TELGI SCAM

THE STAMP PAPER SCAM

THE SCAM
Abdul karim telgi was the mastermind behind the multi-million stamp
paper scam in india.

The journey from an ordinary room-boy of a guest house, to one of the multi-millionaires of the country, influencing over 9 states, Telgi's success bears a testimony to a typical rags-to-riches story, barring the unfair means used.

 Born in 1961, he learned to grow up on his own at a very early age after his
father's death. He used to study and work to pay his school fees by selling fruits and vegetables on trains.

He is a bachelor of commerce from belgaum college and went saudi arabia

for work and after seven years came back to india to work as a travel agent.

From a room boy of a guest house, he set up a stamp peddling shop on the
footpath, fulfilling the shortage and demand for stamp papers and cashing in good money. This clicked the idea to fake the stamps and make huge profits from them. This is when the roots of biggest scam of india were seeded at this stage.

 The way he gave wings to his criminal acts is definitely the work of a perfectionist. Telgi's fake stamp scam is the biggest ever in the country, and it was possible
because of this simple, yet unshakeable Indian truth: everyone, or at least almost everyone is corruptible. From the constable to the cabinet minister, everyone, or at least almost everyone is on the take. Telgi's corruption network must be far, far larger than what it appeared to be.

By the time Telgi came to need to grow his network, he had already learnt that the
right sum of money into the right pocket at the right time, ensures that an official head will look the wrong way when wanted. That, in fact, was how his stamp paper career started.

As stamp and stamp papers are allowed to be purchased only from registered peddlers, Telgi acquired a stamp vending licence in 1994. Then, with his good contacts, he also acquired a printing press at the india security press and started his scam on a larger scale from there. He was able to bribe insiders to give him the production programmes of the heavily guarded government security press in Nashik, so that he knew what denomination and category of papers were being printed at any given time, so his own press could do the same. Telgi was able to buy special printing machines from the Nashik press which had supposedly gone beyond their shelf life, and were meant to be destroyed and sold as scrap. Telgi did buy them as scrap (at an auction which was fixed in his favour), but he was able to ensure that the presses were not destroyed as they were meant to be .

 After some time, he became so influential that he was the one who decided who will
get promotions in the security press.

He ran over 72 stamp peddling centres across 9 states. With the strength of 300
agents who dealt in selling the fake stamps to bulk purchasers like banks, insurance companies, share-broking firms, his monthly profits were summing up around ground shaking rs.202 crore.

Apart from developing his scam empire, he also developed contacts with the
politicians of all hues and used a safe method to hide his criminal acts. Telgi knew exactly how to utilize the weakness of the corrupt system and susceptibility of the people in power. He donated unstintingly for temples, churches, mosques and was very bounteous in giving charity.

AFTER EFFECTS
Telgi got arrested in 2002 for the biggest scam ever committed in Indian history. Rs.23,000 crore was the estimated value of business transacted by Telgi and his
associates, and around 60 people were arrested from over nine states. 9 police officers were arrested in Maharashtra around 32 cases were recorded against Telgi and his associates in India, including murder and passport fraud

He, along with his crime associates, was sentenced to 10 years rigorous
imprisonment.

The Telgi case highlighted some dark faces behind police uniforms in Karnataka
and several other states, which made it a national issue.

 In a video tape released in September 2006 of Telgi, taking a narco-test,

revealed the names of some high rated politicians like Sharad Pawar and Chaggan Bhujbal to share the crime. At that moment, his network was disclosed, that reached to the very roots of the Indian political system.

On June 28, 2007, Telgi's imprisonment was revised and further extended to 13
years of rigorous imprisonment with a fine of sum of Rs. 202 crore. After some time , he confessed all his crimes.

Judge Chitra Bhedi of a special court, condemned a quantum of punishments

under several sections of Indian penal code (IPC) and the Maharashtra control of organized crimes act. However, he was quiet lenient eventually regarding Telgi after he confessed for the scams and because of his health as Telgi is HIV positive.

BARINGS BANK SCAM

THE SECURITIES SCAM

BARINGS BANK
Barings bank was founded in London in 1763 which eventually become Britains
oldest merchant bank by late 20th century.

It provided traditional banking services to the public while performing investment

activities in stocks, bonds, commodities and real estate.

Barings had established trading operations at most of the worlds exchanges. Baring grew up steadily and over a period of time became the leading merchant
bank in the world.

In February 1995, the bank collapsed because of a scheme, perpetrated by one of its
traders in Singapore-Nick Leeson.

