We saw it in the case of the Adag -Reliance communication telecom scam also. Everybody knew who was the beneficiary. He was on page 3 and Gautam Doshi was in jail for 130 days!

Now those who know how the CA system works, KNOW that there is a fee involved (just for curiosity see the Satyam audit fee figure and compare it to Infosys fees!). This fee goes to the partners who sign the audited report – but the audit is done by the employee (who gets a salary). To prosecute the managers is of course right, they need to be punished…but what about the partners? the firm itself? the ‘Brand’ umbrella?

When I was a student I did hear that the ‘Law is an ass’ – well what more can I say?

Sebi’s demand for another regulator will get louder – and some of the screaming could come from the members in service itself It is time a few lions and tigers are prosecuted too.

Read on…

http://www.thehindubusinessline.com/industry-and-economy/info-tech/article2692220.ece

The managers who have been debarred are Mr C. Ravindranath and Mr P. Sivaprasad — both employees of Lovelock & Lewes, an affiliate of Pricewaterhouse India.

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Hello,

Congrats on the nice job you have got! With a degree from an Ivy League school this was a nice job to land. I know you have majored in Finance and are hoping to make money by the tons. Of course I will be sad if I see your picture in the newspaper – these days newspapers only talk about financial scams.

There is nothing wrong with the Love of Money. In fact all generations had its heroes – and for this generation the ‘rich’ man is the hero. However do not forget what Mahatma Gandhi said – the journey is as important as the destination, so Kiddo do not take short cuts. As doctors your Dad, Mom and I could have taken short cuts – but would not have the kind of respect that our family name carries.

Among the news items I see people with a net woth of $ 1 billion CHEAT their own fund off $ 600,000 – to me this is amusing – not worrisome. I remember a few years ago the Indian CEO of a brokerage house was seen cheating his OWN client off Rs. 58,000 – when he was being paid a salary of Rs. 38 lakhs. Again is this because money is not means to an end but a scorecard? Be careful of the people you meet.

Also compared to many of your classmates your salary of US $ 64,000 looks small, but comparisons are so foolish. I charged my patient Rs. 8000 for a bypass operation – because that is all he could afford. Your mother teaches in a government medical college – for a princely sum of Rs. 235 per lecture. Surely we ‘deserve’ more, but can live with this can we not? You also need to remember she paid almost no fees for the medical post graduation! You were still in school when a man named Grasso said “I have done great things for the New York Stock exchange – so why is there a furore over my $ 140 Million salary?”

I think there is a crisis out there – the sense of entitlement – especially in the financial services industry world wide – is assuming terrible proportions. Yesterday I had dinner with Mahendra Bhai who happily sold off his financial service business for US $ 180 million – he himself found the valuation laughable. Of course as a shareholder of private company I am entitled to about $ 10 Million – which your Dad, Mom and I have decided to give it to Mahendra Bhai’s charitable school. I hope you earn enough to laugh off this donation when you are my age. However I will always love you for what you are not what you earn.

So go and earn your spurs. Do remember if you wish to be a school teacher you inherit my Defence Colony bunglow – or it becomes the HQ for Mahendra Bhai’s school. Mahendra Bhai was just a graduate when his father asked him to take over his family brokerage business, but he did a great job. He used to say “Business is about creating value for society through cooperation – which I cannot create alone”. When you are as successful as Mahendra Bhai your Board will be too scared to argue with you – so be careful. It is your duty to be able to hear criticism, so welcome colleagues who criticize you.

Also remember most people are Honest when they are being watched – it is not only easy, but also necessary. However at 12am if you enter a One-way street at 80 kmph and find a truck coming from the opposite side, you were only being practical. You knew there would be no policeman, so …..Similarly in the Highway of investing life – start early, invest smartly, believe in compounding, and avoid short cuts. It does not matter if the policeman is not watching – No entry is a No entry. It kills. You remember your classmates in class XII who banged their Merc and lost their own lives. I still meet Chandrakant Bhai who lost his grandson and the Merc. You know which asset he misses more.

Do not judge yourself by the amount of money you earn. Success to me is if kids want to emulate your behaviour – not if they want to buy a Merc if you have one. As a family we do not have a Mercedes – do you have any doubt about our ability to own one? I get a greater pleasure travelling in my 4 year old Honda City!

