[Thermodynamics]

Story of Ruchi Soya
(Source)

This is not a scam yet, but there are ample alarms that need to be talked about.

Ruchi Soya
Ruchi Soya is one of the largest FMCG companies in this country. They process crude palm oil and turn it into refined oil. You’ve probably heard of the brands Nutrela, Sunrich or Mahakosh. That’s all Ruchi Soya.

But the company has had a topsy turvy journey this past decade. Back in October 2011, Indonesia raised export duty on crude palm oil. Ruchi Soya’s input cost soared overnight since they imported most of their raw materials. Ideally, they should have been able to pass on this cost to their customers.

However, there was one tiny problem.

Indonesia had also cut export duty on refined edible oil — the end product Ruchi Soya sold. So manufacturers had a very enticing alternative — buy refined edible oil from Ruchi Soya or import from elsewhere. And since most manufacturers prioritize “cost of procurement” above all else, Ruchi Soya had no choice but to take a hit on margins. They kept competing with these cheap imports by bearing brunt of the burden themselves.

Then their seed extraction business started failing. Droughts in many parts of India hit the oilseed industry. Ruchi Soya’s manufacturing facilities were barely running at half capacity. Margins kept tumbling. It was bad and when you thought things couldn’t get worse, they lost a fortune betting on castor seeds. Then they were in hot waters with SEBI and soon after, the company’s customers started bailing too.

The final blow

Ruchi Soya made most of its money supplying refined edible oil to other consumer goods companies. However, in a bid to push sales, they offered very generous credit terms to their customers. Collecting cash became an afterthought and at the end of the day, they were left with receivables to the tune of 5000 crores. Receivables they simply couldn't retrieve. So they gave up and took a hit on their bottom line once again. Their debt burden spiralled out of control.

And in late 2017, a couple of banks finally had had enough. They dragged Ruchi Soya to bankruptcy court and the company was now there for the taking.

Here’s where things really get crazy. The lenders agreed to resolve the bankruptcy proceedings by selling Ruchi Soya to another FMCG company. Patanjali and Adani Wilmar were top contenders. Eventually, though, Patanjali won out. They acquired 99% of the company and settled ~4000 crores in dues. While this might look like an exorbitant sum, know that Ruchi Soya collectively owed ~9000 crores. Meaning the creditors only retrieved half their dues. The other half was… well… lost forever.

But wait, we are not done yet.

Putting up 4000 odd crores is no easy task and Patanjali did not have the resources to buy Ruchi Soya upfront. Instead, they put up around 1000 crores on their own and borrowed the rest from the same banks that had sold Ruchi Soya. So technically the banks loaned out ~3000 crores to Patanjali in a bid to retrieve 4000 crores in dues from Ruchi Soya.

Fascinating!!!

But wait, there’s more. Loans are often backed by collateral. Collateral that’s usually worth something. So when Patanjali borrowed 3000 crores, you’d expect them to put up something solid. Instead, they borrowed all this money by pledging Ruchi Soya shares as collateral. In fact, they pledged almost their entire shareholding (99% of Ruchi Soya) in the process.

Bottom line — They borrowed 3000 crores using shares of a bankrupt company and the banks complied because….

Well, we don’t know.

Meanwhile the existing shareholders lost pretty much everything. An individual who owned 100 shares was reduced to holding just 1 share. It was tragic.

Nonetheless, after Patanjali's acquisition Ruchi Soya was all set for a turnaround and take a stab at reemerging from the void once again. The company relisted on the market back in Jan 27th, 2020. Shares that were pretty much worthless (just a year ago) began trading at 16.5. Perhaps people expected Ruchi Soya to turn the tide. But then in almost spectacular fashion, the company’s stock price rallied by a whopping 9100%. From 16.5 to 1500 in ~5 months, Ruchi Soya had defied all odds. A week ago, the company was worth 44,700 crores.

It’s almost comical, to be honest.

But then again, remember — less than 1% of Ruchi Soya’s shares are now trading on the open market. Very few people own these shares and if they could all act in unison they could keep buying and selling these shares at whatever value they deem fit. We’re not saying that’s what’s happening. We’re saying it’s possible.

