Introduction: The Scam: People Associated: Reason: 2002 -Sanjay Agarwal Home Trade scam Rs 600 cr Home Trade

Scam (2002) :- Under the pretext of gilt trading, Rs 600 crore was swindled from over 25 cooperative banks in Maharashtra and Gujarat by a Navi Mumbai-based brokerage firm Home Trade. Sanjay Agarwal, CEO of the firm, was arrested in May 2002.

Total Scam Money (approx) Since 1992: Rs. 73000000000000 Cr.(73 Lakh Crore). Of which home trade scam involves Rs600cr.

The Rs.600-crore Home Trade scam reveals that investments in cooperative banks are vulnerable to misuse as long as regulatory control of these banks vests both in the Registrar of Cooperative Societies and the Reserve Bank of India. At the centre of the scam is the Navi Mumbai-based brokerage firm Home Trade. The company was launched two years ago accompanied by a Rs.24-crore advertising blitzkrieg employing cricket icon Sachin Tendulkar and film stars Shah Rukh Khan and Hrithik Roshan. Home Trade and four of its affiliates lured cooperative banks with two to seven per cent higher returns on investment in gilts. The brokerage firm claimed to have bought government securities (G-secs) for the banks. The G-secs were not physically delivered and investigations reveal that they may not even exist. On their part, the cooperative banks may have erred in not demanding delivery of the G-secs. Maharashtra's Corps of Detectives said the embezzled money was used to play the stock market, mainly to trade in shares of companies in which Home Trade had a stake or which Sanjay Agarwal, Home Trade's chairman, promoted. When Home Trade defaulted on payments and the loss of investments began to burn a hole in the pockets of the Nagpur District Central Cooperative Bank, its chairman Sunil Kedar filed a criminal complaint against Home Trade for not delivering G-sec certificates worth Rs.125 crores. The next day, April 26, the scam unravelled further as similar complaints poured in from other parts of Maharashtra. The Wardha and Osmanabad district cooperative banks had invested Rs.25 crores and Rs.30 crores in G-secs through Home Trade, Pune's Satguri Jangli Maharaj Cooperative Bank Rs.37 crores and the Amravati People's Cooperative Bank Rs.10 crores. Four cooperative banks in Surat and Navsari in Gujarat had invested approximately Rs.80 crores. While these are among the larger banks, several small banks and some regional rural banks may also be involved. Home Trade and its affiliates were also brokers for the Seamen's PPF. No one who dealt with Home Trade seemed to have received actual certificates.

Meanwhile, Sunil Kedar was arrested for bending the rules to invest in G-secs and for preparing false documents. In order to undo the damage, the State Registrar of Cooperative Societies (RoCS) dissolved the boards of the scam-tainted banks on the recommendation of the Reserve Bank of India (RBI). Sanjay Agarwal initially went missing but later surrendered before a lower court in Nagpur. "His interrogation will expose the linkages between many more brokers and banks," a police officer told Frontline. The investigating agency is looking at a possible broker-bank nexus in diverting money from cooperative banks into the stock market. A similar method was used by Harshad Mehta in 1992. He pulled out funds from government-owned banks by issuing bogus Bankers' Receipts instead of G-secs and played the stock market. "Agarwal could not have pulled this off without the complicity of the heads of banks," said a bank official. Under RBI regulations, banks have to maintain a Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR) on the basis of deposits held. Gilt trading is governed by RBI norms, the most important of which are that purchase of G-secs through a single broker should be limited to 5 per cent of the total value of such purchases and that no money should be credited to the broker's account. Home Trade fictitiously traded in much more than the ceiling set. "Every single bank blatantly violated RBI regulations," said the official. For instance, several banks had given power of attorney to stock brokers to deal in Gsecs. The RBI does not permit this. The Nagpur District Central Cooperative Bank did not even obtain the requisite RBI approval to invest in public sector bonds. The bonds stated to have been purchased were never received and were later shown as having been exchanged for G-secs. "As we all know, neither were the G-secs received," said the official. THE Home Trade fraud is the fourth major financial scam to happen in the RBI's own backyard in recent times. "Either the RBI is wearing blinkers or there is a fundamental flaw in its policies," said the official. "Besides, what was the Securities and Exchange Board of India (SEBI), with which Home Trade is registered as a broker, doing?" Or for that matter, the National Bank for Agriculture and Rural Development (NABARD) - the supervisory authority for cooperative banks? "Clearly, the real fault is with the system. You cannot blame Home Trade for pulling off a fraud in an incoherent system," said the official. An RBI spokesperson told Frontline that it became aware of the mismanagement of funds last November. "We alerted NABARD, which discovered the irregularities in the Nagpur bank during its audit," she said. She claimed that by February the RBI knew enough but had to verify material and do some investigation before publicising the problem. "There is no problem with the RBI's policies. There are no loopholes in the system. These banks clearly violated RBI regulations," she said. Nevertheless, it is clear that much of the fault lies in the RBI's policies. It put in place a Delivery versus Payment (DVP) system for G-sec trading by commercial banks, but continued to allow the cooperative banks to deal in physical securities. Under the DVP system, every buy or sell is matched. A mistake triggers a deadlock and the RBI is alerted immediately. In the case of a cooperative bank, it