What is a couple of crores for a Wall Street Hot Shot executive? But hey Kid do not play this game of self delusion for too long. Keep questioning your contribution to your employer, your customer (he pays your salary, your employer is just an aggreagator) your contribution to society. Ask why your mother spends more on petrol than the ‘fee’ she gets paid for teaching in a government hospital. Or why your father charges only Rs. 15 per visit for slum dwellers? Not that doctors are paid more or paid less – your Dad, your Mom and me took the “Enough” route. However thanks to the fund management skills of Mahendra Bhai, Magic of Compounding, a booming stock market, and our own disciplined investments, we have more than what we require. So will you by sheer hard work – yours and your Money’s!

Go and have fun. You should see the whole of USA – the infrastructure they have created is awesome. If time permits see Europe too – those are great investments too!

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Surely when the gold bubble bursts (not sure when, but it will) what will happen? Well for people who like to learn from history please remember that it went up 25 times in the 1970s! It started from an artificially held price of US $ 35 to US $ 850…

this bull run has started from US $ 250 – so 25 times is 6250. L O L

MORAL: LEARN FROM HISTORY, DO NOT CUT N PASTE.

Of course this time it could be different (the verb is COULD) – we have no clue what could happen.

Let us look at China. There is clearly some unrest – so your middle class could buy all the gold to hoard ‘value’ instead of shares and bank deposits. No clue whether it will happen.

Indian buying could come down – rising interest rates and inflation will reduce appetite for gold. No clue.

there is one site which carries a scary story…but remember this is not an authentic site like a BBC, Reuters or bloomberg…It is your call on whether to believe it..

Worst is the gold story doing the rounds in the IMF – broken by the European Union Times…scary. Of course if it happens GS will say ‘According to our experts 35% of the security held by banks is actually brass…’ What will happen to the world gold prices? Well no clue. But please read on:

http://www.eutimes.net/2011/05/russia-says-imf-chief-jailed-for-discovering-all-us-gold-is-gone/

I HAVE HEARD FROM A VERY AUTHENTIC SOURCE THAT THIS IS JUST A SCARE MONGERING SITE – SO READ IT WITH A PINCH OF SALT…do not take it seriously for heavens sake..

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They want to pay me for MY OPINION and the opinion of other people that I am able to collect.

More amazing that people believe that this is a marketable product and 19 lakh people are willing to pay the upfront fee. If this is not a Madoff scheme (some smaller people call it Ponzi). Do you realize that Madoff far, far outdid Ponzi?

Do you not think we should call such schemes Madoff scheme? Should Ponzi not be allowed to retire please? Bechara kab tak pitega? L O L

Frankly I do not think it is about schemes. It is about people. There will always be dishonest people, and there will always be greedy people. Put the two together, and you have a fantastic recipe for disaster…so speak asia is just one such instance.

Children of people who lost money in the Harshad Mehta scam, UTI fiasco, Ketan Parekh scam, ….and millions of ponzi, fixed deposit schemes should analyze what happened. When they do an analysis they will realise that it is not the market or the scamsters who created the loss, but it is they themselves.

Remember the Asterix dialogue….’We just found out who the enemy is….IT IS US’ ….the most amazing statement as far as investing is concerned. The damage that we can create for our portfolios by churning, being obstinate, sentimental, foolish, biased, …is far, far greater than the damage created by market volatility!

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However look at what happened at Singur! Mr. Tata must be the only industrialist who did not succumb to the blackmailing of Mamta. Similarly the people who stopped Tata Airline are still ruling the roost in the Ministry!

So he decided that since he could not speak the language which the government was able to understand, he appointed Vaishnavi….He was sure she could speak the Maran, Praful Patel, ….language. Sadly this is the language which Dr. MMS also favors, so be it.

What else could Mr. Tata do?

Well he could increase his presence in countries which are not banana republics like the UK and the USA. This he has done by his acquisitions.

Of course there are many people asking this question. Mr. Girish Nikam is also asking this question. He is a keen political observer and has some honest opinions…here they are:

http://indiasreport.com/magazine/data/is-ratan-tata-as-clean-as-he-claims-why-is-niira-radia-talking-to-karunanidhi%E2%80%99s-wife/

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Viola, India would not have any food shortage – at least that is how it was supposed to work. It did not. By the time I was in college there was a healthy contempt for anything government!  In one of our trips we met a ‘mandi’ expert – and asked him did the FCI not threaten him?

He laughed – he used to buy food grains from farmers and sell it to the FCI (Oh la la la – we thought they were supposed to eliminate HIM). That could not be profitable we argued. He said what non sense! I buy at Rs. 10 a kg and sell at Rs. 11 a kg. However these guys were not used to such a small margin…

Then the facts came out. The grains would be nicely drenched before it was weighed in for FCI. Simple -weight went up, and perhaps about 20-30% margins were created.