So theoretically, a small coterie of traders could keep pumping the value of the company’s stock and in turn, boost the value of Patanjali’s shareholding. And then if Patanjali were to issue new shares, they could potentially sell it a premium. A very hefty premium in fact.

After all, regulations mandate Patanjali to reduce their shareholding to 90% in the next 12 months. So they’ll have to start issuing new shares or offload existing ones soon enough. Also, that collateral backing Patanjali’s ~3000 crore loan — It isn’t looking all that bad now, is it?

Anyhow, Ruchi Soya’s story is far from over. Some have called this the greatest miracle of 2020. Others have called for an investigation into the rapid rise in the company’s stock price. But no matter how you look at it, this is a story that’s definitely worth talking about and now you know why…

[Behemoth]

Another big one in recent times was Theranos, which claimed to revolutionize blood testing and had huge valuations of almost 9 Billion USD. The company fell flat and closed overnight when all their claims were found false. Below are some extracts from Business Insider.

The rise and fall of Elizabeth Holmes, the Theranos founder awaiting trial on federal charges of 'massive fraud'
Avery Hartmans and Paige Leskin
Apr 13, 2020, 12:50 PM

Theranos Elizabeth Holmes court
Elizabeth Holmes leaves after a hearing at a federal court in San Jose, California, on July 17, 2019. Reuters/Stephen Lam
Elizabeth Holmes dropped out of Stanford University at 19 to start blood-testing startup Theranos, and grew the company to a valuation of $9 billion.
But it all came crashing down when the shortcomings and inaccuracies of the company's technology were exposed, and Theranos and Holmes were charged with "massive fraud."
A California judge has set an August 2020 start date for the federal fraud trial. If convicted, Holmes could face up to 20 years in prison.
Visit Business Insider's homepage for more stories.

In 2014, blood-testing startup Theranos and its founder, Elizabeth Holmes, were on top of the world.

Back then, Theranos was a revolutionary idea thought up by a woman hailed as a genius who styled herself as a female Steve Jobs. Holmes was the world's youngest female self-made billionaire, and Theranos was one of Silicon Valley's unicorn startups, valued at an estimated $9 billion.

But then it all came crashing down.

The shortcomings and inaccuracies of Theranos's technology were exposed, along with the role Holmes played in covering it all up. Holmes was ousted as CEO and charged with "massive fraud," and the company was forced to close its labs and testing centers, ultimately shuttering operations altogether.

Here is a video explaining the scam.

http://youtu.be/ddkq2fK4jT8

[ajmat]

Originally Posted by Thermodynamics

Story of Ruchi Soya
Attachment 2024797

This gives you an idea on which banks not to invest in!

Originally Posted by Behemoth

Another big one in recent times was Theranos, which claimed to revolutionize blood testing and had huge valuations of almost 9 Billion USD. The company fell flat and closed overnight when all their claims were found false. Below are some extracts from Business Insider.

There is a brilliant documentary on Netflix about it. Her confidence and ability to pull the wool over intelligent peoples eyes is scary. And she lacks remorse.

The next one brewing is the GVK-Mumbai airport scam. Charges are being filed about siphoning of funds

[turbowhistle]

The famous Norton Motorcycles scam should be added to the same list, in 2012 hundreds of elderly Britons were persuaded to transfer their pension funds into three Norton pension schemes and the company managed to fool the investors as well as customers who bought those expensive bikes.

Customers had various complaints regarding the bikes and deliveries and the investors could not withdraw the money even after lock-in period.

Link:
https://www.team-bhp.com/forum/super...ensioners.html (The Norton Motorcycles scam! Cheats customers & pensioners)

[Tucker48]

Originally Posted by ValarMorghulis

The second scam or hogwash of a company which was betting billions (yes billions with a B) on raising an IPO and letting people be saddled with its toxic shares was WeWork.