credits funds to the account of the broker, who can default in physically handing out the government paper. This calls for constant monitoring by the RBI. The lack of vigilance by SEBI and the bourses is also responsible for the mess. In 1999, according to a report, the Bombay Stock Exchange rejected the listing application of Home Trade, then known as Euro Asian Securities. It later got listed on the Pune Stock Exchange, where it promptly began to ramp up its stock price. In September 2000, the National Stock Exchange rejected the listing application of Ways India, a sister concern of Home Trade, when it failed to provide answers to several queries. But the most obvious cautionary signal was Home Trade's highprofile launch in 1999. An unknown company, it used celebrities in television advertisements and left people asking what the company was all about and what it was selling. In spite of the so-called tight regulations and vigilance measures in place, cooperative banks seemed to be instrumental in the scams. Last year, the Madhavpura Mercantile Cooperative Bank lost Rs.800 crores in the Ketan Parekh scam. "The real issue is the duality of regulators," said Kirit Somaiya, president of the Investor Grievance Forum. "The multi-layered monitoring system, by the State and Central governments, of the cooperative banking sector has led to confusion with regard to responsibilities. This has worked to the advantage of scammers." Cooperative banks come under the RoCS. And because they have banking functions, they must adhere to RBI norms. This dual regulation often leads to there being no regulation at all. RoCS officials allege that the RBI does not look closely at these banks, while the RBI says it waits for government recommendations as the State's Cooperatives Department has its auditors on the boards of the banks. The responsibility, Somaiya told Frontline, should be fixed with one body and preferably the RBI should be given the lead monitoring role. He said the entire cooperative structure in the State had to be overhauled. "Most of the heads of banks and cooperative societies don't know how to deal with liberalisation. They have no idea where to invest or how to manage their funds in this economic environment," he said. COOPERATIVE banks across the country face similar problems of poor management and political interference. Meant to be a primary financial support structure to farmers and small depositors, cooperative banks have been consistently criticised by the RBI for their weak performance. According to the RBI, collectively the banks have Rs.5,500 crores of non-performing assets. Yet the central bank appears to be doing little to implement suggestions made by several committees. In 1999, the RBI appointed a high-power committee on urban cooperative banks to study the viability of this sector. The committee's recommendations included aligning the cooperative bank sector with other segments of the banking sector, removal of preferential treatment and "removing the irritants of the dual control regime". More recently, the Monetary and Credit Policy for 2002-03 has sought to address directly the issues concerning cooperative banks. The report states: "The events of the last two years have made it abundantly clear that the present system of dual/triple regulatory and supervisory control is not conducive to efficient

