Manipulation, fakery, deception- Business and Market Place (Role of Internal Controls)

This one note I used for my presentation to Support employees (Admin, HR etc) during 2012 annual conclave. I thought will share with you.

It’s all about money

We are not new to betrayal, cheating or plunder. A middle class Indian get cheated right from dawn to dusk be it sabzi mandi or at place of employment or even sophisticated services such as internet, cell phone. A hardworking person with financial or non-financial burdens finds it very hard to fight at different forums. The apathetical society adds catalyst to rancor mindset leaving a trail of distrust and the treason wall never fell ever and forever.
Market is no different than society; it’s a reflection of our dark consciousness. Impostors also play havoc in market like any other place. As the liquidity and volume is very high it becomes easier for the unwanted characters to make merry at public cost.

Certain actions by sections of promoters and associated influential group keep finding one or other way to manipulate public wealth for personal benefits. Investor suffers life time bad luck when they lose their whole savings. But the numbers are limited we must remember, optimism must over ride skepticism; we must not allow the iconic market place to fall because of few impostors.

Even manipulation happens in debt market such as fixed deposit; recently an arrest confirms all is not well with financial world. My heart goes to all those daily “pigmy” investors who deposited money every day after a hard day’s work. May GOD give better sense to manipulators in bringing back ill-gotten wealth to the right place.

Ways and means promoter manipulation
Manipulation is like computer virus, you set anti-virus software …as long as the definition of virus is included in software it will take care of, the new ones will never be addressed immediately. Same way promoters keep innovating new tricks those which were not noticed earlier. 1993, 2002 or 2009 story is different but sufferers remain same i.e. the retail shareholders.

But but May I repeat again☺…….investment connects people regardless of their cultural, political or even religious background . It’s a voice to express discontent on economic uncertainties around us in a rapidly changing society. And for investors across the globe, investment is more than money, more than an identity, investment is freedom and together we are a global tribe.

A. False Announcements: key events that affects operation or financial of the company must be disclosed to stock exchange immediately. Unfortunately intent of circular is manipulated largely. Often false announcements are submitted, stories are built on social media. The announcements are not audited so no way we can verify independently the accuracy of it. Quite a few companies caught lying later on, but then it’s too late sometime. The impostors would have sold their shares and got out of it. Ironically there is no penalty for false announcement.

B. Circular trading: you sell to me and I will sell to you. This is practiced in small cap companies normally where liquidity is minimal. Stock Exchange has set filters , a limit to which stock can go up or down in a particular day. It can be 5, 10 or 20% depending on segmentation (lets catch up on market place sometime else). What a circular trader do is put the bid price close to circuit filter and immediately bought by another circular trader. This gives an impression something is good happening with company which is known to a few. Retail shareholders in anticipation started joining in last leg of price where circular trader starts offloading shares at higher value to retail share holders. Caught at a higher price stock hits lower circuit everyday making it impossible for retail shareholder to come out. By the time circuit opens it would have damaged 80% to value of cost. Circular traders are also called operators though an operator does do many more things, bad only.

C. Suppress income: some listed companies have floated 10-15 pvt ltd companies, 2-3 propriety firms etc where finished products are sold to private firms who sell to dealers and whole sellers to make a huge profit which does not get reflected in listed company’s accounts. Under reporting of revenue is common in steel companies where adjustments are done through unlisted companies to disguise profits.

D. Cash sales: cash sells does not get reflected in books, this will lead to disproportionate rise in raw material cost and expenses which pulls down the margin. This practice is more rampant in metal companies.

E. Fake bills: buy fake bills for a small price and make the payment against the bills by cheque instead of receiving goods and ask for money back in cash. For example buy 10 crore of raw material purchase and pay by cheque. Material never comes to warehouse instead they get a cash back minus a tiny commission. Naturally the profits are pull down intentionally.
(Source: Moneylife)
F. Windfall gains: assets sold without distributing anything to shareholders. Company created separate entity to sell the land belong to listed company only who buys from listed company at a very meager price there by suppress real estate valuation.