SoftBank is at fault not WeWork. SoftBank CEO Masayoshi Son is the brain behind valuing tech companies at higher valuations and selling the already costly shares at even higher prices to rich investers. I think they have relieved him or in the process of doing so.
One typical way of Mr Son's work was to offer atleast 10x more money and ask the beneficiary as to how he will use it. WeWork CEO asked for few hundred millions but Mr Son said what will you do if I give you 2 Billion. Oyo is another example. All this was investigated as people who contributed to $100 billion vision fund were asking questions even though everyone made good profits. Also the next vision fund was cancelled.
Moreover there is a difference between a scam or failure of the financial model or system. 2008 recession was a result of wrong financial model but was not a scam. 2015 film 'the big short' explains the 2008 crisis in a simple way.

[AZT]

Originally Posted by srini1785

Is Amway part of this (in)famous group?. or it falls in grey area.

Amway is not a scam, more like a Multi level marketing pyramid scheme. MLM deserves a thread of itself, people still fall for these.

Originally Posted by Thermodynamics

Story of Ruchi Soya
(Source)

This is not a scam yet, but there are ample alarms that need to be talked about.

Attachment 2024798

Attachment 2024797

News like this makes my blood boil. These are public sector banks recapitalized by tax payer money. All these bad loans and write offs are literally a transfer of wealth from the state to private entities.

[Stribog]

Originally Posted by SmartCat

It gives me great satisfaction to read about these frequent stock market scams, business scams and financial scams in the United States. Except for rare Enron-like accounting scam, I was under the impression that all Americans/Europeans are honest and incorruptible.

Now I don't feel THAT bad about corrupt Indian businessmen/ stock market operators and bank scammers.

Scams in Europe and USA are of orders of magnitude worse and in many cases the perpetrators get away free. Just a few I can remember.

Sub prime crisis - out and out scam by pretty much every institution in the value chain, banks, mortgage brokers, rating agencies and only 1 banker was found guilty of this near $500bn + scam! Get this, to investigate and find the guilty, Obama appointed Holder as the AG. This man was a high paid lawyer on wall street for banks and after this role went back to being lawyer for them. Talk about conflict of interest.

Interesting read on Holder

https://www.rollingstone.com/politic...he-cold-49262/

Bank drug laundering scam - many top US / European banks, Wachovia, HSBC all laundered $10's of billions of Sinaola cartel drug money, they even tied up with the cartel in Mexican branches to ease their deposit process, not one person has seen jail time.

Wells Fargo fake accounts scheme - this bank created millions of accounts for people who didn't ask for it, need it, weren't even aware of it. Even if you went in for an inquiry on a WF branch you will be saddled with 3 different relationships when you walked out, whistle blowers were sacked, careers ruined and a $185mn fine on a bank that makes $85bn in revenues annually.

Deutsche Bank rigged the prices of gold and silver to benefit it.

https://www.suissegold.ch/en/posts/d...fixing-scandal

Danske (Danish) bank laundering scandal + bonus Standard Chartered laundering scam. Danske bank has laundered $250bn worth funds from Russia. 10 Estonian branch employees arrested and the CEO resigned but aside from a $500 mn fine that's it.

SCB is a filthy bank with decades of laundering issues but they never ever fix it.

https://www.forbes.com/sites/frances...nancial-crime/

Libor scandal - every single major bank was involved in a cartel to rig the Libor. No exceptions.

These are just a few banking scandals in the past 20 years, not getting into accounting scandals, corporate malfeasance like Nestle and other areas.

Nestle for instance convinced mothers in Africa that powder milk was better than breast milk. Millions of babies were killed by Nestle and it is one of the largest organisations today!

https://m.ranker.com/list/nestle-bab...elissa-sartore


They found that millions of babies were dying of malnutrition and diarrhea resulting from diseases like kwashiorkor and marasmus, brought on by protein deficiencies. Doctors traced these afflictions to the increase use of baby formula. Due to the growing dependence on formula, babies' immune systems were less able to develop, fight disease, and allow a child to survive infancy

And I am not even touching on how till the 60's western firms used armies (of govts) as their private agents, like how AIOC(now BP) engineered a coup in Iran just because Iran wanted a 50% share in the revenues of its own oil.

Not even going into how many many reputed names to this very day have deep Nazi (Coke, VW, IBM to name just a few), Slave trading and Opium trading links.

The west is dirty, but one thing that they do well is cover it up with propaganda that makes us believe it is not.

