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The Capitalist | Indian firms on Madoff’s list?

The Capitalist | Indian firms on Madoff’s list?
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First Published: Wed, Jan 28 2009. 10 09 PM IST

 Ponzi scheme: Bernard Madoff. Shannon Stapleton / Reuters
Ponzi scheme: Bernard Madoff. Shannon Stapleton / Reuters
Updated: Wed, Jan 28 2009. 10 09 PM IST
Ever since the Madoff swindle of about $50 billion (about Rs2.5 trillion) came to light in December, there has been a great deal of speculation on whether investors who lost through Bernard Madoff’s schemes include Indian companies and high networth individuals as well.
Ponzi scheme: Bernard Madoff. Shannon Stapleton / Reuters
When the ‘Financial Times’ (FT) published a list of companies and firms on its website on 15 December, many people sat up at the sight of two names on the list—Reliance and Great Eastern. The daily has not yet clarified whether these two names refer to Indian entities.
Spokespersons of both companies, however, have denied any involvement with Madoff. In the case of Reliance, there is the added speculation fuelled by a news report in ‘The Telegraph’ on 5 January, which makes mention of market whispers talking of “the mark-to-market losses on the oil price hedges (being) over $1 billion”.
While sources close to Reliance have confirmed there were oil speculation losses, they refused to put a number to them.
Not surprisingly, most people are waiting to see the disclosures that the interim chief executive of the US Financial Industry Regulatory Authority, or Finra, will make before the US Senate. As ‘Reuters’ news agency points out, Finra, which regulates around 5,000 brokerages, has asked all of them for any list of customers they referred to Madoff between 2006 and 2008, “as well as copies of agreements with Madoff, marketing materials, descriptions of fees and other matters”. The details will have to be provided to Finra before 6 February.
Interestingly, many of the funds given to Madoff for investment were being administered by HSBC (Hong Kong and Shanghai Banking Corp. Ltd), which is itself a big loser in the Madoff affair. Contrary to earlier reports that said HSBC could have lost $750 million, the ‘FT’ report puts the figure at $1 billion.
February disclosures should be interesting.
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Will Ramalinga Raju get off the hook?
No, if one goes by sentiment and common sense.
Yes, he will be free, is what past experience and current indications point to. The refusal of the government to create a common document and evidence repository to which all investigators have access, the refusal of both the police and the Andhra Pradesh court to allow officials of capital markets regulator Securities and Exchange Board of India to question B. Ramalinga Raju, and the conflicting statements coming out from investigators and ministry spokespersons, make many believe that it will be only a matter of time before all allegations against Satyam’s Raju are brushed under the carpet.
Already, there are reports from some quarters that the list of employees wasn’t fabricated at all, and that the issue of so-called ghost workers does not arise! People also point to the manner in which Ramesh Gelli and Pricewaterhouse-Coopers (PwC) remain free of any charges, even though investigations into PwC and the now extinct Global Trust Bank Ltd showed that the bank had to close down because of “mismanagement and reckless lending practices”. Gelli was also involved with ING Vysya Bank Ltd that in turn helped spawn other Andhra Pradesh industrialists, whose accounts are also audited by PwC.
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Tracking corruption and Metro rails
A non-profit organization, Business Registry for International Bribery and Extortion, now seeks to popularize a new way of measuring corruption. Any bribe, solicited or paid, can be anonymously registered on its site www.bribeline.org.
In fact, it has already come out with a report on India and China, and hopes to update such information more often. Some details are quite interesting. For instance, the reports show 30% of the demands for bribes in India are from the police, while in China it is only 11%.
Meanwhile, more and more people have begun comparing the cost of Rs110 crore per km for the Metro Railway in Delhi with the Maytas (Maytas Infra Ltd) tag of Rs200 crore per km, and a similar cost of Rs200 crore per km for Mumbai. Each of these involves distances of 45-75km. That translates into a cost of Rs9,000-15,000 crore!
At a time when steel prices, equipment charter rates, financial charges and labour costs are lower than those at which Delhi’s Metro was constructed, the per-km cost should have been less than Rs100 crore, not more.
What is even more bizarre is that instead of finding out why the existing contract-bid price is high, another file requesting escalation of costs to be permitted is reportedly doing the rounds of Maharashtra’s Mantralaya (the administrative headquarters of the state government) already.
Is this current capitalization of future corruption? The desperate rush to award such expensive contracts before the expiry of the electoral term of ministers in both states is scary!
How does one deal with this type of corruption? Will the courts be willing to put a stay on such expensive contracts being awarded without a public audit?
R.N. Bhaskar runs a company with significant interests in distance learning and examination certification and writes on corporate and business policy issues. Comments on this column are welcome at capitalist@livemint.com
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First Published: Wed, Jan 28 2009. 10 09 PM IST