Telltale Signs of E-Commerce Fraud - Red Flags in E-Commerce Fraud

As long as people can get away with it, there will be fraud. However, there are signs you can watch out for that might raise a red flag on potentially fraudulent transactions. Look for questionable street and email addresses as well as multiple orders from the same.

In a time of economic crisis, there tends to be an increase in the number of people that turn to criminal activity. Although petty crime is usually one area that shows a significant upswing, an additional form of criminal activity on the rise is fraud.

Before you can stop fraud, you need to know how to define it in order to properly identify it. Fraud is defined as the use of deception to obtain money or something else of value. Although typically carried out online, some fraudsters pursue the riskier physical fraud in which they interact with people face-to-face.

When fraud is carried out online, however, fraudsters can orchestrate an attack on a much larger scale, allowing them to sit back and wait for the goods to arrive.

Define and Identify

To identify fraud, there are some red flags that all businesses should be aware of. Some of the red flags include the following:

• Order velocities -- Defined as multiple orders placed within the same day, hour or minute, they typically appear from one device, one address, one card or one user ID.
• Risky street addresses -- Often, you can accurately estimate the level of risk of carrying out an order by utilizing the Google (Nasdaq: GOOG)  Maps Street View to determine the location of the shipping address. If the address looks like an abandoned building, making a call to validate the card holder really made the purchase is advised.
• Anonymous/free email accounts -- These email accounts illustrate a higher percentage of fraud activity than those associated with a paid Internet service provider or a company email address.

Types of Fraud

There are a number of different types of fraud. Here we provide you with a brief description of some types most frequently encountered within the e-commerce industry:

• Card-not-present fraud -- Also known as "CNP fraud," this is the basic form of fraud carried out online. A purchase can be made with just the card number; no physical card is needed.
• Gift Card Fraud (card purchased in store) -- To avoid being caught by initial fraud screening technology, the fraudster pools together several small denomination gift cards to purchase a bigger ticket item online. Typically, the gift cards are purchased with stolen credit card information.
• Gift Card Fraud (card purchased online) -- This type of fraud is frequently carried out with the utilization of a fake email account. Since the purchase of a gift card online requests only an email address in order to receive a confirmation code, this allows the fraudster to purchase many gift certificates on one [stolen] credit or debit card and send the gift card credits to multiple email addresses. Typically, the fake email accounts are set up with free email services.
• Friendly Fraud -- This type of fraud is carried out by someone who places an order online and follows up with a complaint. Usually stating that they never made the purchase or did not receive the merchandise, this is one of the most difficult types of fraud to detect since it crosses into both the online and physical realms. Because of friendly fraud, fraud will never be completely eliminated.

Fraud in the E-Commerce Industry

Fraud ranks as one of the biggest problems within the e-commerce industry. Fraud rings pose the biggest threat as this technique utilizes the latest technology with one purpose in mind: Get away with as much fraud as possible. Fraudsters are getting better at fraud ring activities, as well, causing merchants to find it difficult to link transactions in order to find fraud. Many merchants ranked fraud rings as one of the biggest challenges to fighting online fraud.

An additional emerging threat to the e-commerce industry is the challenge of m-commerce, or mobile commerce. Mobile device users are generally less protected when accessing a merchant's Web site, frequently due to the merchant's establishment of "light" versions of the Web site, ironically designed to attract more mobile users. Merchants typically have not yet considered the potential new security threat or established stronger user-authentication on this platform, and fraudsters know it.

Possible Solutions

At this point, you're probably wondering if there is even anything that can be done to stop fraud before a company or a legitimate customer becomes a victim. There is. Although fraud may be one of the biggest threats to the e-commerce industry, there exist a number of solutions which focus on utilizing the technology and techniques that are readily available today. Depending on the type of goods/services that are sold, there are two approaches:

1. igital goods (such as music, software and video) -- These items are delivered in real-time, making it critical to assess the order quickly to determine the likelihood of fraud. Because the goods must be released almost instantly, it is recommended to fulfill any order not immediately deemed fraudulent. Re-screening the order later enables a more thorough investigation. If upon further investigation the order is found to be fraudulent, the card should be credited back for the goods that were purchased. This protects the victim from the charge and the company from eventual chargeback.
2. ll other goods -- Since these orders are processed and then scheduled to ship, there is time to allow the fraud detection screening system to fully assess the risk of an order, and then sort-out questionable orders for further review. With this system in place, fraudulent orders can be stopped before being processed. This protects the legitimate customer or fraud victim, and eliminates the fees associated with a future chargeback for the company.

Basically, to protect yourself and your customers from becoming victims of fraudulent activity, utilize every aspect of today's technology to protect the e-commerce venue, including those offered by card issuers. Today's leading technology enables the use of tagless/covert device ID, risk engines tuned for the environment they support , and link analysis tools for finding additional instances of fraud.

Every device with Web access leaves a digital fingerprint. With device ID technology, the digital fingerprint of these devices is captured and stored, enabling any Web accessible devices to be equally monitored among primary e-commerce orders for fraudulent activity. This information can then be referred to with link analysis; by linking similar transactions, it helps the company determine the risk-level associated with a transaction.

It is fair to assume that with the proper tools in place, an enterprise can screen fewer than five percent of all orders while capturing upwards of 85 percent of all fraud (minus friendly fraud). This also plays an important role in the number of chargebacks.

It is important to note that there is no silver bullet to prevent fraud. Some type of fraud will always exist, as evidenced by the presence of friendly fraud. In order to protect both customer and company, it is best to implement a layered security approach to identify potential fraud first and then investigate orders that appear suspicious. This enables both a real-time and time-delayed system to be employed, in addition to human intelligence. This will assist you in achieving maximum security online.

Source: www.ecommercetimes.com

Local RBS staff await fate

Royal Bank of Scotland employees in Australia are facing an uncertain future. The indebted bank is reportedly planning to sell some or all its operations in Asia-Pacific, but it’s unclear whether any Australian units will be up for grabs.

The firm, which is facing crippling writedowns, wants to concentrate on its core British businesses. It has hired Morgan Stanley to explore the potential sale of banking units in Asia.

For embattled RBS employees, a sale would mean working for a third owner in just two years. RBS tripled in size in Australia following its now ill-fated 2007 takeover of ABN Amro. The Australian Financial Review reports a company source saying that RBS is committed to Australia and continues to rebrand former ABN Amro operations.

But rumours are also rife that the units will be sold, with CBA and NAB mentioned as possible buyers after RBS unsuccessfully tried to do a deal with these banks last year. ANZ and Standard Chartered might also be potential suitors for parts of the wider RBS business across Asia.

Any buyout is likely to lead to layoffs. “The role duplication would be massive. The new owner would definitely be looking at making cuts,” says Andrew Price, a director at Global Search Partners.

As part of restructuring plans to clean up its battered balance sheet, RBS is creating a “non-core” division for its unwanted assets. In a potentially morale-sapping move, Australian employees could be dumped into this new RBS dustbin. “I can’t understand why they’ve made this split. It doesn’t do anything for there business or their staff,” adds Price.

The bank is so far refusing to comment on the sale but may break its silence on Thursday when it releases year-end results.

Source: www.efinancialcareers.com.au

Obama calls for new 'rules of the road' for Finance Industry

WASHINGTON:

US President Barack Obama has said his administration would lay down "clear rules of the road" for the crippled financial industry with a new 21st century regulatory framework. "We can no longer sustain 21st century markets with 20th century regulations," Obama said on Wednesday after meeting his top financial advisors and senior lawmakers at the White House.

"Strong financial markets require clear rules of the road, not to hinder financial institutions but to protect consumers and investors and ultimately to keep those financial institutions strong," the president said. "Not to stifle, but to advance competition, growth and prosperity."