[longhorn]

Originally Posted by Thermodynamics

Story of Ruchi Soya

This is not a scam yet, but there are ample alarms that need to be talked about.

There was a lot of buzz about this stock in the last few months. Well, when you are dealing with a company with shady credentials, there is only one right thing to do. Stay away!

Can you imagine while SBI is still trading below its book value and the SBI Cards IPO shares available even today at below their IPO list price, why in the world would a no name company with absolutely nothing to show for trade at such a high premium.

Always look at the fundamentals of a company, its shareholding pattern, promoters, promoter pledge and the amount of debt it has. If the fundamentals are good, your investment should generally grow in value in the long term.

[ValarMorghulis]

Originally Posted by Thermodynamics

Story of Ruchi Soya...
This is not a scam yet, but there are ample alarms that need to be talked about.

I heard a lot of buzz around Ruchi Soya but hadn't researched on it. Thanks for the information. What I found most interesting is after taking a loan from PNB, today Ruchi SOya's market cap exceeds PNB's!

Originally Posted by Behemoth

Another big one in recent times was Theranos, which claimed to revolutionize blood testing and had huge valuations of almost 9 Billion USD..

Theranos was as fraud as one could get to the extent that even the voice that Elizabeth Holmes used in addressing co-workers and investors was fake!

Originally Posted by Tucker48

2008 recession was a result of wrong financial model but was not a scam...

Marketing junk bonds as AAA on the behest of the rating agencies which get a commission from their sale and knowingly dumping worthless investments to gullible people isn't a wrong financial model but a clear case of fraud.

[Jaguar]

Originally Posted by Stribog

Wells Fargo fake accounts scheme - this bank created millions of accounts for people who didn't ask for it, need it, weren't even aware of it.

Looks like our own BSNL is trying to pull one like this. I have an old BSNL prepaid number in my hometown. Went to get the SIM replaced and I was asked to provide a new photo, ID/Address proof as well as some Rs.150. The lady in the counter provided me with two SIM cards stating that one was free and came with minimum amount loaded and I could recharge that and use if I wanted. Didn't think much about it at that time and I came back home. A couple of days later, I get an SMS acknowledging that they have received the SIM replacement charge, something in the lines of 50 odd rupees. Basically, the remaining 100 was for the new (free) SIM, which I was scammed to pay for.

[ValarMorghulis]

Another unbelievable scam is the 1MDB or 1Malaysia Development Berhad scandal (uncovered in 2015 and ongoing) and where the chief culprit, Jho Low, a Wharton Graduate, was accused of stealing ~$4.5 billion dollars. Yes, one person swindled $4.5 billion dollars from the Malaysian public through clever accounting, deceit, fraudulent bonds, and what not leading to Malaysian PM Najib Razak losing elections and facing criminal charges.

Low's chief antics were:
1. Portraying himself as the son of a Chinese billionaire and throwing lavish parties which got him the title of the "Asian Great Gatsby"
2. Spending $2million in one night on alcohol and $300 million in a couple of months on parties which were attended by top stars like Leonardo DiCaprio, Jamie Fox, Paris Hilton, Kanye West, Alicia Keys and scores of other Hollywood's celebrities. In fact Low dated Miranda Kerr who was later required to return the jewellery (worth $8million)given to her by Low. And oh yes, Britney Spears popped out of his birthday cake at a 2012 Vegas bash.
3. Low financed The Wolf of the Wall Street and hoped to become a huge production studio in Hollywood one day. He is credited in the movie. DeCaprio even thanked him during his Golden Globe winner speech
4. At one time, Low was about to buy the brand Reebok from Adidas for $1 billion but the deal fell through owing to the dubious source of the funds
5. Low even diverted money to the first lady of Malaysia (called Bag lady for her penchant for expensive bags) who was photographed with 500 luxury handbags, hundreds of watches, and 12,000 items of jewellery said to be worth up to $273 million
6. Low bought the super yacht The Equanimity for $250 million

Jho Low is currently a Cypriot citizen and on the run, under investigation in more than 10 countries.
The book, Billion Dollar Whale: The Man Who Fooled Wall Street, Hollywood, and the World by Tom Wright, Bradley Hope is a great source of insight in this scandal.

