearly, SEBI is hell-bent on protecting the broker Motilal Oswal. The question is, why?
Turnover of Rs200 crore?
But that is not all. While ignoring Wg Cdr Raj's claim, SEBI is bending over backwards for Motilal Oswal Securities in other aspects too. Suddenly, the MoF letter mentions that the 78-year old ran up a turnover of a whopping Rs200 crore with the broker and that he had accepted this fact in an email to the brokerage. The email is not attached in the correspondence.
Strangely, even Motilal Oswal, chairman of MOSL never mentioned this figure of trading turnover in his conversations with Moneylife. In fact, Mr Oswal had sent a team to Bengaluru to talk to Wg Cdr Raj, but the official walked away when he made it clear that the Air Force veteran intended to record the conversation. In a dispute of this size, where the investor is unable to speak, this simple precaution for his protection apparently frightened off the brokerage. But SEBI and the MoF are uninterested in these facts. Indeed, insisting on the recording looked prudent with hindsight since Motilal Oswal Securities seems to be coming out with new ‘facts’.
According to the letter from the minister, Motilal Oswal Securities has apparently claimed to SEBI that Wg Cdr Raj admitted to running up this turnover. The investor says this is the first time that he has even heard about this amount. He does not recollect sending an email to MOSL, acknowledging the same and the broker has neither mentioned this quantum in the three trials in consumer courts nor in any of their correspondence. Wg Cdr Raj also says that he had never applied for a margin account through which all the transaction took place.
He said, “I never opened any margin account with MOSL. I only opened a demat (DP) account. All the stocks sold off by MOSL were only from this DP account and not from any margin account as she (Ms Sethi) claims.”
Clearly, Motilal Oswal is hiding behind the facts and spinning new ones and SEBI and ministry of finance cannot be bothered about it. Precisely, anticipating this kind of dubious action and behaviour from the brokerage, Moneylife had specifically advised Wg Cdr Raj to record the conversation when Mr Oswal, personally sent some people to Bengaluru to speak with the 78-year old. Our sense was that since he cannot speak and there would be the danger of attributing consent to issues when he has not said or meant it during the meeting, especially when we are dealing with a company that was alleged to have forged a PoA.
Gross misuse of PoA by brokerages was a common problem during the last bull market. At Moneylife, we have reported many such cases since 2006 and SEBI finally decided to address the PoA problem in 2009-10. What SEBI could not care less is that the grievance redressal mechanism is so poor and fraught with delays that the investor gets harassed even more in the bargain. The brokers get away scot free or with a minor punishment, and it is not long before they get back to their malpractices. This is one of the main reasons why the investor population is dwindling. Probably, Wg Cdr Raj, a war veteran, sees the world differently. He has decided to fight. Now if only SEBI and MoF were a little unbiased and proactive about this case, rather than batting for a dubious broker, he would have won this battle too by now.
Additional Reporting by Yogesh Sapkale and Jason Monteiro
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Heavy rains have wreaked havoc in the hill states of Uttarakhand and Himachal Pradesh, leaving 73 people dead and over 73,000 stranded, while several parts of Haryana were flooded after water level in the Yamuna rose alarmingly
Heavy monsoon continued to wreak havoc in hill states Uttarakhand and Himachal Pradesh on Tuesday as well. So far the rains have claimed 11 more lives in the North, taking the death toll to 73. About 71,440 pilgrims bound for the Himalayan shrines remain stranded in the monsoon-ravaged Uttarakhand besides around 1,700 people stuck in Himachal Pradesh.
With a let-up in the rains and decrease in water level in the Ganga and its tributaries, rescue efforts picked up momentum in the flash floods and landslide-hit areas of Himachal and Uttarakhand. However, the situation remains grim in Uttarakhand.
Flash floods, cloudbursts and subsequent landslips have claimed 44 lives in Uttarakhand and left as many injured and fully damaged 175 houses across the state.
Rudraprayag was the worst hit, where 20 people perished and 73 buildings, including 40 hotels along the banks of the Alaknanda, were swept away by the swirling waters of the river.
About 71,440 pilgrims, who were bound for the Himalayan shrines of Kedarnath, Badrinath, Gangotri and Yamunotri, are stranded in Rudraprayag, Chamoli and Uttarkashi districts with the famous char dham yatra still suspended due to massive damage to the road network.
About 27,040 devotees are stranded in Chamoli, 25,000 in Rudraprayag and 9,850 in Uttarkashi, disaster management authorities said. Officials said that the water level of Bhagirathi in Uttarkashi and Ganga in Rishikesh had begun to recede.