The president blamed lax or poorly enforced regulation for allowing Wall Street to package mortgages into complicated financial instruments and in a perfect financial storm which helped cause the financial meltdown. "This financial crisis was not inevitable," he said. "It happened when Wall Street wrongly presumed markets would continuously rise and traded in complex financial products without fully evaluating their risks. "

Here in Washington, our regulations lagged behind changes in our markets, and too often regulators failed to use the authority that they had to protect consumers, markets and the economy."

Source: www.timesofindia.com; 26/02/09

Empanelment of CA Firms with Serious Fraud Investigation Office (SFIO)

Serious Fraud Investigation Office has invited applications from Chartered Accountants empanelled with the office of C&AG and who may like to be associated with SFIO for carrying out forensic examination of records of companies ordered for investigation by the government.

Serious Fraud Investigation Office, Ministry of Corporate Affairs intends to outsource certain Forensic Audit services in cases under investigation. The interested firms/ individuals empanelled with the CAG office or the Cost Auditing firms with expertise in forensic investigation field may apply immediately furnishing therewith, their expertise in the area of Forensic Accounting and audit including Cyber Forensic, the software that will be used and details of any Government/Public Sector or other undertaking where their services had been used. The interested firm shall be paid at the rate of Rs. 5000/- per day, for a team consisting of at least five individuals, with service tax and government dues extra.

Those interested may write at the following address:

Director
Serious Fraud Investigation Office (SFIO)
Paryavaran Bhawan
2nd Floor, CGO Complex
Lodhi Road
New Delhi- 110 003

For any query please contact:
Shri Sharad K Sharma
Joint Director
Tel: 011-2436 9251
Fax: 011-2436 5809

Source : www.taxguru.in 

Top five scams

Scams, ruses and plain old retail rip-offs, it's not only the super-shysters that make a fortune swindling us.

Most of us have at one time succumbed to bad building work, ruined travel plans, rental rorts, faulty phones and computers, shonky car deals, electrical appliances and furniture; the list of cons goes on and on.

So what are the worst scams; the real humdingers that sting people most.

Our consumer agencies are inundated with 8 million enquiries and complaints each year, which equates to more than 22,000 a day at a rate of almost 3,000 an hour.

Today Tonight contacted the Australian Competition and Consumer Commission as well as state Consumers Affairs and Fair Trading offices to uncover the top 5 gripes of the year.

Scam Number 1
Undoubtedly the big daddy of scams: internet and identity fraud.

Detective Inspector John Potter of the Victorian Fraud Squad says online fraud is a particularly serious problem for Australians.

"It is the fastest growing type of crime at the moment is identity crime or identity theft, and we're seeing these types of crimes being committed in a number of ways" Det. Insp. John Potter says.

"More and more people are being fleeced, sometimes financially devastated."

And the online fraud expert says popular networking sites can also be potential playgrounds for online villains.

"Facebook and Myspace are of concern to police," Det. Insp. Potter says.

"Use a different name or whatever you wish to do, but don't put personal details down, because these type of personal details could be harvested by criminals and used to develop up an identity, or steal that person's identity to use for criminal activities," he says.

Global internet scams and frauds are multiplying at a rapid rate and they're the most costly rip-offs.

The Australian Bureau of Statistics found almost 1 in 4 people are targeted each year and 800,000 fall victim.

The financial losses are massive, with losses of around $1 billion every year.

Phishing attacks (emails or phone calls pretending to be your bank asking to update your confidential information, like usernames and passwords) are continuing to con people.

So are the overseas lotteries, pyramid schemes, chain letters and Nigerian-type scams that ask you to send an advance fee.

Det. Insp. Potter's advice is to just ignore scam emails.

Scam Number 2
Electrical goods, that do not work or are poor of quality.

Complaints figures on electrical goods soared this year due to thousands of unsafe products

Also bolstering complaints figures, recalled Electrolux dishwashers that have so far caused 239 fires in Australia, setting alight kitchens and melting and smoke-destroying whole homes and their contents.

Scam Number 3
Bad, delayed and overpriced building work on new homes, extensions, kitchen renovations, pergolas and verandas, plumbing, gas and electrical work, fencing, paving and landscaping.

Scam Number 4
Refund problems.

Virginia Judge, NSW Fair Trading Minister says shoppers are being wrongly denied their warranty rights, refused refunds and repairs, even when products are clearly faulty or misrepresented. At major stores in Australia, try and return items after 12 months consumers are getting into difficulty, even with extended warranties.

Today Tonight tested Big W, Target, K-Mart, Clive Anthonys, DJs and Myer - all told us no refunds after 12 months, even if we had a 3-year warranty.

Scam Number 5
Motor vehicles are always in the top 5 because of poor quality, outright lemons, repeated faults and break downs, dishonoured warranties, and shonky servicing.

Other top complaints at consumers affairs and fair trading offices, shoddily made furniture, computer hardware, fixed telephone and mobile phone problems. And tenancy issues are major around the nation, especially in this economic climate.

Travel and tourism is also one of the top 10 scams.

But don't just cop it, it pays to complain if you have no luck with the trader.

Source: www.yahoo7.acom.au/todaytonight.

Recreating a rotten system

The Obama housing plan seeks to return to the pre-crisis situation that was based on the assumption that home prices would always go up and never down. This is myopia or cowardice, or both, says Swaminathan S Anklesaria Aiyar.

India cannot grow fast again till the US economy recovers. And US recovery depends on reviving the housing sector, whence the downswing began. Alas, the Obama Plan for housing is a crutch, not a cure. Putting all the blame on insufficient regulation and overpaid, greedy lenders cannot rectify the structural flaws of US housing. Equally to blame is the political illusion that by tweaking markets and arm-twisting lenders, you can make all Americans home owners. 
    

The Obama Plan has three main components. One, cash incentives (totalling $75 billion) for lenders and home owners to renegotiate mortgages. Two, allowing those whose mortgages exceed home value to refinance, up to 105% of the home value. Three, fresh capital of $200 billion for government agencies (Fannie Mae and Freddie Mac) to expand mortgage lending. 
    

The Obama Plan aims to raise distressed home values by $6,000, cut foreclosures, and prevent entire localities from becoming ownerless and derelict. Whether lenders will be able to renegotiate millions of mortgages remains unclear. Many mortgages have been sliced and bundled into CDO bonds, and any administrator who writes down a mortgage risks being sued by disgruntled bondholders. 
    

Refinancing mortgages up to 105% of home value will be disastrous if home prices fall further. The crisis owes much to the slack lending standards of Fannie Mae and Freddie Mac, yet the Obama Plan provides these agencies additional capital to extend substandard lending. This risky approach will work only if home prices rise soon. Otherwise, it will cause another housing crisis within two years. 
    

The Obama Plan addresses current distress, but ignores two fundamental flaws in the whole housing system. One is the limited liability of home owners. In most countries, a mortgage is secured by the value of the home plus a personal guarantee of the home owner. So, if he defaults on mortgage payments, the lender can go after his salary or other assets. This is called a full recourse loan, and encourages home owners to do their best to repay loans. 
    

But the US has non-recourse mortgages, secured only by the house. The lender cannot go after other assets of the borrower. If the market price of a house sinks below the mortgage outstanding, the owner can simply walk out and mail the house keys to the lender, with no further liability. This “jingle mail” loophole encourages wilful default. European countries have full recourse mortgages — the lenders can go after all assets — and so have far lower default and foreclosure rates. 
    

The Obama Plan is silent on closing the jingle-mail loophole. Politicians currently paint all lenders as crooks and borrowers as victims, and don’t want the supposed crooks to go after the other assets of the supposed victims. Such populism ignores the perverse incentives of jingle mail, which erode the foundations of the housing market. 
    

The second, more fundamental flaw is the political determination to tweak housing markets to somehow attain the ideal of universal home ownership. In a market system, monthly mortgage payments are necessarily higher than monthly rents. People with uncertain incomes should rent cheaply, not borrow expensively to buy houses. Renting is an essential part of a housing market, not a deficiency. 
    

