Corporate Fraud

Corporate Fraud

Corporate fraud can be any fraud committed against a business by a single individual or a group of people. Fraud impacting businesses can be both general fraud that target any business or to a sector specific. Corporate fraud can also include takeover of the company or Account take over.

Corporate fraud consists of activities undertaken that are done in a dishonest or illegal manner and are designed to give an advantage to the perpetrating individual or company. Corporate frauds go beyond stated position, and are marked by their complexity and economic impact on the business.
Corporate fraud is also one when the employee of the same company overstating the profits and concealing the debts which increases the company’s stock value thereby allowing the company to borrow more money from the bank to expand .

"Scam of Satyam Computers Services Ltd is a classic example of such financial fraud"
M/S Satyam Computers Services had caused loss to the investors to the tune of Rs. 14,162/- crore. The company Head Ramalinga Raju and members of his family secured illegal gains to the tune of about Rs 2,743/- crore by such tricks.

The fraud of Satyam Computers was about corporate governance and fraudulent auditing practices allegedly in connivance with auditors & Chartard Accountants. The company head had misrepresented its accounts both to its board, stock exchange, regulators and all other stake holders.

It was a fraud which misled the market and other stakeholders by lying about the company’s financial health. Even basic facts such as revenues, operating cash balances were grossly inflated to show the company is in good health whereas company was in a bad shape and it happened because company head Ramalinga Raju had siphoned lot of money for his & his family member’s illegal gain and concealed company’s debt from every one.

Similarly Enron Corporation a US based company is another similar example of Corporate or Financial fraud exposed in October 2001

Enron a largest Corporation of USA started as a pipeline company in sometime early Nineties in Houston Texas, that delivered Gas in Market price In next fifteen years they expanded into an energy power broker that traded electricity and other commodities, such as water and broadband and internet services and Enron became the most successful company of the country. The senior executive attributed their success to the corporate strategy, which was to be light in assets but heavy in innovation and this innovation business practices of overstating profits and concealing debts increased the stock value of the company and thus allowing the company to borrow more money and to expand.

It also led some top executive selling their stock and making money which is considered to be fraud because Enron in 2001 had announced 638 million loss in third quarter earnings and in the same year in the month of Nov. the company publicly admitted to having overstated earning for four years and having created limited partnership to hid 3 billion loss in debt (which is another classic example of such Corporate Fraud). Hence investors lost confidence in the company as a result the shares which was worth 90 Dollars per share in 2000 plummeted less than 1Dollar per share. Banks and lenders lost millions of Dollars in loans made to Enron based on the fraudulent earning reports. Thousands of employees lost their jobs and retirement savings, which had been invested in corporate stocks.

Now a days it is one of the most common method of scam and when it is exposed such company’s hire “Asset Secularization and restructuring companies” like ARC Edelweiss and so on to restructure the NPA (Non - performing assets of the company in such a way that Banks not only get lured to give more loans but also to settle the bad loans in the lowest or minimum interest in fact sometime the Banks even forego those bad loans). NDCC has handled many such cases hence well aware of the procedures and the agencies involved and also the court which decides the fate of such loans is BIFR (Board of Industrial & Financial Reconstruction)