Alas, the grains would rot, we protested. Of course said the agent – ‘lekin kisko padi hai’ .

Many governmental programs are created with the long term vision of a man watching through the ‘nice vision’ of ‘good intentions’. Most of these ministers (CS was as straight forward as they came) -did not prepare for the ‘kameena’ pan of the bureaucrats.

So now Sharad Pawar (what fresh do I need to say about his reputation?) destroys 11,500 tonnes of food grains, but we will not set up a cold chain, private storage, …..well have fun Mr. Pawar. Your food ministry and the performance of the Indian cricket team (No. 1 in world ranking) both stink.

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Well if you are in any industry you see two faces (actually more, but for this article 2 will suffice). One face is by the regulators and the powerful people in the industry and the other one is by the weaker ones. The powerful people create rules and make products which are designed to be mis-sold. The compensation (say in case of ULIP) has always been so front ended that mis-selling is a product design fault. THE WHOLE INDUSTRY knows it. If you told them then they said “I know it Subra, but ….others are doing it”. Also there is too much of Private Equity/ private investors pressure.

Then the weaker guys who are given products, prices, targets and ‘schemes’. The powerful people then parrot 2 things:

“Mis-selling is wrong, and rebating is wrong.”

Both happen and happen brazenly. Other than the regulator and the finance minister everybody knows it. When a mis-seller in Sikkim is caught he is removed as an agent. The future premium from him Rs. 4000. When a mis-seller from Mumbai is caught there are 2 ways of dealing with him. If he is big, make his wife an agent. If he is small, remove him as an agent and take him as a consultant. Even if he is removed there is no way of returning the premium that he has collected till date.

This article was about goal keeper Manuel Neuer. He cheated. Well in the England vs. Germany match when the English Midfielder scored – the ball was clearly over the line- Frank Lampard would have been able to see it perhaps. The linesman or the referee did not. Football does not use technology. The worst thing is just like the bigwigs of the financial service industry. They boast about numbers got through cheating. Cheating the customers. One senior executive said the customers deserve to be cheated (well a point of view, is it not?).

The worst thing is Neuer said “I fooled the refree…..” I think that says it all. The days of Adam Gilchrist or a Gundappa Vishwanath or a Mansur Ali Khan Pataudi are over.

Cheating is ok, it has been legalised, and worse, you can boast about it. Mera Bharat Mahan.

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Fund managers also come in various shapes and sizes….but clearly HDFC as a group is there at the top. Not to say mistakes do not happen, but it is contained. Action is taken against the guilty and the systems strengthened. This is true for Hdfc ltd., Hdfc securities, Hdfc bank and surely the same culture must be there at Hdfc Amc and Hdfc Standard life insurance. Mr. Deepak Parekh – and therefore all his CEOs set very high standards…

However one equity dealer (employee) has played dirty. He must have taken a lot of precautions. He just forgot that ‘there is no right way of doing a wrong thing’. Basic fundamental rule which thieves forget.  This is not uncommon – after all these are kids in the ‘Greed is Good’ times when Wall Street has gone beserk. If Grasso could justify a $ 140 Million bonus…what is a few crore Indian rupees.

Kapadia seems to have done ‘front running’. Front running is buying the shares in your personal account before you buy for the fund. This allows you to profit quite handsomely – because the fund’s buying takes the share up….and then you sell. That is what Kapadia and his friends have done. Or seems to have done.

What SEBI has done is a good investigation against Kapadia, Sanghvi and Mehta regarding transactions done in the year 2007 and has asked the AMC to do more detailed investigations.

One MNC for whom I used to do internal audit had the power to ask the employee to give a declaration about all his bank accounts (demat was not yet in and this was an engineering giant). In one case we did find payments from dealers in the employee’s father’s account. However sacking the employee was the only solution.

One group in the south has sacked people for traveling 2nd class and claiming 1st class…

One brokerage house sacked a few top executives for doing transactions without completing K Y C formalities – there are millions of instances. As a CA you get to hear some stories, as a broker you get to hear some stories…however nothing really comes out. Or it is killed before it comes out.

This incident must be a complete nightmare not only for the management of hdfc and its associates but also the trustees, custodian, internal auditor, outside directors, and the top management which would just be answering calls. This wake up call is for others who also manage money in a pool – be it a pms, a mutual fund, or a life insurance company.  Too much is at stake.