Political measures to subsidise ownership and discourage renting have contributed to terrible lending and borrowing practices that caused the current crisis. Instead of reforming these, the Obama Plan provides billions to subsidise those same terrible practices. These practices survived for 60 years because of a quirk: US home prices never fell after World War II. Yet in a market system prices must fall as well as rise. When finally US home prices fell in 2007, the system collapsed. The US must, like other countries, have a housing system that can cope with declines as well as increases in home prices. 
    

US politicians aim for universal home ownership in four ways. One, unlimited tax exemption for interest on home loans. Two, the creation of Fannie Mae and Freddie Mac, agencies with quasi-government guarantees to underwrite more mortgages than markets alone would find prudent. Three, federal mortgage insurance. Four, several laws — including the controversial Community Reinvestment Act — obliging banks to lend to all areas, and not discriminate against poor or crime-ridden neighbourhoods. 
    

Though well intentioned, these measures are the wrong instruments. If you seek universal home ownership, the best way is massive public housing followed by privatisation (sale to the renters). Governments should build low-cost houses and rent these cheaply to people with low or uncertain incomes. Renters who pay rent for a specified period — say 12-15 years — will become owners. Margaret Thatcher in Britain converted millions of government tenants into home owners. 
    

This is not socialism. Even in pre-communist Hong Kong, which came closer than any other country to laissez faire, almost half of all housing was public housing. It was a non-market measure for a non-market aim. 
    

If Obama is serious, he must grasp some nettles. He cannot have both responsible lending practices and universal home ownership. If he wants responsible lending, he must explicitly abandon the goal of universal home ownership, and aim for affordable rents. This approach implies limiting or abolishing tax breaks on mortgage interest for home owners, and instead providing subsidies for lowincome renting. It implies full recourse mortgages. And it implies that prospective home buyers must put down 20% of the price of homes, so that the housing system can withstand a 20% fall in home prices. This will, of course, mean less home ownership and more renting. 
    

If on the other hand Obama wants to aim for universal home ownership, he should opt for massive public housing followed by privatisation. Renters of government housing should eventually become owners. 

Alas, the Obama Plan refuses to face up to this hard choice. Instead, it seeks to return to the pre-crisis situation, which was based on the assumption that home prices would always go up and never down. This is myopia or cowardice, or both.

Source: The Times of India, 25/02/09

Nobody had full picture of Satyam

HYDERABAD: 

Satyam's disgraced founder Ramalinga Raju built firewalls within firewalls to ensure that none of his seniormost colleagues had any clear idea about the company's performance or revenue.

If Ram Mynampati, Satyam's only wholetime director in the Raju regime, is to be believed, even he was in the dark about Raju's sleight of hand. In his first interview to the media, Mynampati told TOI that things were so structured that no single leader in Satyam "would ever get a complete picture of the company's performance at an operational level''.

"The organisation structure was created in such a fashion that no single leader would ever get a complete picture of the performance of the company at an operation level,'' Mynampati said. "Each of us would be privy to our slice of the business, regardless of the size,'' he added in an exclusive interview that was conducted partially on email and partially on the phone from New Jersey.

While the percentage of business attributed to each of the business leaders was derived from reported numbers, they were integrated at the corporate level. "As these numbers were audited first by an internal audit team and then by a reputed audit firm, we would take them as sacrosanct,'' he said.

"In a few instances where we noted differences, a reasonable explanation would have been given to explain those differences. Given the presence of our customers in 60-plus countries, and the 1,500-or-so leaders that manage these businesses, it would be extremely difficult to know the exact picture of revenue at the corporate level unless you are at the integration level,'' he claimed.

Intriguingly, there was no difference in invoices raised to be collected and sales reported. "So, even if there was a small difference in a given quarter, it would be treated as an aberration particularly because the numbers published are audited,'' Mynampati added.

Illustrating his point further, Mynampati said that he has 20 leaders managing different elements of business reporting to him directly. "I only have an integrated view of these businesses. To the extent that each of these leaders is satisfied with the numbers, there would be no scope for suspicion,'' he said.

Currently retaining the position of president, commercial and healthcare businesses, Mynampati said that IT was possibly not Raju's "career business''. Raju had started focusing on the infrastructure business, especially Maytas Infra, over the past two years. "He seemed to identify some synergies between the infrastructure business and IT in the areas of engineering, BPO and ERP... significant business wins in that space such as Hyderabad Metro seemed to vindicate his diversification strategy,'' he said.

Nevertheless, Raju's nomination of Mynampati as the interim CEO has worked against him. Mynampati said his nomination turned out to be the "most unfortunate event'', causing him many woes. He said his appointment was not seen as a reflection of his credentials and organisational position but was portrayed negatively which has caused much damage to him and his reputation. He said that he was personally devastated. "Not only has my trust been betrayed but to be seen as somehow being part of all that has happened is what hurts me most,'' he said. In further defence of his position, Mynampati said that though he was responsible for 50% of Satyam's business, he had no clue about the fraud the Raju brothers were cooking.

Mynampati left for the US soon after forming the leadership council. There were also questions raised regarding his hasty exit. Mynampati revealed that he has been a US citizen for the past 13 years and has been based there since 1981, except for brief stints in India.

Source: www.timesofindia.com, 24/02/2009

$8B Stanford fraud case will take years to clean up

Burned investors, trapped advisers, frozen assets spell trouble

The $8 billion fraud case involving Texas financier R. Allen Stanford — with its toxic stew of frozen assets, growing stack of lawsuits and hundreds of furious investors and advisers — is shaping up to be a long-running nightmare that could take years to unravel.

Investors' accounts in financial companies controlled by him may remain frozen for more than two years, according to Walter Pagano, head of the forensic-accounting division of Eisner LLP in New York and a former revenue agent with the Department of the Treasury.

What's more, the roughly 250 advisers who work for Stanford companies face uncertain futures since they've become ensnared in what the Securities and Exchange Commission described as "a massive, ongoing fraud" in a complaint brought against Mr. Stanford last week.

The SEC's civil investigation into Stanford International Bank Ltd. of St. John's, Antigua, and Stanford Group Co. and Stanford Capital Management, both of Houston, "could take more than six months to 27 months on average," Mr. Pagano said.

Meanwhile, Mr. Stanford was found Thursday in Virginia, where FBI agents acting at the SEC's behest served him with legal documents. He was not arrested and has not been charged with any crime, though federal agents continue to investigate the case.

A federal court ordered that Stanford's assets be frozen last week and appointed attorney Ralph Janvey of Dallas as receiver. Mr. Janvey, a partner in the Dallas law firm Krage & Janvey LLP, did not return calls seeking comment, but securities attorneys said it is unlikely that he will unfreeze the assets before a thorough investigation is conducted.

Financial-fraud attorney Thomas Ajamie, managing partner for Ajamie LLP of Houston, who represents several Stanford clients, said he does not expect assets to be unfrozen for at least 90 days, "and possibly much longer."

INVESTOR LAWSUITS

Meanwhile, investors have started to file what is expected to be numerous lawsuits against Mr. Stanford, his financial companies and top Stanford executives, including James Davis, a director and chief financial officer of Stanford International Bank and Laura Pendergest-Holt, chief investment officer of the bank and its affiliate, Stanford Financial Group of Houston.

Stanford's media relations department referred all inquires to the SEC, which in turn referred calls to Mr. Janvey.

Although financial advisers have not yet been named as defendants in the lawsuits, it is possible that they will be, securities fraud attorneys said.

The Stanford advisers' difficulties stem from the sale of certificates of deposit with suspiciously high returns and a proprietary mutual fund wrap program called Stanford Allocation Strategy.

According to the SEC complaint, Stanford Group advisers have sold more than $1 billion worth of the mutual funds "by using materially false and misleading historical performance data."

Stanford expanded the mutual fund program, using the false data, from less than $10 million in 2004 to more than $1.2 billion, according to the SEC. That generated more than $25 million in fees, the complaint said.