Sources:
Articel-1
Article-2
Article-3
Articel-4

[Stribog]

Originally Posted by Tucker48

2008 recession was a result of wrong financial model but was not a scam. 2015 film 'the big short' explains the 2008 crisis in a simple way.

2008 was a monumental scam, the Big Short explains only a tiny tiny portion of it, watch The Inside Job for maybe 25% of the picture.

Some of the outright scams and frauds -

Mortgage Selling Scam -

Here is one such paper (just 1 of 100's) describing one of the scams in mortgage selling.

http://www.nber.org/papers/w20947

Very simply put, unscrupulous mortgage lenders connived with bank due diligence officers and greedy customers to simply inflate incomes on lending forms.

Another paper says income inflation was rampant in sub prime loans, the Real estate brokers even termed it "Liar Loans".

http://www.mitpressjournals.org/doi/...2/REST_a_00387

As this was still troublesome to banks (as they needed to falsify income records) they invented the....

Low Doc / No Doc loans,

https://www.investopedia.com/terms/l..._doc_loans.asp

What is this? Well, you could for higher interest rates, borrow massive sums with little or no documentation, hence the Low Doc / No Doc loans.

This still needed some basic verification so banks came up with NINJA Loans,

No Income, No Job, No Assets (NINJA) loans. Yes That's right, a mortgage loan with no income, job or assets!

How is this fraud? Simply put, the chain was as follows,

Mortgage advisors (brokers) were making money from Banks

Banks were selling these essentially junk rated investments to investment funds

Ratings agencies willingly rated these junk as AAA

Investment funds who only invested in AAA are arguably the only players not at fault and purchased said loans.

Imagine today a PSU or Indian private bank offers housing loans and does the following,

1) DSA's start falsifying loans info and forging income statements?

2) To cover this up Banks offer loans with low documentation

3) However as banks still had to do due diligence and thus fail many of these loans, they

4) Invent a new category where anyone, literally anyone is eligible for a loan

5) Declare these disastrous loans as investment grade and sell it to LIC

6) When it all fails, take $ 100's of billions as bail out money

7) Declare crazy bonuses to their management team with said bail out money

Will you not scream fraud and ask for heads to roll?

I have not even touched 1% of the iceberg, i had the misfortune of being in product design for ALT A and HELOC loans in one of the largest (pre crash) sub prime institutions. Luckily for me, I Had a soul and left a solidly paying job because I just could not cope with the financial skulduggery that went on.

6 months later the institution went bankrupt was purchased by another large entity and a year later entirely shut down. At its peak it was making $ 450 mn in revenue (in 2002-3 money), $ 75 mn in profits and held in excess of $ 2bn in assets, and it literally went boom overnight. It was all fradulent money. Yes, they started out with an admirable agenda, offering loans to those with low credit and marginalised (Hispanics, Blacks) groups, but in 2-3 years it went from this to just falsify documentation, cheat 60 year old semi literate black ladies, anything just to make a quick buck!

[PrasunBannerjee]

Speaking of bubbles, how are we forgetting this?

This celebrity family kept blowing the bubble out of proportions always. Latest in the link is Kylie Jenner and her path to becoming a billionaire, at least by themselves. Few excerpt from the Forbes coverage, read the full article for details:

Earlier this year, Kylie Jenner sold half of her cosmetics company in one of the greatest celebrity cash-outs of all time. But the deal’s fine print reveals that she has been inflating the size and success of her business. For years.

Of course, white lies, omissions and outright fabrications are to be expected from the family that perfected—then monetized—the concept of “famous for being famous.” But, similar to Donald Trump’s decades-long obsession with his net worth, the unusual lengths to which the Jenners have been willing to go—including inviting Forbes into their mansions and CPA’s offices, and even creating tax returns that were likely forged—reveals just how desperate some of the ultra-rich are to look even richer.

