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UTI
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The Unit Trust of India is the largest mutual fund in the country
created in 1964 through an act of Parliament. UTI's scheme of US-
64 was set-up specifically to channel small savings of citizens into
investments giving respectable returns/interest.
The US-64 scheme had 2 crore investors, the bulk of whom were
small savers, retired people, widows and pensioners. US-64 has
been most popular, giving returns as high as 18% in 1993 and
1994.
In 1998, the UTI crashed, and the BJP-led NDA government
organised Rs. 3,500 crore bail-outs to UTI. BJP Government
appointed P.S. Subramanyam as the new UTI chief, as he had the
backing of the PMO.
It was also said that Jayalalitha had pressurized the NDA
government for appointing Subramanyam, in lieu of her
continuing support to the Centre. Subramanyam
strengthened his relationship with corporate big-wigs with
the help of Small investor’s funds deposited with UTI,
showered favours on Government favourites, and
invested huge amounts in junk bonds.
In August 2000, after prices of software stocks had begun
to crash, Subramanyam (UTI) purchased 3.45 lac shares
of a relatively unknown company "Cyberspace Infosys
Ltd." at a huge price of Rs. 930 per share.
Cyberspace promoters, Arvind Johri and Anand Johri have RSS
connections. Initially the UTI hierarchy had opposed purchase but
subsequently, after four days, agreed to the purchase. In less than
a year's time, the share price plummeted to just Re. 1.
This investment, coupled with other shoddy investments, resulted
in staggering financial losses to the UTI and investors. Within no
time the bigwigs redeemed their investments with UTI, amounting
to Rs. 4,000 crores.
The shameful part is that they were re-purchased at the price of
Rs. 14.20 per unit (face value Rs.10), when in fact its actual value
(net asset value) was not more than Rs. 8. As a result, UTI’s small
investors lost a sum of Rs. 1,300 crores
Former UTI chairman P S Subramanyam and two
executive directors -- M M Kapur and S K Basu -- and a
stockbroker Rakesh G Mehta, were arrested in connection
with the 'UTI scam'.
The promoter of Cyberspace Infosys, Arvind Johari was
also arrested in connection with the case.
Liberalisation of the economy immediately led to the
liberalisation of the UTI. Further liberalisation was
pushed by Chidambram, as the finance minister of
the UPA government, who, in 1997, removed all
government nominees from the board of the UTI.
Besides, the US-64 does not come under SEBI
regulations, its investment delails are kept secret and
the chairman has arbitrary powers to personally
decide an investment upto a huge Rs 40 crores.Such
‘liberalisation’ is tailor-made for frauds.
The UTI continued to purchase infamous K-10 list of Keten Parekh stock,
such as Himachal Futuristic, Zee Telefilms, Global Tele, DSQ, etc. shares even
when their market value began to crash in mid-2000, in order to prop up the
share values of these stocks.
The UTI also invested in junk bonds like Pritish Nandy communications (Rs.
1.5 crores), Jain Studios(Rs.5 crores), etc. This amounted to nothing but
handing over people’s money (investments) to the rich and powerful.
Thereby thousands of crores were siphoned off to big business and
prominent individuals, with the UTI chairman, bureaucrats and politicians
taking their cuts.
.
With knowledge that the UTI was in a state of collapse, the
Chairman organised a high profile propaganda campaign
promoting UTI .while at the same time leaking information to the
big corporates to withdraw their funds. The Chairman thereby
duped the lakhs of small investors through false propaganda.
On July 4, 2001 the board of UTI took the step of freezing the
purchase and sale of all US-64 UTI shares for six months.
Simultaneously it declared a pathetic dividend of 7% . which is
even lower than the interests of the banks and post office saving
schemes. In other words the 2 crore shareholders could not re-
invest their money elsewhere — and would have to passively see
their share price erode from Rs. 14 to Rs 8.
In the wake of these developments, Subramanyam was forced
to resign. Finance Ministry did not order a probe into what went
wrong with the investment pattern of the US-64, which resulted
in the suspension of the scheme and loss to small investors.
Imagine the plight of a retired person who
would have put a large part of his/her PF,
gratuity etc. in the US-64 scheme, considering it
the safest possible investment. Not only has the
person’s income halved overnight, he/she also
stands to lose a large part of the investment.
The entire middle class is being robbed of their
savings by the govt. sponsored mutual fund.
Both the Union government and the Unit Trust of India
(UTI) have failed to take any action against UTI officials,
as well as against corporates exposed by the Tarapore
committee way back in January 2002.
The final JPC report had recommended an enquiry of
the secondary market transactions done by UTI in shares
of 89 companies identified by the Tarapore committee.