What's more, the fraudulent performance of the wrap program "was used to recruit registered financial advisers with significant books of business, who were then heavily incentivized to reallocate their clients' assets to Stanford International Bank's CD program," according to the SEC complaint.

The unusually high returns of the CDs touted by Stanford were in fact illusory, the SEC complaint alleges. What's more, according to the SEC, investments in the CDs were not placed in liquid financial instruments as promised but rather in illiquid assets such as real estate and private equity.

Financial advisers received a 1% commission when they sold the CDs, and they were eligible to receive as much as a 1% trailing commission throughout the terms of the CD.

In addition, according to the SEC complaint, Stanford advisers were trained to "provide security to clients" by describing the CDs as liquid investments, when they were not.

In 2007, Stanford International Bank sold $6.7 billion worth of CDs to 50,000 customers, according to the SEC.

Asked about the company's Caribbean-based bank product in an interview with Investment News last November, Jason Green, president of Stanford Financial Group's private-client group, described it as a proprietary "time deposit" offered through a Regulation D offering, an SEC form which allows the sale of unregistered securities to accredited investors in the United States under certain circumstances.

The "time deposit" had no Federal Deposit Insurance Corp. insurance, Mr. Green said, but offered "competitive" returns based on a "global portfolio."

"It's a good, unique product," he said during the interview.

Stanford clients who filed a class action against a number of Stanford companies last week in U.S. District Court in Dallas were told by their advisers that the CDs were "a very safe vehicle for investment," according to Chris Fonville, an attorney for Fleming & Associates LLP of Houston, which is representing the plaintiffs.

Any Stanford adviser who recommended an investment in a Stanford Bank CD that was "clearly unsuitable under New York Stock Exchange or Finra rules" may face a lawsuit from one of his clients, said James Dunlap, a securities litigation attorney with an eponymous firm in Atlanta. The Financial Industry Regulatory Authority Inc. is based in New York and Washington.

Mr. Dunlap is representing Johan Dahler, a Stanford client who filed a civil complaint against the company in Harris County, Texas, district court last week.

LARGE COMMISSION

The "disproportionately large" commission given to Stanford advisers who sold the CDs may be cited in a complaint brought against them, Mr. Dunlap said.

A 1% commission for the sale of a CD and possible 1% trailing fee is considered unusually high, industry insiders said.

One independent registered adviser in Texas, who asked not to be identified, said the amount "is too high. We get a few basis points for that kind of business."

The adviser said Stanford's "bank product" was popular when he interviewed with Stanford Financial Group several years ago.

"It sounded like a CD, but it paid 8.5% and was backed up by a bank in the Caribbean. It just didn't sound right," the adviser said.

A 1% upfront and trailing commission is "a very, very rich payout for a cash product," said Tim Welsh, president of Larkspur, Calif.-based Nexus Strategy LLC, a wealth management industry consultant.

"Typically, the commission is zero or minimal basis points." he said.

In addition to potential lawsuits, Stanford advisers likely will have to deal with angry clients who can't get their money and, as Mr. Dunlap put it, "may not be able to get it for a very long time."

"Clients are furious," said Rick Peterson, president of an eponymous Houston-based recruiting firm. "They're telling advisers to do your due diligence and find us a respectable home ASAP or we're taking our business elsewhere."

Stanford advisers are "utterly shell shocked, according to Tim White, another Houston-area industry veteran. "They are devastated. This is like death for these guys," Mr. White said.

The Stanford Financial Group's wealth management unit inspired great loyalty, he said. "They have a lot of pride and an esprit de corps that is difficult to match in the business" Mr. White said.

While Stanford advisers may be reluctant to leave the company, they may have no choice, according to Mr. White, who is a partner in executive-recruiting firm Kaye/Bassman International Corp. of Plano, Texas. He has worked with Stanford.

"If the situation is not resolved to the client's satisfaction, then they will be compelled to move [to follow the client]. The client calls the tune in this business," Mr. White said.

And to make matters even worse, several attorneys involved in lawsuits against Stanford said they were told that Mr. Janvey, the court-appointed receiver, has instructed Stanford advisers not to talk to their clients for the time being.

"They're in limbo, and that's a tough position for an adviser to be in," Mr. Ajamie said.

Comparisons to the Stanford case and the alleged Ponzi scheme run by New York investment manager Bernard Madoff intensified last week when The Wall Street Journal reported that federal prosecutors are investigating whether Mr. Stanford was operating a Ponzi scheme de-frauding investors around the world.

"The difference is that Madoff investors came from a close-knit circle, while anyone off the street could walk in and open a Stanford ac-count," Mr. Dunlap said.

Source: Investment News, By Charles Paikert.

Eight American banks collapse in February

NEW YORK:

As the financial woes mount in the world's largest economy, the number of failed American banks are climbing, with eight entities going belly up in February alone. Pushing the total bank failures this year to 14, another entity -- Silver Falls Bank, Silverton -- has been shut down by the authorities.

In February, the country has witnessed the collapse of eight banks, which is the highest for any month since 2000. The entire January saw failure of six such entities.

The Federal Deposit Insurance Corporation which is often appointed as the receiver for failed banks, shut down Silver Falls Bank on February 20. The bank had total assets worth 131.4 million dollars and deposits worth 116.3 million dollars as on February 9.

A staggering 14 banks have gone belly up so far in 2009 while just 25 such entities were shut down last year. In a reflection of the deepening economic recession, a stunning four banks were closed down on February 13.The failed entities on that day were Pinnacle Bank of Oregon, Corn Belt Bank and Trust Company, Riverside Bank of the Gulf Coast and Sherman County Bank.
Last year, an average of two banks collapsed every month and the majority failed after the ongoing financial crisis turned acute with the bankruptcy of Lehman Brothers in September.

Prior to February this year, the largest number of bank failures took place in 2002, when 11 entities went belly up. Even as the President Barack Obama has come up with a mammoth 787-billion dollar stimulus package, the country's financial sector continues to remain fragile.

There are rising concerns about the health of Citigroup and Bank of America and even possible nationalization of the two entities.

Among the bank failures in 2008, the most notable was the folding up of Washington Mutual, then the country's largest savings and loan entity. Other entities that collapsed this year include Alliance Bank, National Bank of Commerce, 1st Centennial Bank and Magnet Bank.

Source: www.timesofindia.com ; 22/02/2009

Experts blames Banks for Money Laundering

Banks in the country have been blamed for the increase in money laundering activities as proceeds of illicit schemes were taken away to other counties through the financial institutions. Mr. Nathaniel Cole, Chief Executive Officer (CEO), Forensics and Compliance Institute (FCI) in an interview with Vanguard, Thursday revealed how money are being carted away through banks.

According to him “ The money looted by fraudsters are siphoned to other countries through banks. Nobody can say that the fraudsters took away money from Nigeria to other countries by carrying big bags, otherwise known as “Ghana must go”. So if officials of banks are well trained to check those illegal schemes, then money laundering will be radically reduced or even cease to exist.

He harped on the need for the government to have regulatory reviews and reforms in order to have closer scrutiny and detailed examination of financial statements. He further disclosed that the fight against corruption will not succeed until the use of banks as a source by which money is being laundered out of the country is blocked.

He lamented a situation whereby the Economic and Financial Crimes Commission (EFCC) are claiming that it is fighting and prosecuting money launderers without prosecuting the banks through which the money is being laundered.

According to him, “If the conduit through which money is being siphoned out of the country is not blocked, there is no way in which Nigeria can effectively fight corruption. The banks are the major source through which funds are being siphoned out of the country, yet the EFCC have not announced that it is prosecuting a bank in relation with money laundering. Even when a United States agency sanctioned a Nigerian bank for money laundering, the EFCC still did nothing to the bank. This means that the EFCC is not carrying out its duties effectively.”

Speaking on the need to have forensic accountants to fight all sort of crimes committed through varying forms of unethical conduct, he stressed that forensic accounting should be routinely employed by banks, government and businesses to help check those illegal schemes.