G. Fake exports, foreign acquisitions: In a bull market, higher revenues and profits benefit the promoters directly, and instantly, in the form of higher market capitalisation. How do they boost revenues and profits? Often, by transferring illegal money that is stashed abroad by promoters, builders, bureaucrats and politicians to Indian companies through banking channels; it is shown as export proceeds. Many companies suddenly become zero-to-hero, showing a meteoric rise in the top line in just a few quarters. Unknown promoters from unknown companies suddenly do far better than their established competitors. (Source: Hemant Gupta in Moneylife).

H. Pump and dump with operators: Market operators are an essential component of a bull market. Promoters need them to cheat investors through price rigging and profit rigging. The usual route is to show exaggerated profits, loan shares to operators and unload the promoter’s holding. Promoters usually collude with market operators who flaunt the right connections – foreign and Indian institutional investors as clients. It is an open secret in Mumbai that many fund managers receive huge kickbacks for investing in certain companies with an assurance from the promoter/operators that they can exit at a high price through market manipulation. (Source: Hemant Gupta in Moneylife).

I. Broken pacts: Another trick by Indian promoters is to announce a joint venture (JV) for a new project. After a while, there are reports about differences between the JV partners. The money invested in the JV is never recovered. It is written off over five or seven years. All this is well-planned. The JV is floated precisely to siphon off money by taking away money invested in the JV. (Source: Hemant Gupta in Moneylife)

Momentary lapse of reasoning may deter a miniscule retail investor from entering to stock markets, but let us remember eventually triumph comes for those who are victorious. Victory in market parlance is all about corporate governance, honesty and wisdom. Rest all fraternity are punished in one or several manner. We don’t have to refer to religious holy books to know the truth, it happens every day in our lifetime. That’s why Tata’s command far bigger valuation than others, no wonder likes of Murthy and Premji dominates market place. Many of the manipulators of past even big names have been disappeared, disgruntled or unknown to many.


@suvendurath this Mohammed Anwar Ahmed story is fictitious as claimed by its author. He wanted to depict how patience and conviction can make money in long term. This story was made up to show that. According to the author, none of the characters exist in real life.

Original link to that article :

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Thanks @Ravi_M for pointing it out.

As a outside person being no where close to the story I always believed in it.

If there is untruth behind the story, I am withdrawing these lines by editing the post.

It was written logically, hence I thought it was true.
Even this article refers Anwar…
I am finding it bit foolish now if giving one example to my colleagues since 4 years for someone who do not exist.
I hope those guys will pardon me now! :expressionless:

Actually the contents of the original story on Mohammad are correct. All dividends and bonuses were given by Wipro in exactly the same manner, in the same years etc. Hypothetically if someone had held on he could have got the same returns. It was presented in a story telling fashion. Economic Times must have picked Anwar from the original story.

I have always been intrigued by this topic . Has anyone actually interacted and moved with any big market operator ? who all are the current such operators ? what moves them how do they manage this risk and reward equation ? Fascinating if anyone can share actual stories of stocks and big guts

I am sure you would have red “Reminiscences of a stock operator” by by Edwin , based largely on Livermore. Though old book, I still feel the cycle hasn’t changed much. In addition “The Scam” by Sucheta Dalal. Although this book focus on what led to Harshad Mehta scam, it gives lots of insight to manipulation.
Let’s stay away from these vile creatures, for curiosity sake we have another famous forum. I can’t say whether big fish are there , but you will find lot of mini operators out there. Mostly on NBFC, Education, Software sector…easy to make a noise due to smaller tangible asset. Some of them did it in the name of infrastructure as well.:slightly_smiling:

Though on second bit I am curious how did moderator managed to keep the flock of seagulls from VP? It’s almost a carnage there, became a slippery slope. Worry is beginners shouldn’t be gutted in process.


