‘All I wanna say is that they don’t really care about us’

The above Michael Jackson song sums up the feeling of individual investors to the government, and its arms, the investigative agencies and the judiciary. They don’t care about the plight of individual investors. Unless this changes, the aspirations of the government to become a $5-trillion economy will not fructify.

Enforcement agencies and the judiciary: Both these favour perpetrators of frauds, including bank frauds and Ponzi schemes. The scamster, by virtue of the fraud, has a greater ‘ability’ to influence them. So their efforts are misdirected, deliberately, towards others.

For example, last week, the Supreme Court stayed a Bombay HC order ordering sale of assets of HDIL (the defaulter that brought down PMC Bank), on an application by the RBI, which wanted a say. This, despite an Enforcement Directorate finding that HDIL promoters had siphoned off ₹12,773 crore. PMC Bank managed to avoid reporting to RBI, the souring of loans (₹83,000 crore) to HDIL group, by creating one lakh fake accounts and parking the bad debts in them.

Of course, this needed the help of an auditor and the Economic Offences Wing (EOW) revealed last week that the bank management had sent the auditors on a free vacation to Goa.

‘All I wanna say is that they don’t really care about us’

Or take NSEL. The sale proceeds of the assets of defaulters are lying with NSEL in escrow, and ought to be instantly distributed to victims of the Ponzi scheme. But the perpetrator claims that he has to verify the genuineness of the investors. This is horrendous! How can a fraudster control and delay the normal distribution of money belonging to the investors? Why should the court allow it? It defies common sense. Secondly, when accepting investors’ money the question of genuineness was not raised, only when returning money. All investors came through NSEL brokers, and did their KYC. There was a High Court committee established to verify claims; they worked for six years and did nothing. This same kabuki drama is being played out in Rose Valley, with no one putting an end to the farce and protecting investors.

‘All I wanna say is that they don’t really care about us’

Take banks. Banks are funded by depositors more than by shareholders; if the capital adequacy ratio is, eg, 10 per cent, then for every dollar of equity there are $9 from depositors. Yet, bank managements pay obeisance to shareholders, not to depositors. The large global banks especially have a mountain of derivative exposure, often off-balance-sheet, in order to earn extra income for shareholders. But the risk of things going wrong is on the depositors. In the US, a 2010 Dodd Frank law gave superior rights to counter-parties of derivative contracts than to depositors, who are unsecured creditors of banks.

Ergo, if a bank fails, there is likely to be a bail-in (i.e. picking the pocket of depositors to rescue the bank) rather than a bail-out (picking the pocket of taxpayers). This is likely to happen in India as well with careless and collusive bank managements such as PMC bank who are treated with kid gloves.

The judiciary does not penalise fraudsters harshly enough, and gives them plenty of latitude through innumerable adjournments. If the government cared for us, individual investors, it would work together with the judiciary to stop this nonsense.

‘All I wanna say is that they don’t really care about us’

Or take the digital push towards Aadhaar, and linking it to your bank account. Are individuals protected from digital fraud? No.

A story on Moneylife states that in seven States, there are more Aadhaar cards issued than the population of the State!And is biometric identification safe to protect the person’s identity and hence the transaction? No! In Gujarat, a ration card scam investigation threw up the startling information that 1,100 fingerprint casts were made in order to ‘biometrically verify’ the fake recipients!Have the culprits been caught? Have they got punishment strong enough to deter others?

Or take identity theft. About a half million stolen Indian credit card data is available for sale on a darl website called Joker’s stash.

‘All I wanna say is that they don’t really care about us’

It is well past high time governments, the judiciary and the investigative agencies work towards doing their jobs and protecting individual investors and not the criminals who perpetrate frauds on them. Not relinquish their duties and obligations.

Stock markets have not reacted adversely to the coronavirus because central banks have pumped in money. One hopes the virus comes under control soon, for it is affecting the global economy very adversely.

(The writer is India Head — Finance Asia/Haymarket. The views are personal.)

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