He had wiped out the banks capital and destroyed the 220 year old institution. Barings bank has shut operations and got liquidated by 2007.

NICK LEESON
Nicholas Nick" William Leeson got his first job in 1985 with a private
bank, Coutts. He then moved to Morgan Stanley in 1987 for two years, and then to Barings in 1989.

In 1992, he was appointed general manager of a new operation in futures

markets on the Singapore international monetary exchange (SIMEX). Barings had held a seat on SIMEX for some time, but did not activate it until Leeson was sent over.

Leeson was selected to open, run and manage all aspects of trading on
SIMEX.

NICK LEESON

 Nick Leeson still trades in stocks and futures but strictly with his own
money.

While he was in prison, in 1996, Leeson published an autobiography, rogue

trader, detailing his acts.

In June 2005, Leeson released a new book, back from the brink: coping with
stress. It picks up his story where rogue trader left off.

WHAT WAS THE STRATEGY BEING IMPLEMENTED BY NICK LEESON

WHICH CAUSED BARINGS BANK TO FACE HUGE LOSSES?

Nick Leeson was given a lot of freedom by Barings bank in the derivative trading. In the early state, Barings banks management had planned to operate on interexchange arbitrate strategy. This strategy required Nick Leeson to buy and sell Nikkei 225 futures contracts simultaneously on both SIMEX and OSE market in order to gain the arbitrate profit from the different in price of the Nikkei 225 futures contracts.

This strategy was considered as a risk-free investment and provided good

opportunity for profit in the high volatile market. However, due to the contracts price were only slightly different, the profits earned were small. Because of this, Nick Leeson decided to change the strategy.

 The strategy implemented by Nick Leeson was named as straddle with the
objective of making a profit by short put and call options on the same underlying assets Nikkei 225 index.

Short straddle is when the investor holds a short position in both a call and
put with the same strike price and the same expiry date.

This strategy is useful when the underlying asset is not very volatile, but
over here Nikkei 225 index had been a very fluctuating index since 1970s.

This was a wrong decision made by Nick Leeson. Because of this the loss suffered by Nick Leeson kept on increasing. The
situation went worse when the Kobe earthquake happened in japan during year 1995. The Nikkei 225 index dropped 1000 points approximately which deteriorate the Barings banks loss.

HOW WERE THE LOSSES COVERED UP?

Leeson had opened an errors account in order to hide an error made by one of
his colleagues.

The account was numbered 88888 8 being a number considered to be very lucky in Chinese numerology.
he never used the account for his own gain, but in 1996 the New York times quoted British press reports" as claiming that investigators had located approximately $35 million in various bank accounts tied to him.

However, Leeson used this account to cover further bad trades. He insists that

Management at Barings bank also allowed Leeson to remain chief trader while
also being responsible for settling his trades, jobs usually done by two different people. This made it much simpler for him to hide his losses from his superiors.

IMPACTS
By the end of 1992, the account's losses exceeded 2 million, which ballooned
to 208 million by the end of 1994.

Leeson on 16 January 1995, placed a short straddle in Singapore and

Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin.

Leeson attempted to recoup his losses by making a series of increasingly risky

new trades (using a long-long future arbitrage), this time betting that the Nikkei stock average would make a rapid recovery. However, the recovery failed to materialize.

 Leeson left a note reading "I'm sorry" and fled Singapore on 23 February. Losses eventually reached 827 million (us$1.4 billion), twice the bank's
available trading capital.

After a failed bailout attempt, Barings was declared insolvent on 26

February.

After fleeing to Malaysia, Thailand, and finally Germany, Leeson was

arrested in Frankfurt and extradited back to Singapore on 20 November 1995.

He was charged with fraud for deceiving his superiors about the riskiness
of his activities and the scale of his losses. Several observers have placed much of the blame on the bank's own deficient internal auditing and risk management practices.

 The Singapore authorities' report on the collapse was scathingly critical of

Barings management, claiming that senior officials knew or should have known about the "five eights" account.

Leeson pleaded guilty to two counts of "deceiving the bank's auditors and
of cheating the Singapore exchange", including forging documents.

He was sentenced for six and a half years in Shanghai prison in Singapore, he was released from prison in 1999.

EFFECTS ON BANKING INDUSTRY

The collapse of Barings bank may have not greatly impacted the regulators
and the banks to form a new regulation but it would be a great lesson for the companies and banks all over the world to understand the importance of proper supervision and control systems and pay more attention on the issues of corporate governance and risk management.

THANK YOU !!
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