A once-popular children’s monthly magazine called Chandamama included myths and morality tales. It may now tell a different tale about how to make $125 million disappear. For embezzling $125 million generated through foreign currency convertible bonds, the Securities and Exchange Board of India (Sebi) issued an order on December 19 that essentially barred the magazine’s former owners from the securities market for a year (FCCBs).
The order prohibits “the Notice Nos.1 (Pankaj Kumar, Chairman, and Director of Geodesic Limited), 2 (Prashant Mulekar, Director and Compliance Officer of Geodesic Limited), and3 (Kiran Kulkarni, Managing Director of Geodesic Limited) from accessing the securities market and further prohibits them from buying, selling, or otherwise dealing in securities, directly or indirectly or being associated with the securities market in any manner, for one (01)
When the Bombay High Court decided to order the liquidation of Geodesic Ltd. roughly 10 years ago, Chandamama India Ltd., one of Geodesic Ltd.’s five subsidiaries, was put up for sale. After receiving a letter from the Bombay High Court’s Company Registrar in 2016, Sebi launched the inquiry. The letter informed the market regulator of a High Court ruling in HDFC Bank Ltd v. Geodesic Ltd, wherein the court instructed the market regulator and the Enforcement Directorate to take action against the directors of Geodesic Ltd and their tax advisor Dinesh Jajodia.
What was the scam?
The market regulator hired Sarath and Associates as a forensic auditor to go at Geodesic Limited’s (GL) records, and the audit turned out a web of businesses that were set up to transfer money to other parties. It started in 2008 with the FCCB fundraiser. The redemption deadline for the bonds was January 18, 2013. However, the beloved magazine was also placed up for sale when the High Court ordered the company’s bankruptcy since it had failed to repay the bonds by the due date.
The Sebi decision states that of the $125 million, $93.9 million was allegedly invested in the company’s subsidiary Geodesic Holdings Limited (GHL), and $26.8 million in GTSL; $3.52 million was allegedly used to pay FCCB’s expenditures. However, the notices included broad specifics of the money that went into GHL, whereas information concerning the money that went into GTSL was “conspicuously omitted,” as the whole-time member SK Mohanty stated in the ruling.
The Sebi order notes inconsistencies even in the use of funds given to GHL, such as a questionable book entry on a $20.1 million company acquisition, a $15 million transfer to a company for investment in treasury bonds that was accounted for insufficiently, and an $8 million acquisition whose justifications were found to be “wanting and grossly deficient.
The judgment also raised concerns about a $64.8 million loan made by GHL to Zemo Technologies, which invested the funds in two later-liquidated businesses. Zomo Technologies received the credit from Absolute Diversified Fund (ADF). Eland Crown, one of the two dissolved businesses, had Jajodia on its board of directors.
The Sebi ruling stated that rather than being a straightforward transaction as the Notices are projecting, the Company’s investment in ADF through Zemo “appears to be a dubious modus operandi chosen by the Notices to siphon off Company’s assets.
The forensic auditors claim that the FCCB funds—which are supposed to be used for advancing commercial activity through foreign acquisitions, investments in joint ventures, or subsidiaries—were improperly transferred to provide loans to businesses in which Jajodia had a direct financial interest. Such loan is forbidden by Reserve Bank of India (RBI) regulations.
The company’s alleged business, for which the funds were received, seemed to be a hoax built using phony receipts and uncashed checks. The investigative audit discovered that most of the transactions used to account for the usage of funds were false ones using shell firms.
According to the forensic audit report, which was cited in the Sebi order, “regarding the Audited Balance Sheets of The Company, it become discovered that the forensic audit of the books of bills for the years 2010–2011, 2011–2012,And 2012–2013 had been tested in detail, and the reputation of sales, purchases, returns, reserves, and surpluses had been non-existent.
The ledger copies were used to create simple adjustment entries for sales returns. Despite being recorded on the books, sales to foreign customers appeared to be nonexistent (based on certain samples). Geodesic Technology Solutions Limited (GTSL), a subsidiary of the corporation, never received any of the creditors’ checks, and therefore had no fixed assets.
There were large inter-corporate deposits made, but these were written off. The company’s recorded debtors turned discovered to be sham corporations. Vendors who charged a lot of money for software turned out to be phony businesses. Finally, because the sales booked were reversed, no reserves or surpluses were established.
According to a supplementary show cause notice, the monies were moved to other businesses in which Jajodia or his family members had a stake by paying fictitious/mule firms as suppliers and through other round-tripping/layered transactions (SCN). Two individuals testified during the Sebi inquiry that they had been introduced to Mulekar through Jajodia to produce phony bills in exchange for a commission. The six firms that issued the bills would get money from GL, and they would distribute it to other parties as directed by Jajodia.
While these transactions seemed to be vendor payments, the forensic auditor also saw that GL conducted financial transfers to businesses associated with Jajodia, even though these transfers appeared to have no apparent business purpose. Both the statutory auditor’s report and the books of accounts did not contain any information on the specifics of these transactions.