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Investment Fraud: The Case of Sahara India Pariwar*

CASE STUDY, FINANCIAL MANAGEMENT
IIT Kharagpur, 9 Pages
AUTHOR(S) : Sadrita Deb, PhD Scholar and Abhijeet Chandra, Assistant Professor, VGSOM, IIT Kharagpur

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Investment Fraud: The Case of Sahara India Pariwar

In 2008, Mr. Subrata Roy, the Chairman of Sahara India who once believed to be one of the most influential business magnates in India1 was accused of duping investors, non-compliance of regulatory provisions and contentious financial practices. Being a high profile case and given its complexities, Sahara India investor fraud case is one of the biggest investment fraud cases of the decade. Is it mostly the CEO and the top management who are involved in such fraudulent activities? What made the Sahara Chief resort to such fraudulent behaviour? Does effective monitoring help in detecting and curbing investment fraud? What are the end results or consequences of such fraud?

Sahara India Investment Fraud – A Brief Outline

After the RBI barred Sahara India Financial Corporation from raising funds from the public in 2008, to keep its operations going, the group floated two companies, Sahara India Real Estate Corporation Limited (SIRECL) and Sahara Housing Investment Corporation Limited (SHIC). The two companies raised funds from more than 3 crores2 investors by issuing Optionally Fully Convertible Debentures (OFCDs) of over INR 24000 crores3. The illegal money raising issue came to light when Sahara group filed a red herring prospectus with Securities and Exchange Board of India (SEBI) to raise money from the public in the secondary capital market. Also, several investors’ complaints prompted SEBI to investigate into the financial matters of Sahara India leading to the unfolding of the facts that the organization has been flouting several compliance norms for years...................

Exhibits

Exhibit I: People Engaging in Fraudulent Activities in an Organization (%)


1 “High and Mighty 2012”, http://indiatoday.intoday.in/story/high-and-mighty-2012-anil-ambani-sunil-bharti-mittalanil-agarwal-subrata-roy-gautam-adani-shiv-nadar/1/184468.html, April 7th 2012 (Accessed date: February 7th 2017)
2 A crore is equivalent to 10 million.
3 Kanteti, V.L., “Corporate social responsibility towards investors- a case analysis of Sahara Group”, Indian Journal of Research, 4(6), 2015

Teaching Note Preview

Investment Fraud: The Case of Sahara India Pariwar

Synopsis

The premise of this case study is to enable a discussion on the interactive factors which induce investment fraud in an organization and the consequences of such activities are identified through the analysis of the Sahara India’s investment fraud using the CRIME model. Unfortunately, it is predominantly the senior management, due to economic pressures and individual’s ideologies, are engaging in duping investors, misappropriating assets and breaching regulatory laws. The lack of adequate monitoring further encourages such activities leading to the investors losing money as well as faith in the economy.

Prerequisite Conceptual Understandings (PCUs)/Before the Classroom Discussion

The students/participants are encouraged to read the following before the class to get a better understanding of the case and ensure a productive discussion:

• Newspaper articles from Financial Newspapers like The Economic Times, Business Standard, related to the Sahara India case.
• Background of Sahara India conglomerate.
• A brief background of SEBI and its powers.

Case Positioning and Setting

This case study can be helpful for MBA, Executive MBA, Chartered Accountant Programs. It can also be used in Financial Reporting, Forensic Accounting and Business Analytics courses. The case forms an introductory base for participants studying forensic accounting and data analytics techniques to detect fraud. For chartered accountant courses, the study gives a fair idea of the importance of quality audit. For the MBA participants, this study might help them to understand the value of corporate governance and the ethical aspects of business.

Assignment Questions

I. What are the factors inducing fraud and what are the consequences thereof? What encourages the senior management to engage in such activities?
II...........

Preamble

This case study sensitizes the students/participants regarding the factors which might induce fraudulent activities and the end results of such acts through the CRIME model. Fraud includes any intentional attempt by any corporate to deceive or mislead users of published financial statement, specially the investors. In the past decade, corporate frauds are on a rise in India which is detrimental to the investment climate and economic growth in the country. Keeping in mind the current scenario, this case study helps in exploring the interactive factors which might influence investment fraud by corporates.........


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Abstract

 


*ET CASES – VGSOM’S CASE AWARD FOR BEST CASE IN FINANCIAL GOVERNANCE at International Conference on Financial Markets and Corporate Finance, (ICFMCF 2017), 7th & 8thJuly 2017, VGSOM, IIT Kharagpur


 

The case study on Sahara India’s investment fraud is aimed to give an understanding to the students/participants about the interactive factors which induce fraud in an organization and the consequences thereof. With the help of the CRIME model, the factors inducing the fraudulent behaviour of the senior management and the consequences of such activities are identified. In the past decade, corporate frauds are on a rise in India which is detrimental to the investment climate and economic growth in the country. What motivates the senior management and CEO to indulge in fraudulent behaviour? Does effective and timely monitoring mechanism help in detecting and curbing fraud in an organization?

Pedagogical Objectives

  • To understand the causes and consequences of investment fraud in an emerging economy like India
  • To understand the CRIME model of fraud to determine the interactive factors which induce fraudulent behaviour in an organization and the consequences thereof
  • To understand whether an effective monitoring mechanism helps in detecting and curbing cases of investment fraud in an organization

Case Positioning and Setting

This case study might be helpful for MBA, Executive MBA, Chartered Accountant Programs. It can also be used in Financial Reporting, Forensic Accounting and Business Analytics courses.

The case forms an introductory base for students studying forensic accounting and data analytics techniques to detect fraud. For chartered accountant courses, the study gives a fair idea of the importance of quality audit. For the MBA students, this study might help them to understand the value of corporate governance and the ethical aspects of business.

 



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