The three major financial Scams that shook the economy of India and Financial sector, - The Satyam saga - The Sahara Scam - Saradha chit fund embezzlement This pdf briefly explains how the scams were unearthed and brought to light.

1. Tanakshi
Note on all the three scams-
- The Satyam saga
- The Sahara Scam
- Saradha chit fund embezzlement
The SatyamSaga
In the year 2008 when the global recession hit the entire world, many nations
including India faced a lot of financial crisis, during the entire fiasco a business scandal
was carried out, which was unearthed
finally exposed in year 2009.
So, what was the Satyam Scam? –
Satyam Computer Services Ltd was
founded in 1987 in Hyderabad by
brothers, Rama Raju and Ramalinga
Raju.
The firm began with 20 employees
offering IT and BPO services across
various sectors.
What Is Business Process
Outsourcing? Business process
outsourcing (BPO) is a method of
subcontracting various business-
related operations to third-party
vendors. Basically, operations or
responsibilities that a company is
unable or unwilling to do in-house.
For example- call center.
The initial success of the company soon led to it getting listed and opting for an IPO in
the BSE in1991. Post this the company soon got its first Fortune 500 client- Deere and
Co. This further allowed the business to grow rapidly into becoming one of the top
players inthe market. Satyam soonbecame the fourth largest IT software exporter inthe
industry after TCS, Wipro, and Infosys. The firm was worth $1billion in 2003. Satyam
soon went on to cross the $2billion mark in 2008.
Later in 2008, the board of Satyam decided to take over Maytas a real estate company
owned by Ramalinga Raju, this decision was not supported by the shareholders of the

2. company which resulted into a lot of issues for the members, ultimately forcing the
board members to withdraw their decision within 12 hours.
On December 23rd the World Bank barred Satyam from doing business with any of the
banks’ direct contacts for a period of 8 years, in the history of India outsourcing
business this was one of the highest penalties charged by the world bank till date. The
World Bank had alleged that Satyam had failed to maintain documentation to support
fees charged to its subcontractors and the company also provided improper benefits to
the banks’ staff. And that the company misrepresented its accounts both to its board,
stock exchanges, regulators, investors and all other stakeholders.
A web of 356 investment companies was used to allegedly divert funds from Satyam.
These companies had several transactions in the form of inter-corporate investments,
advances and unsecured loans. The cash raised was used to purchase several thousands
of acres of land across Andhra Pradesh to ride a booming realty market.
It presented a growing problem as facts had to be doctored to keep showing healthy
profits for Satyam that was growing in size and scale.
PwC(PriceWaterhouseCoopers) was the external auditors to the company and it was
their duty to examine the financial records and ensure that they are accurate. It is
surprising how they did not notice 7561 fake bills after auditing Satyam for almost 9
years.
There were multiple red flags that the auditors could have caught upon. Firstly a simple
check with the banks would have revealed that the bills were not valid and the cash
balances were overstated. Secondly, any company with that big of cash reserves as
Satyam would at least invest them in an interest yielding account.
PwC was found guilty and its license was temporarily revoked for 2 years. Investors too
became vary of other companies audited by PwC. This resulted in their share prices of
these companies falling by 5-15%. The news of the scam led to the Sensex falling by
7.3%.TheCBI alsofound13,000 fake employeerecordscreatedinSatyamandclaimed
that the scam amounted to over Rs. 7000 crores.

3. The Sahara Scam
On the 26th
of February, 2014, four years
after the Satyam scam, India witnessed the
judgement ofanother bigfinancial scam, calledthe
Sahara Scam. On the 26th
of February, 2014, the
Supreme Court of India sanctioned a non-bailable
warrant against the Sahara India Pariwar
Chairman, Subrata Roy. The judgement was
passed after 5 years of constant judicial tussle
between SEBI (Securities and Exchange Board of
India)
The fraud came into notice by the SEBI when it
found out that the Sahara has been issuing
Optionally Fully Convertible Debentures
(OFCD) and by which the company has accrued
huge credits.
What are OFCD? - Convertible Debentures are
those which can be converted either partly or
wholly into equity shares after the completion of a
definite period. The rate of interest and date of
conversion is decided at the time of issue.
When SEBI noticed the activities, it ordered
Sahara to issue a full refund to its investors. Sahara
challenged the order before the Securities Appellate Tribunal which upheld the order
of SEBI. Sahara then moved to the Supreme Court which also concurred with the order
of SEBI.
Why was Securities Appellate Tribunal approached? - Securities Appellate Tribunal is
a statutory body established under the provisions of Section 15K of the Securities and
Exchange Board ofIndia Act, 1992 to hear and dispose ofappeals against orders passed
by the Securities and Exchange Board of India.
In the probe that was launched by the SEBI on perusal of the complaints, it was found
that in the last four years, the two companies SIREC and SHIC have added Rs. 4,000
Crore and Rs. 32,300 Crore in their capital pool of which there was no accountability.
Sahara then made a fresh claim and stated that it has already refunded most of its
creditors on its own, a claim that SEBI challenged and asked proof about, however, the