The nexus between the operators and management are real. There are lot of middlemen so the promoters do not get in to act directly except they do the funding in an indirect way. Lot of companies ( especially infrastructure companies do that . You can infer from the actual happenings. A private bank in South suddenly moved up like hell before it is sold to one Lion bank from abroad and the having paid more the Lion bank also exited now. A cement company from South quoting the same price like ACC which is much bigger in Harshad Mehta days. A coffee company , owner is posing/faking as a smart investor. There is nexus everywhere which we cannot do anything except to protect ourselves.

India is a highly hypocritical nation. Dont believe what people say in print medium and TV’s. They always have 2 faces and they dont fear law as everybody can be bought.You need to be careful. Law enforcement is pathetic unlike USA.

You rarely find Narayanamurthies in India. I dont know how many Grahaprevasams he attended ( people who built palatial houses which they would have never dreamt of their in life).

All seniors in India know the kacchadas but cant open their mouth.

Admin : I have 4 decades of experience in stock market and a career in Finance. If you find my reply against forum rules , please delete it.


Dear Friends I had proposed following message in this forum few months back. It was only to understand the total chain and dynamics of stock transactions so that some of our gullible folks may remain visilent. Again re-posting the line here as the intent and content suites the present topic.

Dear Value concious friends, first of all let me thank Mr Donald_Ayush and other founders of this valuable forum. I will not say that I am a new to stock markets but do feel that there are maney areas where I do not know any thing. I am starting this thread purely to serve the community.
_All the stock market narration is full of some terms like “operators”, “market makers” etc. Can I request my experienced fiends to wrte on this. _
Do they really exist? if yes then who are they?
If yes then are they legitimate or illegitimate?
Are they self guided or employed by some interested parties.

I want to understand the dynamics of the market which may in turn be valuable guide to fellow members of this forum.
I believe that my quetions have arisen from a genuine requirement and is as per the guideline of this forum. If otherwise ! then excuse me.

Hope it does not offend and I receive some replies this time.

Rajendra Badoni


In my opinion these are very valid questions though I don’t think I am a senior member to steer any direction.

However my humble submission would be, we need to completely avoid naming and shaming. What we feel, analyse, interact, read may be completely our perceptions. Any specific indication to company or name can invite serious implication including penal actions.

Other issues like methodology, legitimacy, value chain of operators can be discussed on “aggregate or generic” information.

May I also request you, in case you haven’t gone through; “The Scam by Sucheta Dalal”. It’s a pure master piece, can answer a lot of your questions, She has gone into specifics even in some places.

Not sure whether this was on same line as per your expectation, apologies in advance if I type key board wrongly.



Thanks for the reply, I shall procure the book suggested by you. I think mostly it is long and indirect way to learn the things in market. Any way we will learn by experience only as our hair grows. My only submission was to through vicarious learning abundant in this forum.
Thanks Suvi.

Rajendra Badoni


Couldn’t agree more Rajendraji

Unfortunately we are in a catch 22 when it comes to investing in India. On one hand we have hugely successful investors like Rakeshji or Radhakishanji who are tightlipped on what is their understanding of business or markets. Most of their TV appearances are entertainment.

On the second side we have a host of academic investors who often got carried away by more one upmanship. A word becomes herd then! Of course not all of them.

In December someone asked me what do I need after eating idly…i don’t have an answer though I tried to justify knowledge!. He was referring to Charlie’s mental model where he said how do you feel when you drink coke after meal, pre meal, many drinks etc. I mean adapting straight from a different environment can be …

thanks for suggesting the book scam by sucheta dalal - i am reading it now very fascinating book

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I can vouch blindly what Sucheta Mam and Debasish Sir have to say. Two of most fearsome journalist who brought down NSE even from their heights of arrogance.


Few useful links to understand better:

Got few more published articles, will dig them out and send some time.

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Role of Internal Controls

Repetitive bad governance, restatements, corporate scandals have taken away lot of credibility on and off from financials statements. Be it Enron crash or Satyam disaster, books have been cooked and manipulated a number of time. It only surfaces when business dynamic couldn’t overpower scale of manipulation.

