Corporate frauds in

the world
of corporate sector

HARPREET KAUR
Q1808A26
White Collar Crimes
which are committed by respectable
persons, holding enviable positions, either
in public or private concern.
“illegal acts characterized by deceit,
concealment or violation of trust, which
are not dependent upon the application or
threat of physical force or violence.” BY
the Federal Bureau of Investigation
MAIN REASONS ARE:
individuals and organizations
commit these acts to obtain money,
property or services; to avoid the payment
or loss of money or services; or to secure
personal or business advantage.
White collar crimes by their very nature are
such that the injury or damage caused as a
result of them is so widely diffused in the large
body of society that their gravity in regard to
individual victim is almost negligible.
It is highly difficult to prosecute a white collar
crime because the perpetrators are sophisticated
criminals who conceal their activities through a
series of complex transactions.
 FROM THE INDIVIDUALS TO
ORGANIZATIONS:
CORPORATE FRAUDS
A corporate fraud is violation of the particular ACT and
related statutes committed by large, publicly traded
corporations, and /or by their senior executives.
A company may commit fraud by manipulating
accounting records, hiding debt, or failing to inform
shareholders of loans and bonuses given to its executives.
The falsification of financial information, including false
accounting entries, bogus trades designed to inflate profits
or hide losses and false transactions will help the
organization to attract funds from the lenders and
investors.
Motives
making money and creating a false
soundness for the company in order to
save its image in the market and to
misguide the government departments to
avoid the heavy tax burdens.
Research report
A careful study of a number of large corporations and
business houses attribute to the highest degree of
criminality to business world which include traders,
businessmen and industrialists.
It has been held in the Report of Vivian Bose
Commission of Inquiry that Business Communities in
India of large and small merchants are basically a
dishonest bunch of crooks.
While it is true that the object of businessmen is to
make profit, there are degrees and degrees of making
profit, and nowhere in the world do businessmen get
rich as quickly as they do in India.
Legal Provisions
For the Prevention of such corporate Frauds in India,
the legislature has included the provisions as Section
397 & 398 in the companies Act, 1956 which
provides that any member may apply to NCLT in case
of Oppression and Mismanagement.
Any member of a company who complain that the
affairs of the company are being conducted in a
manner prejudicial to public interest or in a manner
oppressive to any member or members may apply to
the Tribunal for an order under this section, provided
such members have a right so to apply in virtue of
section 399.
Consequences
Winding up of the company if it is just
and equitable that the company should be
wound up.
Preventing the matter to be happened in
future.
Every conduct of the company should be
in public interest and other legal
consequences may arise.
 Famous Frauds and scandals in the corporate sector
Satyam Scam: India’s Enron Scandal

Satyam plunged into a crisis in January 2009 after

its founder B Ramalinga Raju, stated that the
company’s Profits had been overstated and
confessed that Satyam's accounts had been falsified.
As the promoters held a small percentage of equity,
the concern was that poor performance would result
in a takeover, thereby exposing the gap.
The aborted Maytas acquisition deal was
the last attempt to fill the fictitious assets
with real ones. It was like riding a tiger,
not knowing how to get off without being
eaten.
Satyam was the 2008 winner of the
coveted Golden Peacock Award for
Corporate Governance under Risk
Management and Compliance Issues.
Harshad Mehta Scam: A Stock Market
Scandal
In April 1992, the Indian stock market crashed, and Harshad
Mehta, the person who was all along considered as the
architect of the bull run was blamed for the crash.
It transpired that he had manipulated the Indian banking
systems to siphon off the funds from the banking system,
and used the liquidity to build large positions in a select
group of stocks.
When the scam broke out, he was called upon by the banks
and the financial institutions to return the funds, which in
turn set into motion a chain reaction, necessitating
liquidating and exiting from the positions which he had built
in various stocks. The panic reaction ensued, and the stock
market reacted and crashed within days
Xerox

In June 2002,office equipment-maker Xerox

admitted to overstating its revenues and
profits for the years 1997-2001. This
allowed the company to meet profit
expectations.
An investigation that exposed the fact that
over five years the company had improperly
classified over $6 billion in revenue, leading
to an overstatement of earnings by nearly $2
billion.
CRB Scam
This scam took place in the years 1992-1996, the
period immediately following the Harshad Mehta
fallout. This makes the scam even all the more daring
and surprising.
CR Bhansali, the perpetrator of this scam, floated more
than 100 companies, such as CRB Mutual funds and
CRB Capital Markets. The primary purpose of these
companies was to attract huge funds from the public by
promising high rates of interest.
This interest was later paid form further borrowings,
and so on.  In 1995, the stock market collapsed, and
this proved to be the undoing of CR Bhansali.
ALL THIS RESULT IN
Deregulations in the company management
Effect on human capital and stakeholders of
the company.
Unless a corporation embraces and
demonstrates ethical conduct, it will not be
able to succeed.
As there is a saying ‘As the Ruler, so the
rule’ , it does not take much time for the
wrongdoing to spread down the hierarchy.
Suggestions for regulations
there shall be strict rules and punishments
applied on the directors who gamble with
the public money
Implementing better corporate
governance measures by the corporate
themselves and application of laws strictly
by the regulatory bodies by awarding
stronger punishment to the fraud makers
can prevent these fraud practices.
A betterawareness is required among the
public while investing in the corporates.
corporate accountability should be
developed in the corporates.
Adoption of fraud prevention policy
Regulatory Role in Fraud Prevention
Clause 49 (Listing Agreement) better
implementation
Audit Committee
Conclusion

People who come to know of the wrongdoings of

management or those who have themselves
assisted the management in committing the fraud
also tend to resort to fraud, eventually.
But, there are proved instances that during the
course of time, some of the persons assisted will
become whistleblowers and disclose the scam to
the public.
As a result some people become victims of
corporate fraud. These victims can be persons
either outside or inside the company.
Though complete prevention is
impossible, prevention of frauds would be
a desirable outcome for corporate
governance and all other programs of the
regulatory bodies
Awareness in the general public at a
higher rate is also required.