According to him “ To bring perpetrators of money laundering to justice will require evidence that can stand the test of acceptability in a normal court of law. The forensic accountant will be increasingly under pressure to provide such proof.”

To this end, Cole disclosed that FCI is organising a training programme in collaborating with the Institute of Chartered Accountants of Nigeria (ICAN) to educate accountants and other professionals on forensic accounting.

The programme which commences February 23 is designed to develop skills and knowledge needed to effectively combat financial crimes, frauds, fraudulent financial statements, occupational frauds and also help in strengthening corporate governance in organisations and strengthen related controls among others.

The Forensics & Compliance Institute (FCI) is a subsidiary of C & B Associates Consulting, (C & B) USA.

Source: www.vanguardngr.com ; by eter Egwuatu & Michael Eboh

Risk Management Watch: Financial Crisis Big Opportunity for Risk Professionals

Risk management is a discipline that is being taken far more seriously these days thanks to the current financial crisis. Translation: the financial meltdown means big opportunity for Risk Managers, according to CFO.com. The report states the “often-misunderstood category of finance worker, which already was showing a rising profile, may now be in line for a quantum leap.”

“It’s an exploding category,” says Mitch Feldman, President of executive search firm, A.E. Feldman. Industry veterans recruiting for A.E. Feldman, point out that Chief Risk Officers who have been tested by previous market cycles are being handed more power. Investing in complex mortgage-backed securities is what led financial institutions into the current credit and mortgage crises, according to industry experts. Now, as firms struggle to minimize losses, risk management jobs are gaining significance and experienced Chief Risk Officers and Risk Managers are essential. A.E. Feldman also notes that financial and risk professionals with expertise in processes for assessing credit and counterparty risk and liquidity risk are in demand along with professionals with experience in restructuring and litigation support that can provide advice on how to respond to the evolving market conditions and subsequent regulatory changes.

But as the name might imply, risk management, is not about eliminating or minimizing risk. As CFO.com puts it, “the discipline is about avoiding uncompensated risk.” The report quotes Aaron Brown, a Risk Manager at hedge fund AQR Capital as saying, “You can’t be a good risk manager if you don’t love risk.”

But in today’s challenging economic climate, firms must balance risk with caution and the long-term interests of and returns to shareholders. That’s according to the latest report, entitled “Financial Reform: A Framework for Financial Stability” released by The Group of Thirty (G30), an international body of leading financiers and academics. And banks are already stepping up to the plate. A growing number are increasingly willing to share sensitive risk information with their rivals, as lenders try to limit damage from debtors’ defaults, fraud and other hazards in the future, according to Reuters.

The G30 recommends strengthening boards of directors with greater engagement of independent members with financial industry and risk management expertise. In a recent report, which addresses flaws in the global financial system and provides 18 specific recommendations to improve supervisory systems, enhance the role of the central banks, and improve governance practices and risk management, the group says board oversight of compensation and risk management policies should be coordinated, with the aim of balancing risk taking with prudence and shareholder interests.

The G30 also says systematic board-level reviews must also ensure the establishment of parameters for a firm’s risk tolerance, and contends the risk management and auditing functions must be fully independent and adequately resourced areas of a firm. The risk management function should report directly to the chief executive and periodic reviews of a firm’s potential vulnerability to risk arising from credit concentrations, excessive maturity mismatches, excessive leverage, or undue reliance on asset market liquidity are essential. Lastly, the G30 recommends that all large firms have the capacity to continuously monitor and make available (within a matter of hours) their largest counterparty credit exposures on an enterprise-wide basis.

Already, the international banking industry is working to create common methods on how to report risk, according to Reuters. The report states the Risk Analysis Service (RAS), which provides data on more than $1.3 trillion worth of global banks’ exposure to debtors, said the number of participants had increased by roughly 25% in the past year, adding it expected the current number to double over the next year. Reuters quotes UniCredit chief risk officer Henning Giesecke, as saying, “We joined RAS so we could benchmark UniCredit against our competitors. It is helpful … because it provides us with an overall view of how an industry sector is performing.”

Meanwhile, Reuters states that mathematicians from IBM are helping analyze $44 billion of losses collected by the Operational Riskdata eXchange Association (ORX) in an effort to create better safeguards against operational losses. The report quotes IBM spokesman Bill Mew, as explaining, “You will get a far better and more realistic appreciation of potential risk if you have access to broad industry-wide data than you would from a single organization.”‘

Banks are also making progress in introducing standard methods for reporting risks and are currently developing better risk models to calculate probable gains and losses on their assets in a variety of scenarios, states Reuters. The report predicts the new focus on risk management will be one of the top drivers of spending on information technology and services by financial companies, which they expect to hit $364.5 billion globally by 2010, citing research by Consultants Celent.

Looking ahead, experts anticipate banks will face a deluge of regulation in the coming months, which bides well for risk management professionals. A.E. Feldman notes demand for Chief Risk Officers (CROs) and Risk Managers will remain strong.

The proof many be in the numbers. The Global Association of Risk Professionals announced in November 2008 that it provided the Financial Risk Manager Certification Exam to nearly 14,000 candidates around the world – a 35% increase over the previous year. According to the group, the record-breaking number of financial professionals who registered for the exam where from major cities across six continents including Mumbai, Beijing, Jakarta, Tokyo, Singapore, Seoul, Bangkok, London, Paris, Warsaw, Frankfurt, Istanbul, Dublin, Stockholm, Tel Aviv, Dubai, Melbourne, Sydney, Johannesburg, Montreal, Toronto, New York, Dallas, Seattle and Honolulu.

Source: A.E. Feldman

Questioning Stanford could get you fired

WASHINGTON - While R. Allen Stanford’s investors were swallowing claims of vast returns on safe investments, some of his employees weren’t so sure.

And though one of them tried as early as 2003 to pass on to regulators his concerns about the bank, nothing came of it until Stanford’s operations were raided and shut down Tuesday.

The Texas billionaire with a reputation for jet-setting and lavish spending faces civil charges for allegedly lying about his investment strategy. But in 2003, when his offshore banking empire was exploding in size, even asking managers one question too many could get you fired, Miami broker Charles Hazlett said.

Hazlett was a top performer at Stanford’s bank, having sold $10 million in certificates of deposit in a single quarter of 2002. The company rewarded him with a new BMW.

But when a client asked Hazlett for details about the investments, no one at the bank would give him even basic information about risk ratings and asset allocation, he said in an interview.

Eventually, Hazlett said, he called a meeting with a top officer of the bank to ask how the investments worked. Instead of answers, he got an ultimatum: Resign or be fired.

“I kind of peaked when I won the car and was doing great, but as soon as I started questioning things at the bank, they were setting up to let me go,” Hazlett said.

It wasn’t just promises to investors of earning twice the normal rates on certificates of deposit that fed his suspicions, Hazlett said. The company also lacked detailed balance sheets. And it used a small and little-known accounting firm.

The Securities and Exchange Commission has been criticized for missing the same red flag — a tiny accounting firm — when investigating Bernard Madoff, who allegedly ran a $50 billion Ponzi scheme for years despite the SEC’s receiving numerous tips about him.

Hazlett said he repeated his concerns during an arbitration hearing over his departure from Stanford and believed regulators would follow up on them.

“I figured it was a matter of time before people figured things out,” he said.

But Hazlett said he never called officials directly because he didn’t have any proof of wrongdoing — just a sense of being stonewalled.

It turned out Hazlett wasn’t the only employee who wanted to know more about Stanford’s portfolio.

Even the man responsible for selling multimillion dollar CDs and overseeing the bank’s investments said he was rebuffed when he asked where the money was, court records show.

Michael Zarich, the company’s senior investment officer, told authorities he didn’t know where 90 percent of Stanford’s portfolio was invested.

Zarich said he was trained to deflect questions about the investment strategy while pitching to wealthy clients in Antigua, where the bank chartered.