Internal controls are one most of effective tools to manage corporate governance. It basically provides an assurance of procedures, activities and processes for :

  • effective and efficient operations
  • compliance with rules and regulations
  • reliability of financial reporting

The New Age Controls

The unprecedented crash of Enron and Andersen forced the American regulators to came out with a draconian legislation called Sarbanes Oxley Act (SOX). The law asked every company listed in US to identify, own, document, test and attest controls. The law was equally a mammoth legislation.

India first saw clause 49 with added objective of strategic controls. However the requirement were not followed in spirit other wise we wont have come out a proposed set of regulation called Internal Financial Controls (IFC).

Either SOX or IFC if gives so much assurance, a lot of fakery can be avoided isn’t it? Now don’t brush it aside, SOX resulted more than a dozen billion in implementation…change in system. It shook up the entire system.

How do we find internal controls failure easily?

Let us understand chronologically how controls are assessed and reported in organisation:

  1. Company identifies the key accounts from financials.
  2. The processes are identified against all key items.
  3. Controls are identified against each process, now there is a systematic process and framework followed called COSO. It’s a very robust framework.
  4. Controls are first taken for a walk through to see whether they actually happens which subsequently tested with large samples and lengthy period.
  5. Now if few or more controls are failed, management and auditor identifies the financial impact.
  6. The financial impact is material (they call it is material misstatement) both management and auditor mentions in their report with detail explanation.

I see every audit report clean? How do I know controls are implemented?

Though there is a chance of creative deception, internal control documentation is a pain staking process. Just because there is no failure, let us not conclude that job is not done properly. Smaller companies may have more head room of manipulation citing cost of audit fees, implementation etc.

Watch these warning signals to spot if there is a weakness in internal controls:

  1. First and foremost is audit report for qualification of any.
  2. Check whether Audit fees include only audit fees or a lot of consulting fees. This may indicate auditor is advising to make money. Independence can be curtailed.
  3. Check whether annual report mentions name of internal auditor and company. Saying we have audit system is not enough.
  4. Changing accounting policy, estimates often- if accounting policy is changing often controls may be manipulated.
  5. If you come across lots of re-grouping and grouping you may sniff. This is not easy to detect, you have to study 10-year annual report to find out whether a particular item is classified consistently.
  6. Check for specific risk disclosures made by company. Risk identification is an integral part of controls assessment. Those companies who don’t do they come out with general short of excusable risks. Specific risks will point a situation or amount even!
  7. Departure of auditor and CFO, there can be many reasons but controls are also one of them.
  8. CFO getting less than 30% of CEO or COO, this shows they don’t care about controls and governance.
  9. CFO should not be an audit committee member but invitee. If internal audit head is there then ok with CFO, but then Internal audit head shouldn’t be part of audit committee.
  10. Inconsistent communication can indicate bad controls. Think like this, controls are all about processes agreed. If a CEO have to communicate then it has to be CEO, can’t CEO one time, next time CFO, again next time CEO. Unless both CEO and CFO are allowed.

There are other ways to link financials, notes to accounts, audit report, director report, outside world to sniff certain problems. We will cover sometime else!


Senator Elizabeth Warren questions Wells Fargo CEO John Stumpf at Banking Committee Hearing. She nailed it. Hope one day this starts happening in India.


Wow… This was amazing. Thank you for sharing.

If this could happen in India., I am sure the density of companies on the stock exchange would diminish like never before.

This video also gives an indication of the presence of enormous amount of shareholder’s right when it comes to seeking information of a company that one holds.

Not sure about banks and bank accounts but Its already happening in India via customer account closure of Credit Cards , Post Paid connection of any sort (Data card, SIM, Broadband Connection).

  1. These guys don’t give proper email Ids / Customer care number for account closing.
  2. They send Bills even if the subscriber closed the account. (I paid bills multiple times for the unused connection of Reliance Data card and despite of that received threatening calls from legal dept of reliance data card for additional money)
  3. They send legal notices to the subscriber after long time (Received legal notice for credit I used 10 years before)
  4. They send Goondas or harassment calls from legal Department to the subscriber