Source (Forbes):
https://www.forbes.com/sites/chasewi...a-billionaire/

[rm_arjuna]

Chinese companies listing in US market exploiting a loophole in SEC rules .
several hundred Chinese companies were able to list on U.S. exchanges through a process called a reverse merger, which allowed them to enter the markets without the same level of scrutiny that most initial public offerings receive. US small investors and pension funds have lost billions of dollars and still unable to prosecute the culprits due to chinese laws .

[Tucker48]

Originally Posted by ValarMorghulis

Marketing junk bonds as AAA on the behest of the rating agencies which get a commission from their sale and knowingly dumping worthless investments to gullible people isn't a wrong financial model but a clear case of fraud.

The bonds became junk when the crisis took over. Rating agencies have failed time and again and have a biased view and that's why China and now India doesn't pay much attention to them anymore. In fact, most people are aware of that and that's why India receives good FDI with close to junk rating. Financial models and instruments work on a probability and risk factor. In a scam, it's certain that the money won't come back but here people hoped that the default rates would be under control. Yes people with ill intention may have scammed investors in the later stages of the crisis but the whole crisis can't be termed as a scam.

Originally Posted by Stribog

2008 was a monumental scam, the Big Short explains only a tiny tiny portion of it, watch The Inside Job for maybe 25% of the picture.

Some of the outright scams and frauds -

Mortgage Selling Scam -

Here is one such paper (just 1 of 100's) describing one of the scams in mortgage selling.

http://www.nber.org/papers/w20947

Very simply put, unscrupulous mortgage lenders connived with bank due diligence officers and greedy customers to simply inflate incomes on lending forms.

Another paper says income inflation was rampant in sub prime loans, the Real estate brokers even termed it "Liar Loans".

http://www.mitpressjournals.org/doi/...2/REST_a_00387

As this was still troublesome to banks (as they needed to falsify income records) they invented the....

Low Doc / No Doc loans,

https://www.investopedia.com/terms/l..._doc_loans.asp

What is this? Well, you could for higher interest rates, borrow massive sums with little or no documentation, hence the Low Doc / No Doc loans.

This still needed some basic verification so banks came up with NINJA Loans,

No Income, No Job, No Assets (NINJA) loans. Yes That's right, a mortgage loan with no income, job or assets!

How is this fraud? Simply put, the chain was as follows,

Mortgage advisors (brokers) were making money from Banks

Banks were selling these essentially junk rated investments to investment funds

Ratings agencies willingly rated these junk as AAA

Investment funds who only invested in AAA are arguably the only players not at fault and purchased said loans.

Imagine today a PSU or Indian private bank offers housing loans and does the following,

1) DSA's start falsifying loans info and forging income statements?

2) To cover this up Banks offer loans with low documentation

3) However as banks still had to do due diligence and thus fail many of these loans, they

4) Invent a new category where anyone, literally anyone is eligible for a loan

5) Declare these disastrous loans as investment grade and sell it to LIC

6) When it all fails, take $ 100's of billions as bail out money

7) Declare crazy bonuses to their management team with said bail out money

Will you not scream fraud and ask for heads to roll?

I never miss any of Matt Damon's film and probably the only actor who has an IQ of 160. Big short is quite easy to understand in layman's language. The hooker/real estate broker interview and the casino scene explains the whole idea. Who would have imagined in their right senses that housing market rates will fall so drastically. Real estate is one good collateral along with gold. If an investor is buying $1 at 80 cents then he is taking risk otherwise who will sell $1 at 80 cents.
Moreover, if a wealthy investor buys a property at 100 million, he gets a line of credit of 80 million on that property, then the investor buys another property at 80 million and again he gets a line of credit of 50 million on second property, then the investor buys a yacht for 50 million and gets a line of credit of 30 million on that yacht and so on and so forth. No income proof is needed and the world is full of banks like that. Of course this privilege won't be available for all but only for rich people who can invest large amount of money. But will we say that this is a scam! If we do then then the whole financial system which is based on dollar can also be termed as a scam. Iran not being able to sell it's oil in dollars therefore jacking up prices of other sellers can also be termed as scam. Alright there are financial sanctions or whatever but the end user is getting scammed as the prices would have been a little lower with more supply.
The idea is to separate the group of people who take risks to make money for themselves from the group of people who swindle money from others.