4. former did not have any valid proof or neither was their attempt to depositthe remaining
amount and Subrata Roy skipped his hearing.
In the year 2019, the company’s total liability has arisen up to Rs 25,781 crores,
without interest in its entirety. The Apex Court stated that the company is still due to
pay Rs. 10,621 crores to meet its total liability.
Saradha chitfundembezzlement
The Saradha scam, also known as Saradha Group financial scandal, was a major financial
scam that surfaced in 2013, one can observe that there were multiple financial scams
from the year 2008, one of the reasons could be recession and its effect on the profits
of the corporates.
The Saradha group of companies allegedly duped lakhs of people of around ₹2,500
crore, promising higher rates of return on their investments. The scam was unearthed
in the year 2013. Saradha group started a scheme aiming small investors which
promised the investors of high returns naturally gaining a lot of investor attention. The
group raised about Rs 2,500 crore in a few years’ time, from heavy endorsed marketing
to investments in football clubs, the group used all means possible to increase the
investments. The scheme expanded to Odisha, Assam, and Tripura, and the number of
investors reached close to 17 lakhs.
Saradha began by issuing secured debentures and redeemable preferential bonds to the
public in violation of SEBI rules that bar companies from raising capital from more than
50 people without issuing a proper prospectus and balance sheet.
What is the meaning of Secured debentures? Bonds that are issued with collateral. The
party issuing the bond offers a piece of property or other assets to states and
bondholders along with signed permission for those entities to take possession of the
collateral if the issuer doesn't repay the debt.
What is the meaning of redeemable preferential bonds? - Redeemable preferred stock
is a type of preferred stock that allows the issuer to buy back the stock at a certain price
and retire it, thereby converting the stock to treasury stock. Companies must also have
SEBI permission to operate, and must get their accounts audited.
In2012, SEBI, which was already watching theGroup, asked it to stopaccepting money
from investors until it got the regulator’s permission. Alarm bells started to ring in
January 2013, whenfor the firsttime,the Group’s cash inflow was lower thanits outflow
— another classic event in a Ponzi scheme.

5. What is a Ponzi Scheme? - A Ponzi scheme is a fraudulent investing scam which
generates returns for earlier investors with money taken from later investors. The
scheme leads victims to believe that profits are coming from legitimate business activity,
and they remain unaware that other investors are the source of funds.
By April 2013, the scheme had collapsed, and investors and agents lodged hundreds of
complaints with the Bidhannagar Police. Sudipto Sen fled West Bengal after writing an
18-page letter, in which he accused several politicians of arm-twisting him into making
poor investments that led the company to collapse. Investigations found the company
had laundered investments in locations such as Dubai, South Africa and Singapore.
It can be observed that a lot of politicians were involved in the scam, one of the major
alleges being TMC- Trinamool Congress. TMC MP Satabdi Roy and former Bollywood
hero and Rajya Sabha member Mithun Chakraborty were Saradha’s brand ambassadors.
Then TMC MP Kunal Ghosh was appointed CEO of the media group in which Saradha
invested Rs 988 crore and hired close to 1,500 journalists.
Saradha gifted patrol motorcycles to Kolkata Police. The Supreme Court in the month
ofFebruary,2021 posted a contemptcase filedby the CBI against formerKolkata Police
chief Rajeev Kumar and others in connection with Saradha chit fund scam case.
“We found that some of the documents handed over to the CBI by Mr. Kumar were
doctored. They were not all there. We summoned him, but he did not come. We wrote
the DGP, there was no response. The cell phone of Mr. Sudipto Sen (main accused in
Saradha scam) was returned to him by the SIT. Call records were not complete.
Discrepancies were seen in the number of calls. Information on who called and to whom
are missing... The call records were doctored,” Attorney General K.K. Venugopal, also
for CBI, had submitted in the apex court during a hearing in 2019.
CBI sources claim communication, notices, and summons to members of the SIT and
the West Bengal Police asking for cooperationinthe investigationhave been sent on18
occasions since September 2017, but no one has turned up for questioning. The
sources say that the Kolkata Police and SIT officials have given ill health or personal
engagements as reasons to stay away, and then asked for a mutually agreeable venue to
sit and discuss the case.
The case was brought in again because of the ongoing elections.
References:
Saradha chit fund scam: CBI, West Bengal govt. spar over contempt case - The Hindu
Explained: What is the Saradha scam? How is Trinamool linked? | Explained News,The Indian Express

6. The Economic Times: Business News, Personal Finance, Financial News, India Stock Market Investing,
Economy News, SENSEX, NIFTY, NSE, BSE Live, IPO News
The Sahara Scam - The Company Ninja
Satyam Scam - The Story of India’s Biggest Corporate Fraud!
Satyam scam: All you need to know about India's biggest accounting fraud | Hindustan Times
Sahara Scam – Full Story Explained
END
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