functioning...." Mincing no words, the policy document adds: "The managements and boards of several cooperative institutions continue to reflect political interests rather than genuine cooperative spirit." It recommends that a separate supervisory authority be set up with representatives from the Centre, the States and other interested parties. Maharashtra has more than 616 cooperative banks, the largest number for any State in the country. Most of them are completely controlled by politicians. It requires only Rs.1 lakh to start a cooperative bank. The depositors are mainly farmers and local people. Some banks are offshoots of the sugar and dairy cooperative societies, which are also controlled by politicians. Sunil Kedar, for instance, belonged to the Nationalist Congress Party (NCP). In fact, three senior members of the NCP have found themselves in the midst of the current scam. According to a police agency, 16 of the 23 board members of the tainted Nagpur bank are NCP members. It is unlikely that the scam will affect individual depositors immediately, said Vivek Monteiro, a member of the Centre of Indian Trade Unions (CITU). But the loss will reflect in the deficit of the State, he added. However, the bottom line is that the money belongs to depositors who trust banks with their savings. The Central government, meanwhile, is going ahead with its plan to recapitalise cooperative banks to the extent of Rs.7,000 crores. This will bail the banks out for some time. Kedar may probably slip through the cracks and go free. "If we cannot prove mala fide, he will be let off," said a police source. With the banks recapitalised, and politicians like Kedar and brokers like Parekh walking free, the next scam may be just waiting to happen.
The Home Trade story would probably spawn off a new set of studies on celebrity endorsements and the dubious manner in which mega celebrities seem to have been used as cover for a meticulously planned financial scam. Looking into the rear view mirror, one can only marvel at Home Trade's audacity. By claiming a foreign source of money supply, the company - which was nothing more than a financial dot-com - launched an incredible celebrity endorsement campaign featuring the three of the hottest and most expensive celebrities in the country, to brand a financial product that nobody could figure out. Internationally, it is a known fact that one complimentary nod from a famous face can launch the most obscure of products - and Home Trade proved it. Nobody knows what Home Trade did or what it sold, or even whether a financial portal could afford to throw around the sort of advertising money that it seemed to do (sources claim that its ad and marketing expenditure was a cool Rs 60 crore). All they knew was that Home Trade meant a Sachin Tendulkar in full batting flow, or a stunning Hrithik Roshan in a mesmerising dance sequence and the dimpled popularity of Shah Rukh Khan: all seeming to support whatever it was that Home Trade was doing. The advertisements tailed off with the signature line -Life Means More. If all this was plain gobbledygook, nobody cared - after all these super-celebrities were not asking you to buy anything! But Home Trade was not throwing all that money for nothing. It knew that celebrity endorsers lend instant credibility to its unknown promoters. They also attract media curiosity, which translates into loads of free publicity. Most importantly, the famous faces create so much brand recall that people stop asking uncomfortable questions. For instance, did anyone bother with Home Trade's background? Here it is in a nutshell. The present promoters - Sanjay Agarwal, Ketan Sheth (who was already a broker), Nandkishore Trivedi and one Baluchan Rai (a Hong Kong-based Non-Resident Indian) were the people behind Home Trade. With funding from Euro Discover Technology Ventures based in Mauritius, this group bought off Lloyds Brokerage Ltd, from its owners - the Guptas - for a paltry Rs 1.50 per share. It later made an offer for sale at several times that sum to get itself listed. Lloyds Brokerage changed to Euro Asia Securities, which was listed at the Pune and Bangalore stock exchanges, and it started a non-stop effort for listing on the two big Mumbai stock exchanges. Euro Asia Securities soon switched to another avatar and Home Trade was born. This time, its high profile ensured that nobody delved into its background for over two years - in fact, right until the bubble burst.