Both the government and UTI have failed to finalize any
proceedings against the accused other than referring a few
cases to the Advisory Board on Banking, Commercial and
Financial Frauds .
Some of the companies involved in these cases include
Global Tele, DSQ Software, Essar Oil, Zee Telefilms, Essar
Steel and HFCL.
After the Tarapore committee report unearthed the deals
between UTI officials and leading corporate, UTI ordered an
audit of the investment decisions taken in 19 firms. But no
action has been taken against these companies or against
the concerned UTI officials.
.
The UTI administrator has informed the government
that with reference to civil proceedings against ex-
chairman PS Subramaniam and other former UTI
officials, "UTI is seeking an external legal specialist
and further action will be considered on their advice."
On UTI's role in the Calcutta Stock Exchange
payment crisis, the government has directed SEBI to
intervene in the matter.
Fearing a run on the institution and possible impact on the
whole market Government came out with a rescue package
and change of management in 2001.
The UTI Act was repealed and the institution was bifurcated
into two parts UTI Mutual Fund was created as a SEBI
registered fund like any other mutual fund. The assets and
liabilities were taken over directly by the Government in a
new entity called Specified Undertaking of UTI, SUUTI.
In order to distance Government from running a mutual
fund the ownership was transferred to four institutions;
namely SBI, LIC, BOB and PNB, each owning 25%.
Certain reforms like improving the salary from PSU
levels and effecting a VRS were carried out .
PROCEEDINGS
Aug 14, 2001
Arvind johari, promoter of lucknow-based cyberspace infosys ltd,
held on the charge of misappropriating unit trust of india funds to
the tune of rs 32.08 crore, on conditional bail by a special court.
the designated judge, S R mehra, released him on bail in the sum
of rs 7.5 lakh with one or two sureties of the like amount. in the
alternative, johari was allowed to furnish cash bail of rs 7.5 lakh.
The registrar of the court was directed to issue an urgent memo to
the superintendent of central prison to hand over the custody of
johari to the CBI so that he could be taken to lucknow for
production in another case pending against him.
He was restrained from visiting offices of UTI and financial
institutions such as LIC, GIC, SBI capital market and BSE.
johari's lawyer Mahesh jethmalani argued that his client was in
custody since july 24 and had cooperated with the investigating
agency. his custodial interrogation was not required because
documents had already been seized by the CBI.
CBI prosecutor, Gopal sharan, on the other hand, argued that
johari was the brain behind the uti scam and would tamper with
evidence if bail was granted. his role vis-a-vis co-accused and
his nexus with other persons or public financial institutions
could be unearthed even if johari was not in custody, the judge
felt. "i am therefore inclined to grant him bail on certain terms
and conditions," remarked special judge s r mehra. the judge,
however, made it clear that if johari sought bail from the
magistrate's court in lucknow he should make himself available
to the cbi in mumbai as and when required in the uti scam
case. perusing case dairies and remand application, the judge
remarked, "they show that investigation is progressive and
regular."
on august 7,
the court granted bail to co-accused, p s subramanyam
(former uti chairman), s k basu and m m kapur (suspended uti
executive directors) and broker rakesh mehta. the accused
are charged with conspiracy to cause wrongful loss to uti to
the tune of rs 32.08 crore by subscribing to 3,45,000 shares
of m/s cyberspace infosys in a private placement at an
exhorbitant price of rs 930 per share.
CBI alleged that uti officials, subramanyam, kapur and basu
had allegedly reversed their own decision taken earlier to
reject the offer of buying these shares. the agency alleged
that johari had paid rs 50 lakh bribe to these officials through
broker rakesh mehta to strike the deal. opposing his bail, the
CBI said that johari was the main brain behind the entire
conspiracy and had masterminded misappropriation of funds
to the tune of rs 32.08 crore. .
UTI lost its market dominance rapidly and by end of
2005,when the new share-holders actually paid the
consideration money to Government its market share had
come down to close to 10%!
A new board was constituted and a new management
inducted Systematic study of its problems role and
functions was carried out with the help of a reputed
international consultant.
Fresh talent was recruited from the private market,
organizational structure was changed to focus on newly
emerging investor and distributor groups and massive
changes in investor services and funds management carried
out.
Once again UTI has emerged as a serious player in the
industry.
Some of the funds have won famous awards, including
the Best Infra Fund globally from Lipper.
UTI has been able to benchmark its employee
compensation to the best in the market, has introduced
Performance Related Payouts and ESOPs
PRESENTED BY:
Arun Gupta
Isha bandral
Lakhan khajuria
Shivali sharma