His tutor on the evasive pitch was Stanford chief financial officer Laura Pendergest-Holt, Zarich said. He said she laid out the strategy in a series of training sessions in Memphis in 2005, according to court documents.

“I was trained not to divulge too much information, but it just wouldn’t leave an investor with a lot of confidence,” he said in a Feb. 4 meeting with SEC lawyers.

Clients would “just push, push, push,” he told the lawyers. “’Give me an actual security. Give me something,”’ he said they demanded.

But when he tried to learn how the money was invested, Pendergest-Holt and Stanford’s deputy James Davis turned him away, Zarich said.

Pendergest-Holt and Davis are among those charged in the civil complaint.

Another lower-level employee in Texas said he and his colleagues were suspicious of the company’s rapid growth and web of overseas ties. He spoke on condition of anonymity because he still works in the industry.

In fact, the only two people who knew where the money was were Stanford and Davis, Stanford’s his former college roommate, the SEC alleged in a civil complaint filed Tuesday.

Zarich said Pendergest-Holt also armed him with answers for potential investors worried about the size of Stanford’s tiny, Antigua-based auditor. Zarich assured investors that CAS Hewlett had been working with Stanford and his father since 25 years earlier, when major accounting firms “wouldn’t even give Stanford the time of day.”

If that didn’t work, he said, he told clients that using a name-brand firm “would erode the yields.”

Zarich is cooperating with the investigation, his lawyer said in a statement.

An SEC spokesman would not elaborate on the agency’s initial announcement about the case.

In his training sessions with Pendergest-Holt, Zarich said, he learned how answer the “typical question” of whether Allen Stanford could run off with their money.

“The answer was it would be extremely difficult,” Zarich told investigators.

As investigators closed in on him last month, Stanford finally had no choice but to address former employees’ concerns.

Complaints from “former disgruntled employees” had complicated an “otherwise routine investigation,” he wrote in an internal e-mail.

Hazlett said he knew better.

After Madoff’s arrest in December, he said, “I went around telling people, Stanford is next.”

Stanford was found Thursday in Virginia, where FBI agents acting at the SEC’s behest served him with legal documents. He was not arrested and has not been charged with any crime, though federal agents continue to investigate the case.

Source : www.msnbc.com

The complicated network of Allan Stanford's fraud case

C. Osgood

AP - Graphic shows locations impacted by the Stanford federal lawsuit

Source: www.mercedsunstar.com

Billionaire in fraud case always saw bright future

WASHINGTON -- On paper, it looked like R. Allen Stanford was making all the right moves.

Subprime mortgages? His companies never got involved. Risky loans? He said he never made one.

"There has never been, and there will never be, an easy way to make money," Stanford wrote to investors last year. "It requires discipline, knowledge, experience, hard work and plain common sense."

But U.S. investigators say Stanford's companies weren't based on any of that. Instead, they say, the Texas billionaire's offshore bank and financial companies used rosy financial predictions and old-fashioned deceit to lure investors into a scam.

The Securities and Exchange Commission shut down three of Stanford's companies this week. FBI agents in Houston are running a parallel investigation, according to a U.S. official who spoke on condition of anonymity because the criminal probe is ongoing. Stanford has not been charged with any crime.

At the behest of the SEC, the FBI tracked down Stanford on Thursday in Fredericksburg, Va., and served him with court documents. But billions of dollars remain unaccounted for. The government's court papers describe a company that bears little resemblance to the one described in glossy, unfailingly upbeat corporate documents.

"While others in our industry are fighting for their survival, we are growing our business," Stanford's wrote to investors while proudly announcing that 2007 was a record year of growth. "While others in our industry have seen a complete turnover in management and are grappling with how to develop a new business strategy, our core leadership team remains intact, and our investment philosophy of global diversification remains unchanged."

On the Caribbean island of Antigua, Stanford International Bank appeared to have found the perfect portfolio, one that minimized risk but generated consistently high returns. While investors in safe U.S. certificates of deposit could count on a roughly 3 percent return, Stanford offered CDs with twice that return.

In 2007, the Stanford International Bank investment portfolio earned more than 10 percent, more than twice what the S&P 500 earned. The bank assured depositors that a team of experts was analyzing investment risk daily, making sure the money was safe.

"Especially in these difficult times, our success speaks for itself," the 58-year-old Texas billionaire wrote in a mid-2008 newsletter. "I have an unbridled optimism and enthusiasm for our future."

Company publications are filled with the symbols of economic power: pictures of skyscrapers, private jets, serious-looking executives focused on scrolling stock tickers, board room scenes and Zurich, Switzerland, at dusk. Stanford's letters to investors boasted of the bank's social responsibility, its cutting-edge technology and its tradition of hiring the "best of the best" to manage their money.

Regulators now say the Stanford portfolio was basically a "black box." Much of the money was tied up in real estate and private equity - companies that don't trade on public stock markets. None of the bank's CDs were registered with the SEC, regulators said. And rather than a team of 20 analysts, authorities say, Stanford and his longtime friend, James M. Davis, were the only ones overseeing the money.

Had the company's estimated 50,000 investors looked past the glossy photographs and past Stanford's buoyant optimism, they might have been skeptical. Steve Wells, a forensic accountant and Western Kentucky University professor, said the bank sugarcoated its numbers by relying on management estimates and ignoring future credit losses.

"That's a red flag to me," he said. "Big time."

The company also made it hard to tell exactly what the portfolio's investments were. Any accountant who looked at those reports would have told investors to be cautious, Wells said.

Yet the numbers were alluring: Double-digit returns, and in tax-free Antigua to boot.

The exotic locale only added to the attraction.

"A visit to Antigua is part of the overall experience of the Stanford service and quality," a company memo reads.

Bank employees were instructed to arrange visits only for clients with $5 million or more to invest. Employees were encouraged to tell their bosses about client interests, such as "amateur sailor," so visits could be personalized.

In the company's mid-2008 newsletter, Stanford said his company was not disheartened by "doom and gloom" economists predicting a long recession.

"Even the most severe down cycles can bring opportunities that yield significant benefits in the long run," Stanford wrote. "This proven, well-grounded approach when making investment decisions and giving investment advice will benefit you, our clients, in these tumultuous times as never before."

Early this year, cracks began to show in Stanford's once unbridled optimism. Regulators noticed an alarming increase in wire transfers as Stanford International Bank tried to move money out of its investment accounts. Clients were prohibited from cashing out, regulators said.

As for the billions of dollars invested in the bank's seemingly safe, lucrative portfolio, the SEC has hired a receiver to scour the world looking for it.

No compensation for Satyam fraud victims: Govt

The government on Friday ruled out compensation for investors or companies hit by the Satyam financial fraud, estimated to be of the order of Rs 7,800 crore (Rs 78 billion).

"The government has no plan to provide financial assistance to the investors or the companies involved," minister of corporate affairs Prem Chand Gupta told the Lok Sabha in a written reply.

The minister said the losses suffered by investors after Satyam Computer Services founder chairman B Ramalinga Raju admitted to fudging books of accounts 'are not quantifiable as capital market fluctuations are caused by a variety of factors'.

Following the disclosure of fraud by Raju on January 7, Gupta said the share price of Satyam Computer on the bourses dropped from Rs 188 to Rs 30.70 before closing at Rs 38.40. "It (the share) has been traded at different prices since then," he added.

Pointing out that equities are risk-bearing instruments, he said, "The shares of companies are bought and sold continuously by investors at their own choice at various prices and at different times."

Gupta further said that government, on the basis of an order by the Company Law Board, suspended the earlier board of Satyam Computer and appointed one with six new directors.

The new directors, he added, are taking necessary steps to secure finances from banks and financial institutions on the basis of the commercial viability and financial strength of the IT company.

The new board of Satyam, headed by former Nasscom president Kiran Karnik, is trying to ensure 'continuity of business and operations of the company in the interest of its stakeholders', the minister said.

