Forensics and the art of triangulation

(Krishnaraj) #204

Mint has done some excellent reporting on the whistleblower complaints into ICICI. These are instructive in helping us investors understand how banks can evergreen loans while not technically evergreening them.

Here are the 3 reports:

Effectively, ICICI Bank would have reported losses in some quarters over the eight years, had the bank’s management not deferred impairment of loans, claimed the whistleblower.

The next here

I think RBI acted after it became clear that SEC may get into the act.

The last and the most important one today here:


  1. ICICI Bank issued 100s of LCs to related parties of troubled borrowers to help the borrower pay so as to keep the loan good. (I guess with these LCs the related parties would have borrowed elsewhere and routed it back to ICICI)

  2. Term loans were sanctioned afresh possibly to the extent of overdue amounts to the same bad borrower. To make the bad look good, some other borrower was asked to pay the borrower’s bad loans by extending the former’s fund / non-fund limits

  3. Fiddling around with short term fund / non-fund limits “the bank allegedly helped a number of debtors by increasing their drawing power for cash credit by increasing their cover period; by changing cash credit to overdraft; allowing interchangeability between fund-based and non-fund-based working capital finance limits; providing fund-based sub-limits for non-fund-based limits and vice versa.

  4. Fiddling with the software to show results different from reality, “Bank’s term loans are accounted for in a software called SYMBOLS, which is, unlike real time core-banking system software such as FINACLE. This has been done deliberately to employ accounting activities which can be manipulated as the end-of-day (EOD) reports can be delayed or back-dated as desired

ICICI Bank’s defense seems to me a “meow” against these roaring allegations.

(Varadharajan Ragunathan) #205

interesting reading

(Krishnaraj) #206

Thanks Varadha,

This one is simply amazing. If you have a JV partner in countries that rank low on corruption in Transparency International then possibly the role of the JV partner is to facilitate greasing palms.

The twists and turns including the poisoning makes for racy reading. What I found amazing was the the firm did not know that their subsidiary CEO was in jail and everyone was told he was in Hajj!

I think when wrong but strong incentives collide head-on with ethics, the latter stands no chance!

(Gaurav Agarwal) #207

I wish to draw attention towards a press release by Shriram Transport yesterday.

Now I am quite surprised by the content of the release -

  1. When corporate guarantee for NCD is given by Shriram transport why would promoter group settle dues?

  2. No details on how dues will be settled is mentioned.

  3. How could SVP of Shriram Transport commit anything to investors on behalf of promoters/promoters group?

(amit) #208

Hi Varadha,

can you go through the Annual report of Kitex and lets see if we can poke holes and triangulate if indeed some fraud has taken place.

I have gone through AR - Only thing i am not able to fanthom is why TUFS is pending for 3 to 4 years in row ( as Govt receiables ).

I have looked into various aspects and what i find that he is not crook and numbers on margins etc are indeed possible.

Lets use as reference and see if we discover concrete …data.

(Varadharajan Ragunathan) #209

I am of the opinion that one does not discover frauds by looking at AR alone. One needs an understanding of what’s possible in the real world with a sense of probability (can you do 35 % margin textiles), can you keep Rs. 250 cr. cash given RBI’s rule of not allowing for it to be kept for more than one month in forex without bearing interest. That apart, I see almost 20-25 red flags in the AR itself staring straight in the face. I had posted a long one on kitex but it has been deleted.

Over a long time I have realized that most people want to see what they want to see - if you’ve already made up your mind on your conclusion, combing through more data is a waste. And you will never get any data that screams fraud - its all about probabilities and sustenance of what’s reported.


Why keep analyzing doubtful companies for investment unless you are a professional analyst :grinning:

Not more than 100 companies are worth looking at in Indian market.

Unfortunately lot of shady companies have been discussed and and as prices kept going up in smallcap mania people belief was reinforced that they have hit upon true life transforming multi-bagger


Completely agree. Though I am not a pro, merely gut feel of understanding biz could tell you how Vakrangee, 8K, Manpasand,Gitanjali etc were house of cards. But there was so much euphoria that you wrote something, people will pounce on you and ask for proof and detailed analysis to back your point of view.

(Dinesh Sairam) #212

I have to be honest here and say that I was one of those guys who argued with Mr. Varadha about Kitex Garments. Elsewhere, I presented individual points that threw positive light on the company and its promoter. But he kept on insisting that it’s the sum of the parts that matter and not the individual parts themselves.

