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 crores investors by issuing Optionally Fully Convertible Debentures (OFCDs) of over INR 24000 crores. 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...................
The CRIME Model
The CRIME model suggests the five interactive factors which determine the causes and consequences of investment fraud in the corporate world. The model states that the interactive forces of cooks, recipes, incentives, monitoring/lack of it can help in increasing the occurrence of investment fraud. It also highlights the consequences associated with investment fraud on the organization and the economy..............
Analyzing the Sahara India Investor Fraud Case
In this section, the Sahara India case is analyzed through the CRIME model. The causes and consequences of the investment fraud case are determined with the help of the five factors of the model........
i) The Cooks
The main accused in the fraud case is the Chairman and founder of the company, Mr. Subrata Roy and the directors of the company...............
ii) The Recipes
The recipes here include raising deposits from the investors by duping them and promising high returns, manipulation of the assets of the company and diversion of funds.............
iii) The Incentives
Financial and economic pressures were the two main incentives for Sahara India to engage in fraudulent activities.........
iv) Monitoring
This case throws a light on both the effectiveness of efficient monitoring and the lack of it. On one hand, it shows the efforts of SEBI to detect and book fraudulent activities in the market..........
v) End Results or Consequences
The end results of the investors’ fraud carried out by Sahara India over years is massive. The investors were duped of INR24000 crore. The positive consequences with the Sahara fraud case coming to light and the role of the regulatory authority..................
Potential Measures of Curbing Investment Fraud
The study provides a useful insight into the causes and consequences of investment fraud through the case of Sahara India. The data collected from secondary sources is analyzed by using the CRIME model which states the interactive forces which induces investment fraud and the consequences thereof. The case study further confirms that it is mostly the senior management of the organization involved in the fraudulent behaviour...........
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................
Exhibits
Exhibit I: People Engaging in Fraudulent Activities in an Organization (%)