Of all the recent encounters of the Indian public with the much-celebrated forces of the market, the Unit Trust’s US-64 debacle is the worst. Its gravity far exceeds the stock market downswing of the mid-1990s, which wiped out Rs. 20,000 crores in savings. The debacle is part of the economic slowdown which has eliminated one million jobs and also burst the information technology (IT) bubble. This has tragically led to suicides by investors. And then suspension of trading in US-64made the hapless investors more dejected at the sinking of this “super-safe” public sector instrument that had delivered a regular return since 1964. There is a larger lesson in the US-64 debacle for policies towards public savings and public sector undertakings (PSUs). The US-64 crisis is rooted in plain mismanagement. US-64 was launched as a steady income fund. Logically, it should have invested in debt, especially low-risk fixed-income government bonds. Instead, Continue reading
Financial Scams
Securities Scams In India
Securities Scam 1992 In April 1992, press reports indicated that there was a shortfall in the Government Securities held by the State Bank of India. Investigations uncovered the tip of an iceberg, later called the securities scam, involving misappropriation of funds to the tune of over Rs. 3500 Crores. The scam engulfed top executives of large nationalized banks, foreign banks and financial institutions, brokers, bureaucrats and politicians: The functioning of the money market and the stock market was thrown in disarray. The tainted shares were worthless as they could not be sold. This created a panic among investors and brokers and led to a prolonged closure of the stock exchanges along with a precipitous drop in the price of shares. Soon after the discovery of the scam, the stock prices dropped by over 40%, wiping out market value to the tune of Rs. 100,000 crores. The normal settlement process in Continue reading
Case Study: The Enron Accounting Scandal
As 2002 began, energy trader Enron Corp. found itself at the center of one of corporate America’s biggest scandals. In less than a year, Enron had gone from being considered one of the most innovative companies of the late 20th century to being deemed a byword for corruption and mismanagement. Enron was formed in July 1985 when Texas-based Houston Natural Gas merged with InterNorth, a Nebraska-based natural gas company. In its first few years, the new company was simply a natural gas provider, but by 1989 it had begun trading natural gas commodities, and in 1994 it began trading electricity. The company introduced a number of revolutionary changes to energy trading, abetted by the changing nature of the energy markets, which were being deregulated in the 1990s and thus opening the door for new power traders and suppliers. Enron tailored electricity and natural gas contracts to reflect the cost of Continue reading
Case Study on Corporate Governance: WorldCom Scandal
Established in 1988, WorldCom was formed so that the strongest, most capable public relations firms could serve national and international clients, while retaining flexibility and client- service focus inherent in independent agencies. Through WorldCom, clients have on demand access to in-depth communication expertise from professionals who understand the language, culture and customs in the geographic areas of operation. WorldCom has 105 offices in 90 cities and 40 countries on five continents, more than 2000 employees and recorded revenue of US $ 243.5 million in 2008. In the 90’s WorldCom was involved in acquisitions and purchased over 60 firms. The complete financial integration of the acquired company must be accomplished, including an accounting of assets, debts, and a host of other financially important factors. WorldCom moved into Internet Traffic, controlling 50% of US Internet Traffic and 50% of the e-mails worldwide. In 1997, WorldCom and MCI completed a US $37 billion Continue reading
Case Study on Corporate Governance: Enron Scam
Enron is an energy-based company in Houston, Texas that deals with the energy trade on international and domestic based. Enron Corp. Is one of the world’s largest energy, commodities and Services Company was created out of merger of two major gas pipe line in 1985. Enron was created by merge between Houston Natural Gas and Internorth. Houston’s gas’s CEO Kenneth lay headed the merger of the two companies. After that Kenneth lay become the CEO of Enron. Earlier Enron was Enron was solely involved with the distribution and transmission of electricity and gas of United States. In merger, Enron incurred a large amount of debt, and which resulted deregulation, after this Enron was no longer had the rights of its pipelines. The company had to find a way to generate profits and cash flow. Kenneth lay hired Jeffrey Skilling to work for Enron as an accountant. Skilling suggested the practice Continue reading