Major Corporate Scandal in India and Abroad

Major Corporate scandal
in India and Abroad

Presented by-Sourav Panda
Registration no-190415100006
BCOM 6th SEM
CENTURION UNIVERSITY OF TECHNOLOGY AND MANAGEMENT
What is Corporate scandal?
Corporate fraud consists of illegal or unethical and deceptive actions
committed either by a company or an individual acting in their
capacity as an employee of the company. Corporate fraud schemes
are often extremely complicated and, therefore, difficult to identify. It
often takes an office full of forensic accountants months to unravel a
corporate fraud scheme in its entirety
Major corporate scandal in India
1. Satyam computer (Satyam)
Satyam was the first major fraud of its kind, which shocked the country and
led to tightening of regulations, reporting and governance mechanisms. The
fraud had the same shock and awe effect like what Enron and Lehman
brothers had in the USA. The enactment of strictest ever regulation,
namely, Sarbanes and Oxley, was the outcome of these frauds and many
countries followed with enactment of similar regulations.
Promoters of the company had devised ingenious methods to commit frauds
with large scale dummy billings for services rendered to foreign clients. As a
logical step forward, fake proceeds were shown to have been received in
multiple bank accounts, opened in various countries. Many of these
accounts were later found to be non-existing.
The company was consistently showing large bank balances in its financial
statements, which were not consistent with other IT companies considering
the size of its business. The whole of these operations was overseen by the
promoter with the assistance of a separate staff working on this, what I
would call a fraud factory.
At the closure of financials and to satisfy auditors, fake bank confirmations
and statements were generated and produced as evidence of balances to
auditors. The amount involved in the fraud was around USD 1 billion.
• 2. Kingfisher Airlines (KLA)
• KLA was another corporate fraud, which was first of its kind in the
Airlines industry, which ultimately led to fall of the empire of King of
good times. The airline was launched by flamboyant Vijay Mallya, well
known as King of good times. Over a short period of time KLA established
a reputation of finest private airline of the country, with high quality
service standard and was enjoying second highest market share after Jet
Airways.
• The company resorted to borrowing funds by all possible means, including
related parties and pledge of Kingfisher brand by over-valuation of brand
value. Good times did not last long, and Vijay Malia had to sell its family
jewel liquor and beer business to liquidate part of its debts.
• Currently Vijay Malia is in the UK and fighting battle in courts to stop his
repatriation into India. Consortium of banks led by SBI has exposure of
around Rs, 9000 crores to now a virtually bankrupt airline. Most
employees lost or quit jobs as salaries were nor paid for months together.
The company went to the extent of defaulting in depositing statutory
dues like PF, TDS deducted from salaries to government authorities
• 3. PNB
• PNB was the first major banking fraud reported in the country, involving a
massive amount of around Rs. 15000 crores. Fraud was committed by Nirav Modi
and Mehul Choksi, (through Gitanjali Gems, a listed company owned by him).
Both were in the business of importing rough diamonds and exporting polished
diamonds.
• Over a period, both had built retail chains of diamond business in India and at
famous international destinations. Nirav was, particularly, PR and showmanship
savvy.
• At that time no one questioned the source of his funding. It was only after a few
years, that this unprecedented fraud came to light, which shocked the nation as
never before.
• He was defrauding PNB and other bankers by opening LCs of large amounts
without any underlying transactions (paper money in essence), with the
connivance of a few junior level banking officials. He exploited an elementary
deficiency in the IT systems of non-reconciliation of LCs opened with the
underlying transactions. LCs opened were not recorded in the RTGS system as was
the requirement applicable to all banks. Hence, existence of such LCs was not
known till the time the fraud was unearthed
Major Corporate scandal in Abroad
1.Enron scandal
• The Enron scandal is undoubtedly one of the most famous corporate scandals of all time.
• The situation started in early 2001, when analysts questioned the accounts presented in
the company’s previous annual report. These accounts used a variety of irregular
procedures, which made it difficult to work out how the company was making money –
despite it apparently having a foothold in energy, commodities and telecoms among
other industries. The SEC began to investigate and discovered that Enron was hiding
billions of dollars in liabilities through special-purpose entities (companies it controlled),
which enabled it to appear profitable even though it was actually hemorrhaging cash.
• The company’s share price fell from $90.56 to under a dollar as the crisis unfolded, with
Enron forced to file for what was then the biggest chapter-11 bankruptcy in history.
2.Volkswagen emissions scandal
• The Volkswagen (VW) emissions scandal – also known as ‘emissionsgate’
and ‘dieselgate’ – started in September 2015, when the US Environmental
Protection Agency (EPA) announced that it believed VW had cheated
emissions tests.
• It turned out that the company had been fitting what some industry
commentators described as ‘defeat devices’ to its diesel cars, which included
software that would detect when the cars were undergoing laboratory testing
and turn on controls to reduce nitrogen emissions. The cars would then appear
to comply with the agency’s standards but, in some cases, were actually
emitting up to 40 times the nitrogen dioxide limit when driving on the road.
• This discovery led to investigations worldwide, with some estimates
suggesting the scandal affected up to 11 million cars.

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