A large scam has emerged in the Bangalore Development Authority (BDA) with finance members investing money in equity mutual funds and trying to cover this up across different organizations.
Apparently, Sandeep Dash, former finance head of the BDA and the Bangalore Metro Rail Corporation (BMRCL) was a finance member in the BDA from 1997 to 2005 and:
- allegedly created illegal temporary bank accounts (without the notice of the BDA board)
- transferred money to those accounts and then into mutual funds, and the amount seems to be a staggering Rs. 2,202 cr.
- told the board that the money was in fixed deposits (only 100 cr. was authorized to be in certan mutual funds)
- Used oral instructions to transfer money around (so no trace was visible)
- Another Rs. 5 cr was transferred to the Coffee Board, when Mr. Dash’s wife, Sharada Subramanyam, was finance director. (Source)
Dash was succeeded by Seshappa, who didn’t do things differently. He also transferred Rs. 567 cr. of BDA’s into mutual funds. He also transferred Rs. 3 crore to BMRCL – when Dash was the finance member there. Why? Piecing together some information, it seems Dash had invested Rs. 30 cr. of the BMRCL money into equity mutual funds, which then saw a loss of Rs. 3 crore.
When this was discovered, Dash was told to compensate or face an inquiry, and Dash apparently “got Rs. 3 cr. transferred” from the BDA.
The 3 Cr. Did Them In
In 2014, while examining accounts, the CAG brought to the state governments notice that there was an unexplained transaction of Rs. 3 cr. from BDA to BMRCL. The BDA officials asked the Karnataka Institute of Public Auditors (KIPA) to investigate. What they found was the much larger scam involving Dash, Seshappa and C. Vasanth Kumar, who was the cashier at the BDA.
KPA went through BDA’s accounts from 1997 to 2014. It found that Dash and cashier Vasanth Kumar had diverted funds from BDA’s main account to mutual funds of Birla Sun Life through agents. However, they allegedly showed this as fixed deposits made with banks at an interest of 8.5%. Mutual funds did exceedingly well in this period and earned profits of over 8.5%.
According to the FIR, they later opened four different accounts in Indian Overseas Bank and Corporation Bank in the name of BDA (Financial Member) without the knowledge of BDA bosses.They allegedly asked mutual fund companies to issue two cheques for the profits earned. One, with an amount for 8.5% interest earned, in the name of BDA’s main account and the remaining in the name of BDA (financial member).
Sheshappa, who succeeded Dash, allegedly decided to follow the same game plan. The cashier’s residential address was given as the official correspondence address in mutual fund accounts. They had mutual funds in their names with the cashier’s personal e-mail ID given for correspondence. Dash had issued a letter to Indian Overseas Bank to transfer BDA funds to whichever accounts he decided on his oral instructions. This letter was obtained by the BDA from the bank.
The FIR says the strategy worked as long as MFs were earning profits. However, the accused allegedly began to fudge accounts when mutual funds witnessed a nosedive during the recession post-2008.Despite MFs going into losses, they began to show remittance of 8.5% interest against the non-existing fixed deposits in the BDA’s record books. However, the bank account of BDA did not reflect this remittance.
The whole thing unravelled after Vasanth Kumar was arrested. In rejecting his anticipatory bail plea, Judge A.V. Chandrasekara details what the allegations were against Kumar, and how the three attempted to disguise the money as if it was invested in Bank Deposits. Also they have rotated money around:
11. The returns on investments in mutual funds have been transferred from one bank to another bank and from one mutual fund to another mutual fund leading to confusion and thereby giving no scope for reconciliation.
This mega-scam will probably still have a decent ending – if the money is in mutual funds, and invested from the BDA, they can still recover the money. The fund house is apparently Birla Mutual Fund, and surely, they can provide information on how much money is still there.
But the investing might not even be the real reason why this entire thing was done.
The Deal: Commissions?
During this time – 1999 to 2005 – a mutual fund investment would yield 2.25% front end loads. Even if the BDA recovers the money (which sits in mutual funds and obviously can be returned, and will probably have multiplied by now if invested in equity funds) the point would be that 2.25% has been paid to an intermediary, who would probably also have earned about 0.5% each year.
For a sum of Rs. 2,200 cr. that would mean an upfront commission of Rs. 50 cr. and an ongoing trail commission, every year, of Rs. 11 cr. Who’s getting this money? That money, if it trails back to Dash, Seshappa and Kumar, is probably the real deal behind all these transactions.
If it comes down to it, all the money is recoverable (probably), but even then, a massive amount of money has since been diverted in the form of commissions. The trio might not have planned to take out BDA’s money directly, but are likely to have profited from the commissions instead. Corruption has many faces, and this is the worst – when public officials abuse their positions to make decisions that personally benefit them.
The three are under arrest, but there’s probably more that will be revealed. This is good investigation, and we’re finally seeing an effort to get to the black money generated. Let’s see what comes out of this.