As the Home Trade Web site boasts, the celebrity backed brand image attracted the "best in the business" to work with it without asking too many questions. "For instance, PricewaterhouseCoopers runs its back office operations, an advanced centralised customer contact centre is powered by Siebel, A T Kearney has helped define customer-centric strategies, Andersen Consulting has assisted in focusing on stock broking and risk management, Dow Jones and Reuters deliver upto-the-minute news, while Multex, CMIE, Dun & Bradstreet et al provide content" (Source: the Home Trade Website). It also had a line of credit from HDFC Bank right until the time its cheques began to bounce in April this year. Home Trade proves that celebrity endorsements and the illusion of deep pockets would attract a host of blue chip associations purely on the basis of meaningless claims and clever phrases. Sample this: Without a single product launched, Home Trade coolly claimed to have become "the world's very first FMFG (Fast Moving Financial Goods) Company". Look at the claim on its Web site. "You've seen the ads splashed across media. You've heard Shah Rukh, Hrithik and Sachin. Exciting and innovative things are set to happen in the investment bazaar, as these revolutionary new FMFG products herald the next generation of financial services available to consumers. Productised and packaged, available 'off the shelf' at convenient locations across the country, these services are driven by a simple philosophy - 'life means more'. Add to this the firm belief that finance can be fun, and you've got the secret to what makes them special. Designed to address specific needs across a wide spectrum, these boxed products are backed by state-of-the-art infrastructure and the latest CRM technologies. And of course, the financial expertise and strong credentials of Home Trade." 'Productised', 'boxed products'- what on earth does it mean in the absence of a specific service? Home Trade's executives spoke setting up 150 outlets in 15 cities (in a magazine interview), which would allow people to trade across multiple platforms, but in fact its Internet trading platform also never took off right until its recent suspension. But it did not matter. Home Trade was not focused on earning revenues through product sales. It seemed focused entirely on continuously raising capital - in fact, the failed dot-com model. Its ultimate aim was to tap retail investors through all that hype. Having ensured that its share price was kept at a high at the Bangalore Stock Exchange, it was lobbying to have its shares listed on the Bombay Stock Exchange and the National Stock Exchange. It had almost muscled its way into a BSE listing when its money began to run out sometime in April this year. That is when the music finally stopped for Home Trade. What it was doing was to use its hyped up image to cover up its continuous borrowings and the illegal government securities trading through an equity broking membership. It was running a sort of Ponzi scheme with several co-operative banks. By pretending to buy G-Secs and sending them for physical transfer, it used the money for a couple of months and then repeated the deal with another co-operative bank to repay the first. Finally, things reached a standstill and it could no longer repay over Rs 125 crore to the Nagpur Co-operative Bank. Pretty soon it was clear that the Osmanabad Central Co-operative Bank, the Wardha Co-operative Bank and a couple of others from Pune and Ahmedabad too would face the same trouble. Now that the music has stopped, the hole in the co-operative banks' books could go up to as much as Rs 500 crore. Securities industry sources say that some co-operative banks' authorities, in all probability, had actively colluded with some Home Trade executives in its shady game. Today everybody is rushing off to file complaints against Home Trade. Not just the banks, but even auditors such as PricewaterhouseCoopers, which was happy to allow Home Trade's Web site claim that it ran its back office transactions, have filed a winding up petition against it. Newspaper reports say that the celebrity trio, which lent Home Trade its credibility, have also not been paid their entire dues - nor has its advertising agency and its public relations company. Clearly, the sizzle and flash of the media hype has finally ended with unseemly little plop.

NEW DELHI: The promoter of controversial financial services portal Home Trade Limited and two others have been arrested in a multi billion government securities scam, said Delhi Police officials Tuesday. Sanjay Aggarwal, director of Home Trade Limited, was arrested in Surat along with his associates Ketan Seth and Subodh Bhandari Friday for duping investors of billions of rupees.
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"We arrested them Friday and they have been brought to Delhi for questioning. They are in police

remand till September 2," said a senior police official. The accused persons were arrested last year after the scam broke out, shaking the Indian financial system and wiping off billions of investors' wealth. They were out on bail before being arrested again. Mumbai-based Home Trade shot into the limelight within a short span of its launch in 2000 after it engaged Sachin Tendulkar, Bolloywood actors Hrithik Roshan and Shahrukh Khan to endorse its portal. "Subsequently, on reading the advertisements, large number of private and public institutions invested money in this company under their various schemes," the official told IANS. "The directors hatched a conspiracy with others to cheat the public in the name of selling government securities," he said, adding the police acted on the complaint of P.S. Infrastructure Capital Limited. "The Delhi-based company had entered into agreement with Home Trade for purchase of Central government securities as they were impressed by representation given by the latter." Home Trade, however, did not deliver the securities sold to P.S. Infrastructure as per rules of the stock exchange. During investigation, one more complaint of PNR Securities Ltd. was received and the modus operandi was the same. "Their modus operandi was to allure the general public, brokers, sub-brokers wanting to deal in government securities claiming to be a professional firm," said the official. "But the government securities, which they were claiming to sell, never existed and were actually bought from some third party. The whole deal was meant for paper only," he added. "The accused persons misappropriated the investor money and when people started demanding their money back, the company defaulted." Home Trade had managed to collect over 8 billion through its fraudulent practices. Positioned as the world's "first fast moving finance goods company," Home Trade now faces 21 criminal cases in India.