In Himachal Pradesh, chief minister Virbhadra Singh, who was stranded in tribal Kinnaur district for nearly 60 hours due to landslides triggered by incessant rains, was evacuated this morning even as 1,700 people remained stranded at various places.
In Uttar Pradesh, four persons were killed in rain-related incidents even as the state government issued a high alert in the wake of unexpected increase in discharge in major rivers, including Ganga, Yamuna and Shrada.
People from low-lying areas along the Yamuna in and around Delhi were evacuated as the water level in the river crossed the danger mark.
The water level of the Yamuna in Delhi crossed the danger mark of 204.83 metres and reached 205.24 metres at 2:30pm. Officials in the Flood and Irrigation Department said the water level in the river is expected to rise further as Haryana has released 1.54 lakh cusecs of water into the Yamuna this morning.
Prevention and ethical value system are the only solution. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum, where there are cases of money laundering
Anti-money laundering (AML) guidelines must be implemented and followed religiously. A touch of religiosity (religious rituals are done with devotion and with discipline) in implementation may perhaps inspire commitment and then hopefully it will be laced with ethics. This is how it should be—but does that happen?
The failures of several recent cases demonstrate that it does not happen. Inadequate internal controls coupled with lack of commitment and disrespect to ethical values from senior management has led to significant losses for banks.
Prevention and ethical value system are the only solution. Prevention means blocking an event that may pervert the established internal controls. Clearly, if the cancerous growth of money laundering is to be arrested/ checked, strong doses of chemo-radiation in the form of stringent internal checks and controls and high ethical business standards with all the unflinching commitment of the top management will need to be administered.
Know your customer (KYC), an essential prescribed precaution, must be coupled with know your employees (KYE). There are a host of instances that highlight the involvement of employees in fraudulent transactions and in most cases in league with customers as the Cobrapost sting operation indicated. The sting operation captured employees advising the customers how they could convert their black money by opening multiple accounts, engaging mules, and many other such methods. Though there was no evidence to show that they did it for any financial gains, yet it did prove that for attracting customer and mobilizing business to meet their targets they won’t hesitate to resort to any tactics. It seems the pressure to achieve the target was the motive behind their action. It couldn’t be established though whether they had the blessings of the senior management. However, the banks named in the sting operation are headed by eminent bankers who will certainly not approve of such dubious actions from their employees. This therefore brings in sharp focus the need for a thorough check on employee’s credentials and proper screening of candidates to prevent the hiring of undesirable characters. Criminals can deploy only one of two ways to launder money, they can either fool the bank employees into participating or they can get them to be complicit. When banks take money laundering regulations seriously and follow them religiously the job gets a whole lot harder for the people involved in criminal activities.
Cobrapost’s sting operations brought to light officials of a few banks, who lacked integrity, had no discipline and transparency, and did no due diligence This should ring a warning bell and send a strong and clear message to all, to ensure that adequate systems are put in place so as to reduce the possibility of circumventing the policy guidelines and prescribed procedures. These imply that the controls should be such as to facilitate efficient conduct of business on ethical lines and at the same time obviate any chance of fraud. The need therefore is to revaluate AML compliance controls and systems.
Internal check forms a valuable part of the Internal AML Control System. Violations take place primarily because of target achievement pressure and veiled motivation from top management who to a group of officials said, “compliance people tell how not to do the business; you have to take your own call on your business growth.” It is so ironic that the person who made this statement spoke after a session on Business Ethics.
It has been observed that an organization implementing and maintaining a robust internal control system backed by a moral and ethical culture would, in most cases, prevent any perversion of rules and regulations. If banking organizations/financial institutions do not go down that road, it is inevitable that they will be more prone to violations and resultant reputational risk. A good internal control system with strong and robust ethical culture will keep any damage down to a minimum. However, despite the soundest internal checks and control system being in place subversion will take place because of staff collusion, abuse by person who has authority and overriding the control management.
Each bank/financial institution must establish the appropriate internal systems necessary for the sound application of the anti-money laundering regulations and must review such systems periodically to find out any weaknesses therein or in the extent to which such systems are applied and must take the appropriate measures to correct such situations supported by the firm commitment from senior management.
Lack of spirituality and materialism seem to be the root cause for all these problems. Greed has taken over contentment and replaced ethical values. Everyone wants to get rich. It is the get-rich-quick syndrome that is driving people and organizations to indulge in activities inconsistent with organizational value systems. Organizations should try to develop a culture that has ethical and spiritual tone that echoes constantly and the more it is developed, less will be the incidence of fraud and violations.
(Saiyid (SSA) Zaidi is a training and development consultant as well as external subject matter expert at the Educom Group Banker's Academy in New York.)