For people like us who have trusted this brand since 1980 as a shareholder, as a fixed deposit holder, bank account holder, demat account holder, fixed deposit holder, brokerage account holder, as a mutual fund unit holder, as a life insurance policy holder,….this is quite a hit. Since the news broke (yesterday evening for lesser mortals like me) at least 4 people have asked…’Is my money safe…’. Last week my voice would have had more conviction. Now I am waiting to see what the trustees have to say. Remember it is their responsibility to ensure that the back end processes are robust and keep the industry free of risk.

Hopefully the management will improve the internal controls (I am sure the simple things like no cell phone in the dealing room, daily portfolio declarations, etc. must already be in place).

I have no clue what new tricks employees will find and what new steps companies will take….best of luck Hdfc.

anyway the sebi order against nilesh kapadia, rajiv ramniklal sanghvi,…is worth reading..here are the details…orderhdfc

Page 1 of 12
WTM/KMA/IVD/267/06/2010
SECURITIES AND EXCHANGE BOARD OF INDIA
ORDER
DIRECTIONS UNDER SECTIONS 11(1), 11(4) AND 11B OF THE SECURITIES AND
EXCHANGE BOARD OF INDIA ACT, 1992 AGAINST MR. NILESH KAPADIA, MR.
RAJIV RAMNIKLAL SANGHVI, RAJIV RAMNIKLAL SANGHVI (HUF), MR.
CHANDRAKANT P. MEHTA AND MS. DIPTI PARAS MEHTA

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The answer is very simple. Merchant bankers are a nice small clique who also run PMS schemes. So when the ‘Investment Bank’ goes to get a mandate they flaunt their strength in:

a. The retail brokerage network that they have built

b. The HNI clients that they cater to and

c. The PMS services that they run.

Now all these activities actually become some kind of a backward integration for their brokerage business. Thus these clients are told – here is L&T a great company and at an attractive rate of 8.5%. Gilt is not far away at 8% – and for senior citizens there is the senior citizen yojana at 9%. Of course their own executives were busy filling up forms of Mahindra Finance which was at 9% not very long ago.

So if your PMS provider runs a full fledged business in other finance areas, you are likely to buy some of those lemons or violently churn your portfolio. If you must go to a portfolio management service what you should be looking for is:

a non broking PMS provider – whose only income is PMS fees. There are 3-4 such providers in Mumbai and you would be better off with them. One name which immediately comes to mind is Chetan Parekh of Jeetay Investments. However like all sensible people he does not offer ‘PMS’ at Rs 5 lakhs. Parag Parikh is also a PMS provider – but he perhaps runs some brokerage business as well.

In fact the financial planning business does not conflict with thePMS business. However as a planner it makes sense to stick to Index etf as a recommendation instead of pretending tobe able to find the next WIPRO or the next INFOSYS.

Let us leave that job to Vallabh Bhansali of Enam or Rakesh Jhunjhunwala of RARE to do it. Amen.

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NORFOLK, VIRGINIA – Eleven indicted Somali pirates dropped a bombshell in a U.S.court today, revealing that their entire piracy operation is a subsidiary of banking giant Goldman Sachs.

There was an audible gasp in court when the leader of the pirates announced, “We are doing God’s work. We work for Lloyd Blankfein.”

The pirate, who said he earned a bonus of $48 million in dubloons last year, elaborated on the nature of the Somalis’ work for Goldman, explaining that the pirates forcibly attacked ships that Goldman had already shorted.

“We were functioning as investment bankers, only every day was casual Friday,” the pirate said.

The pirate acknowledged that they merged their operations with Goldman in late 2008 to take advantage of the more relaxed regulations governing bankers as opposed to pirates, “plus to get our share of the bailout money.”

In the aftermath of the shocking revelations, government prosecutors were scrambling to see if they still had a case against the Somali pirates, who would now be treated as bankers in the eyes of the law.

“There are lots of laws that could bring these guys down if they were, in fact, pirates,” one government source said. “But if they’re bankers, our hands are tied.”

Comments: The pirates also were not happy with their bonuses because there was a Goldman subsidiary in Switzerland which ran a big ‘Piracy, Ransom, Kidnapping  and Abduction Cover’ the profits of which included Ransom Negotiation Fees of $ 1 Billion. However Goldman big bosses said this was invested in bonds of Greece, and hence the bonus would be paid in Euro instead of US $. Last heard they were still negotiating the average currency rates for the Euro and the $.

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