I exited Kitex Garments a while back for other reasons (Therefore avoiding a sharp correction in my capital). But if I’d to say something to everyone trying to argue for a company or its promoter, try to see if the whole picture makes sense, not just an individual point.

I say this because I presented several positive points about Kitex, but they ultimately proved to be shady, inspite of the positives.

(Devaki Nandan Tripathy) #213

Another thing that I have observed over the years is - Markets tend to ignore deficiencies as long as topline and bottomline are growing handsomely. Only when the tide turns, these deficiencies become more glaring.

(Varadharajan Ragunathan) #214

highly recommend this book - going against a cult figure who was also the president of NASDAQ required a lot of courage, persistence and willing to doubt your own thesis and build a loop of conviction. Rather than post event narratives, I prefer running narratives like “fooling all of the people”, “confidence game” and this as it walks you through real emotions and what people have to go through to test their own conviction.

Another one worth watching is the chinese hustle on netfflix and the episodes in dirty money on valeant.

(Kumar Saurabh) #215

On Madoff investment, I remember seeing a documentary or movie on Netflix/Amazon prime. Not sure if it was the wizard of lies or Madoff documentary. Think it was well made n worth a watch

(Ajay) #216

Fantastic thread! Have been a silent reader for a long time, this is my first post on this thread.

I would like to bring to attention the case of Pyramid Saimira Theatres Ltd. People who have been invested in the market since 2005-6 would recall this company. The company was in the business of running movie theatres, film/tv production and movie distribution. It did an IPO in 2006 and raised 85 cr. Later an FCCB issue of $90M was done a year later. Classic case of fraud where public, FIIs and large institutions all lost money. Had the following special features:

  • Forged letters supposedly from SEBI to make mandatory open offer
  • Money raised under the pretext of investing in movie/cultural entertainment in China
  • Subsidiaries in South East Asia and USA, which later turned out to be non-existent
  • Announcements of M&A and spinoffs, which never materialised
  • Unknown sole proprietor audit firm as the statutory auditor

SEBI tried to prosecute the people involved but the case has been dragging on forever (at least till Mar’18). This case was one of the earliest where SEBI has to hire a retired DIG/IG of po;ice to lead the investigation. The company finally got delisted and later I think was liquidated around 2016.

Some interesting links related to the case:

(Gaurav Agarwal) #217

Interesting twitter handle

(Varadharajan Ragunathan) #218

shameful - even more shocking to see CFO being complicit to this.This is a loss making company and to siphon monies like this with no regard for MSH is shocking.

(Krishnaraj) #219

Thank you Varadha for sharing this brazen violation, and quite shocking indeed; when the person chairing says he does not think the point is pertinent to be answered.

What are the Independent Directors doing? And what is the role of the Compliance Officer? To comply with the promoters of the firm or to comply with the obligations of the firm (fiduciary and otherwise)?

The largest non-promoter shareholder in Kesoram around the time when the first leg happened was LIC. They too have a public responsibility, but I have never seen LIC in any of the AGMs I attend or heard abstaining or voting against resolutions.

And guess who is the largest non-promoter shareholder around in Century Textiles when the last two legs of incriminating transactions happened? It is Aditya Birla’s Mutual Fund, holding about 28% of MF shareholding in its flagship Equity Fund as of March 2018. In December 2017 when the prices spiked and the ‘enabling’ transaction happened, the Equity Fund raised its stake from zero to 3.63%. As a ‘distantly related party’ it may not be unnatural to suspect that they may have been taken into confidence, with a request to make substantial purchases to raise prices of Century Textiles substantially. This would have enabled Cygnet (a Kesoram subsidiary) to buy from Camden (a “really related party”) at that large price.

Very regrettable for minority shareholders. Complaining to SEBI won’t help, as many who have complained would have known, as have Mr Kothari. He was probably left with no option, and with no help from any public iinstitutions, other than to take matters in his own hands and face consequences. His boldness must be appreciated.


But wasn’t this company and most Birla group is already famous for their corp governance since decades :):stuck_out_tongue: .
Why do investors keep going back to these companies and keep looking for high corporate governance when no such thing ever existed

(vamsi21) #221

This is my personal View which is fully debatable.

This means either insider information is shared or there is a collaborative thinking!!!.

Having said the above, try reading AR’s of A sh o k Le Y L AN d, H i n d u ja Ve n tu re s for Top 10 Shareholders


(Gaurav Agarwal) #222

(Krishnaraj) #223


Very difficult to read what you have written. As such since we all have to first overcome how you say, before understanding what you say, why make it difficult?