Source: www.rediff.com

The deadly mix of greed, lax oversight, 'short-termism'

The global financial crisis is really the consequence of an excessively short-term outlook, propelled by greed and unstopped by regulation. The short-termism is due to several factors, not least of which is the enormous growth, in the past three decades, of the mutual fund industry.

When mutual funds were first launched, they were sold as open ended funds, primarily to enable this product to compete with bank deposits which could be withdrawn. The majority of assets of mutual funds, (the industry has surpassed the banking industry in asset size) are open ended.

This places enormous pressure on fund managers for short term performance, relative to competition and relative to the index. This pressure, in turn, gets translated to corporate management, which is asked to deliver short term (read quarterly) improved numbers, never mind the long term future.

One of the earliest casualties of such short termism killing an excellent company was Lucent Technologies, earlier known as Bell Labs, the font of technological innovation as part of AT &T. Its management sacrificed, for improved quarterly reporting, important long term technologies.

US tax laws also abetted in short term outlook. A few years ago, tax amendments made claims of salaries above $1 million a year ineligible for deduction. However, bonus payments, if linked to performance, were allowed as deduction.

Corporate managers responded by capping salaries under $1 million and paying out large bonuses, linked to -- obviously -- short-term performance! Such bonuses are now coming in the limelight after President Obama criticised Wall Street firms paying them out, but the root cause was the government's own tax laws.

Institutional holding of corporate equity is now around 70 per cent, so corporate management heeds their warnings to deliver better quarterly performance, or else!

In a bid to grow the business in order to do this, scrutiny becomes horribly lax. Banks, for example, in order to increase business, lowered risk assessment standards dramatically. They consoled themselves by securitising home loans, thus taking the risk of default off their balance sheets but onto those of investors in securitised mortgages. Investors relied (foolishly, as it turns out) on the credibility of rating agencies who rated such securitised products.

An article, Move over, subprime, in the February 7 issue of the Economist says that Moody's downgraded, in just 5 days, 91 per cent of Alt-A mortgages (Alt-A being a category between prime and subprime) from AAA to junk status!

This is unbelievable! Imagine the fate of investors of these securitised bonds, who had foregone the higher interest of junk bonds, so as to invest in AAA bonds rated by Moody's, to be told, overnight, that they were, in fact, junk! It seems amazing that rating agencies have escaped their share of the blame for the current crisis, for they seem to have failed miserably in assessing risks properly, and of being too slow in re-assessing them.

The financial industry, in its bid for short term growth, went into innovative overdrive. All sorts of exotic derivative products were introduced, and allowed to be introduced by lax regulatory overdrive. This created a mountain of 'funny money'.

It is estimated that funny money is 90 per cent of total money, implying that central banks and other regulators have control over only a tenth of global liquidity! Such funny money has gone into the financing of various products including stocks, commodities and real estate, all of which formed asset bubbles that are now breaking.

The cleansing of such toxic assets is expected to take years and would need much more than the huge bailout packages being cleared by various countries (the US cleared a second, $787 billion TARP package).

What these bailout packages are seeking to do is to restore a bit of confidence, which has vanished. Banks are not lending to each other, or to corporates, for fear of counterparty risk of doing so to an institution with toxic assets.

Some bit of confidence seems to have returned, according to Lawrence Fink, in a CNBC interview. He points out that CISCO was able to raise debt at 200 basis points over comparable treasury rates, whereas just 3 months ago Verizon was able to do so at around 400 basis above. There is an estimated $8 trillion of funds available in the US for investment; once confidence seems to be returning, this could find its way partly into emerging markets.

For calendar year 2009, China and India will have lower, but decent, growth whereas it is expected that GDP growth in the developed world will be zero! Dr Mukul Ashar, delivering the CC Shroff Memorial lecture, opined that the UK may approach the IMF for a bail out, in a few months!

India would thus be a beneficiary of any temporary revival of confidence, which could result in a short term rally (pardon me for taking a short term view in a column that rails against it). Besides, the Indian government has suddenly become driven by circumstance, to think rationally not emotionally.

Thus, for example, FDI rules have been tweaked to allow for more foreign investment. If an Indian company were to have, say, a 49 per cent foreign stake, it would still be considered an Indian company.

Were it then to acquire a stake in a telecom company, that acquisition would be counted as domestic investment and not, as till now, proportionally (49 per cent of it) as a foreign investment.

Expect to see a lot of M&A activity in sectors hampered by limits, though the Government has retained right of review in industries with caps. However, this also means discretionary powers to ministers, which, more often than not, can be influenced.

Similarly, VC funds had, in the 2007 Budget, been made liable for tax even though, world over, they are treated as pass through entities with the investors paying tax on encashment of their investments. The necessity-is-the-mother-of-invention pragmatism has now made VC funds pass through entities. Why do Indian politicians and bureaucrats need a crisis to think logically?

Similarly, when the government threw open blocks for oil and gas explorations, they threw in tax concessions to attract the huge investment needed for it (a deep water rig, for example, costs over $500,000 a day to hire). By way of an 'explanatory note' in a previous budget, it was 'clarified' (sic) that mineral oil did not include gas!

This defies logic, because no one exploring under water can know whether he is going to find oil, gas, a mix of the two, or neither.

Maybe babus in the finance ministry have a second qualification as a hydrocarbon expert. Or maybe they, too, needed to be influenced into thinking logically. RIL [Get Quote] is investing another $6 billion to develop satellite discoveries in the KG basin. Its gas production is expected to start from March.

These three things, viz. FDI re-definition, declaration of VC as a pass through and belated recognition of gas as a co product of oil, for tax concessions, can facilitate inflow of funds, should investor confidence return.

Last week the Sensex rose 333 points to end at 9634 and the Nifty rose 125 to end at 2948.

Some confidence appears to be returning and, if investors become more confident after Tarp II has been cleared (reminds one of Rambo II, doesn't it?) one could expect a bit of a further rally. If this happens it could take the sensex to its previous turning points of around 10,500. The rally should be taken as an exit opportunity because the removal of toxic assets is not going to happen soon. It could take a year, likely more.

Source: www.rediff.com

Governance’s weak in 50% of IPOs: Crisil

Corporate governance standards were ‘weak’ in almost 50% of the 29 initial public offerings (IPOs) graded by Crisil since May 2007, the rating agency said in a release on Thursday. Crisil said only 10% of the companies graded after the period had robust corporate governance structures, while 25% of them were average and 15% were above-average.

This revelation has come at a time when corporate governance has grabbed a center stage in India, following the accounting fraud in Satyam Computer Services.

According to Crisil senior director S Venkataraman, corporate governance has always been an important parameter while grading IPOs, and made a difference on the gradings.

“The IPO gradings of companies where corporate governance standards were weak, typically tend to get a rating at the lower end of the gradings band,” he said.

Crisil said it differentiated between well-governed and weakly-governed IPO graded companies on the basis of board quality, their independence and ‘propensity for related party transactions’, referring to dealings with group companies.

“While not the sole determining factor, the quality of corporate governance as assessed by Crisil may significantly influence the Crisil IPO grade, beyond what the company’s business prospects and financials may suggest,” Chetan Majithia, head equities, Crisil Research, said in a report.

The ratings agency noted in over 45% of the evaluated companies with relatively weak governance scores, independent directors exhibited less-than-expected awareness or other businesses of the promoter group, or even IPO-related plans and strategies of the company.

“Moreover, in 15% of the cases, the quality of independence of the board from promoters or management was itself an area of concern, as it could impact the extent of balance and quality of oversight that independent directors are expected to bring to bear on board decisions,” Crisil said.

“In about 55% of the companies assessed to have governance issues, related party transactions or presence of group companies in similar lines of business emerged as key issues, as these could potentially affect minority shareholder interests,” it said.

WORRY LINES
Only 10% of the firms graded after May 2007 have robust corporate governance structures

Governance is an important parameter for grading IPOs and makes a difference on the gradings

Source: The Economic Times, 20/02/09

Swift, steep downturn crisscrosses globe

Markets are hammered as hope fades for quick recovery

NEW YORK - Markets around the world plunged Tuesday as evidence mounted that the global economic crisis is worsening.

Japan is suffering its worst downturn in 35 years. The British economy is facing its sharpest decline in almost 30 years. Germany is slumping at its worst pace in nearly 20 years. Meanwhile, the job market in the United States, at the epicenter of the global downturn, is the worst in decades. And emerging economies are contracting at a pace few had predicted just months ago. Even China, whose economy still is growing at a 6.8 percent annual pace, is grappling with vast numbers of the unemployed, raising fears of unrest.

The sharpness of the global slowdown has alarmed economists, who see no obvious engine for recovery.

"Most Western developed economies are going to see the deepest downturn they've seen in a number of decades, in some cases possibly since the Second World War," said Jonathan Loynes, chief European economist at Capital Economics, an independent consultancy in London. "If you go back six months or so . . . there was a hope that some parts of the world will escape the downturn from the U.S. economy and that would help to support the global economy as a whole. And that hope has now faded. We're seeing a downturn in virtually every area of the world."

The Dow Jones industrial average declined nearly 300 points yesterday to finish close to its lowest level of the financial crisis. Fearful investors piled into safe-haven investments such as U.S. Treasurys and gold. Bank stocks plunged worldwide, reflecting waning faith in their ability to hold up in a deteriorating global economic landscape and growing concern over the lack of a coordinated plan to clear the financial system of toxic mortgage assets.

The sell-off came despite the signing of the $787 billion stimulus package by President Obama and as auto executives faced a deadline to submit restructuring plans to the federal government after receiving billions in bailout money.

Dire news
After a three-day weekend, investors digested dire news Tuesday from countries that were supposed to help lift the world economy out of its downward spiral. The pace of decline in these countries exceeded expectations of even the gloomiest experts, illustrating the depth and breadth of this rare global swoon.

Japan's economy, the world's second-biggest, after only the United States, shrank at an annual rate of 12.7 percent during the last three months of 2008 -- the biggest contraction since the oil crisis of the mid-1970s. The British economy, damaged by the credit crisis, will contract at 3.3 percent, almost twice as much as predicted three months ago, according to the country's biggest business lobbying organization. Those two pieces of data, released Monday, came on the heels of a report Friday showing that the German economy, Europe's largest, shrank by 2.1 percent, the steepest drop since the country's reunification in 1990.

Some economists had argued that countries like Japan and Germany were better equipped to weather the downturn. Germany has little consumer debt, and Japan's banks are in better shape after the banking crisis of the 1990s. But their economies rely heavily on exports, and global demand for items such as Japanese and German cars has evaporated.

In Germany, the benchmark DAX index fell 3.4 percent Tuesday, while London's FTSE index declined 2.4 percent. In Japan, the Nikkei slid 1.4 percent.

Helping to drive European markets lower was a report from Moody's Investors Service warning that Western banks with exposure to Eastern Europe could face credit downgrades. The fear is that the emerging parts of Europe, which had grown rapidly by relying on capital flowing in from the West, are in for a hard landing. The euro fell, as did bank stocks.

Meanwhile, emerging markets, the world's fastest-growing economies, whose demand for goods and services is considered key to a global recovery, showed signs of intensifying weakness. Russia's state-owned news agency said Tuesday that lower commodity prices and the financial crisis are expected to cause the economy to shrink by more than 2 percent this year. In Brazil, where commodity exports have fallen sharply, retail sales in December fell for the third straight month, marking the longest period of declines in six years, a report released Tuesday showed.

Earlier this month, Taiwan said exports plunged by record levels. In Mexico, the government was forced to intervene in the foreign exchange market after the peso reached an all-time low against the dollar. In China, slumping demand for exports has trimmed the growth of its powerful economy to nearly half its 13 percent pace in 2007.

"Manufacturing, construction, financial services, non-financial, retail -- wherever you look, you see a complete collapse in demand," said Julian Callow, an economist at Barclays Capital in London. "It really is like the floor has come out of confidence in global economic demand."

On Tuesday, the head of the International Monetary Fund urged countries to coordinate their economic stimulus efforts, saying he was "not optimistic" about the world economy.

"Today, the house is burning . . . so we have to act as firefighters," Dominique Strauss-Kahn said on French radio, the Associated Press reported.

Worry at home
In the United States, the sobering news from abroad was coupled with worry about the viability of the auto and banking industry and doubt about just how much the $787 billion stimulus package would be able to revive the economy.

Financial stocks led U.S. markets lower Tuesday, with Bank of America, Citigroup and J.P. Morgan Chase each declining by 12 percent. Also hurting were auto stocks, with executives at General Motors and Chrysler facing deadlines to turn in restructuring plans to the federal government after receiving billions of dollars in bailout funds and seeking billions more. GM's stock was down almost 13 percent.

A report by the Federal Reserve Bank of New York that its general business conditions index in that region fell to a new low of minus-34.7 also weighed down markets.

Source: www.msnbc.com.

ICICI Bank tops list of credit card frauds, loses Rs 11.47 cr

NEW DELHI: One of the largest private sector lending institutions ICICI Bank lost more than Rs 11 crore due to over 8,000 cases of credit card

Guard your credit card I Elastic with plastic

frauds last year.

There were 8,280 cases reported by the ICICI Bank to the Reserve Bank of India, in which it lost Rs 11.47 crore between April and December 2008, Minister of State for Home Shakeel Ahmad said in reply to a question in the Lok Sabha on Tuesday.

A total of 703 and 2,484 cases were received by American Express Bank and HSBC Bank related to credit card frauds, in which they lost Rs 6.04 crore and Rs 4.90 crore, respectively.

According to the data, a total of 12,959 such cases were received during the said period in which various banks lost Rs 36.54 crore.

No cases were reported by IDBI Bank, Canara Bank and Indian Overseas Bank related to credit card frauds last year.

Other banks, which lost significant amount to such practices, were Citibank, which bore a loss of Rs 4.73 crore, Standard Chartered Bank Rs 2.39 crore and Deutsche Bank with a loss of Rs 2.09 crore.

Many nationalised banks were also affected by the fraudulent activities.

Online, Credit Card frauds cost banks Rs 42 crore

New Delhi:

Banks across the country reported a loss of over Rs 42 crore to internet/online banking and credit cards frauds during April-December last year with the maximum amount being fraudulently withdrawn using credit cards.

Though the states collectively reported 233 such crimes in 2008, Maharashtra reported 23 incidents — the maximum — during the nine month period last year. Tamil Nadu, on the other hand, has topped the list in terms of losing the maximum amount (Rs 2.09 crore) to internet frauds.

While different private and public sector banks on their part collectively reported a loss of Rs 36.54 crore to credit card frauds, the states reported a loss of Rs 6.57 crore to internet frauds.

According to figures released in Lok Sabha in response to a question on Tuesday, the lending institutions in Maharashtra lost Rs 55.54 lakh to online fraudulent practices.

Rajasthan, Andhra Pradesh and West Bengal lost Rs 89.93 lakh, Rs 64.29 lakh and Rs 35.72 lakh, respectively while Kerala and Delhi lost Rs 17.60 and Rs 10.90 lakh, respectively, owing to cyber frauds.

Eleven cases of internet fraud were reported from Andhra Pradesh, eight from Delhi, seven from Tamil Nadu, six from Karnataka and five from West Bengal during April-December 2008.

However, banks in Bihar, Goa and Jharkhand did not lose a single penny to such fraudulent activities.

According to data updated till 2007, out of the total 355 people arrested across the country, a maximum of 156 people were arrested in Madhya Pradesh in connection with cheating-related cases under IT Act — fake digital signature (Section 64) and breach of confidentiality/privacy (Section 72) — and IPC — forgery and criminal breach of trust/fraud).

Source: The Times of India, 18/02/09